Saxo Spotlight: What’s on investors and traders radars this week?
Macro

Saxo Spotlight: What’s on investors and traders radars this week?

APAC Strategy Team

Summary:  Investors and traders are earnestly assessing the tug of war between inflation and recession. The sharp fall in industrial metal prices, weak U.S. ISM Manufacturing survey and downward revision of Atlanta Fed’s GDPNow model estimate for U.S. Q2 GDP to negative 2.1% have caused angst among investors and traders. This week, focus will be on the nonfarm payrolls, average hourly earnings and unemployment rate from the U.S. In Asia, China’s Caixin Services PMI and aggregate financing data and policy rate decisions from the Reserve Bank of Australia and Bank Negara Malaysia will capture more attention.

Quarterly outlook released

Saxo’s Q3 quarterly outlook title “The Runaway Train” will be released this week which argues that the world is changing from high economic visibility and low inflation to one of high volatility and high inflation. Central banks are struggling to catch up and the only real way to kill the runaway train that is inflation could be forcing the world into recession. Due to global uncertainty, under-investing in energy infrastructure and supply chain challenges, there are only difficult solutions to this issue that each come with their own range of problems. To know more on our investment themes for Q3, join the webinar by SaxoStrats on Thursday, July 7.

FOMC minutes may be dated, ISM services and jobs report to be parsed for recession concerns

The FOMC minutes from the June meeting are due Wednesday, and will likely continue to signal a hawkish Fed stance as inflation remains considerably above their target. The Fed is likely to signal a 50/75bps rate hike for July and a rapid move to neutral, after which it will likely slow down. With markets running ahead on pricing recession concerns, focus will be on ISM services print this week after the manufacturing survey last week indicated a broad-based weakness across new orders and employment. Still, the rhetoric on "robust labor market" will be the key test for the markets on Friday with Bloomberg survey expecting a slowdown to 273k jobs growth in June from 390k last month. Unemployment rate is expected to remain unchanged at 3.6% while average hourly earnings will likely slow down to 5% y/y from 5.2% in May.

Reserve Bank of Australia (RBA) set to raise rates this week

The Reserve Bank of Australia (RBA) is widely expected to rise interest rates by 0.5%, on Tuesday taking the cash rate to 1.35%. However at Saxo, we think the RBA will hike rates by 0.75% , taking the cash rate to 1.6% in an attempt to bring inflation pressures in check. If executed, it will be the biggest hike since 1994. So far we’ve observed the RBA getting inflation forecasts wrong. Australia’s Federal Treasurer has also conceded the RBA’s inflation forecast of 7% YOY inflation is ‘widely off the mark’. Higher food, fuel and utility prices are pushing up inflation and pressures on even higher rises in wages.  The RBA’s guidance, comments on inflation outlook and the labour market will be closely watched. The AUD will likely be bid/ see rally if the RBA rises rates more than the 0.5% expected.

Japan’s wages and upper house elections

With Japan’s inflation prints sustaining above the key 2% level, the key concern is now whether the economy begins to see any wage pressures.  Japan's labor cash earnings and real earnings are due Tuesday, which remain volatile, will be key to watch. The Japanese Trade Union Confederation is also scheduled to release final data about the results of the 2022 spring wage negotiation (shunto) on Tuesday.  Preliminary data as of May 31 shows a 2.09% increase in wage (versus +1.78% in 2021). The BoJ has been counting on benign wage increases to justify its extra-ordinary loose monetary policy. Japanese Prime Minister Fumio Kishida's ruling coalition is expected to keep its majority in a July 10 election for parliament's upper house that comes as his support has sagged among voters concerned about rising prices and a weak yen. But the LDP remains the party of choice for voters who have kept it in power almost continuously since its formation in 1955 and see it as offering a steady hand in guiding the world's third-largest economy. With the election in mind, Mr. Kishida has already unveiled a raft of inflation relief measures to keep a lid on price gains.

China’s Caixin Services PMI and Aggregate Financing Data

The official NBS Non-manufacturing PMI came at 54.7 which was mainly due to a sharp improvement in the service sector sub-index, jumping to 54.3 in June from 47.1 in May.  The stronger-than-expected performance of the service sector was mainly due to the reopening from lockdown in Shanghai and other cities and the release of pent-up demand for hospitality services.  June Caixin Services PMI is scheduled to release on Tuesday.  As the Caixin survey covers more on private enterprises and SMEs which were worst hit in this downturn, Bloomberg consensus is calling for a reading of 49.0 in June, which will be a notable improvement from May but still in contractionary territory.  China is releasing aggregate financing data between July 9 and 15.  Market economists are expecting a small pickup in the year-on-year growth of aggregate financing and loans. 

Clusters of Asian Inflation Data

China is scheduled to release PPI and CPI on Friday.  As per Bloomberg survey, market economists are expecting China PPI to moderate to +6.0% YoY in June (versus +6.4% in May) while CPI to climb to +2.5% in June (versus +2.1% in May).  The rise in CPI attributes to a low base and sequential rise and a smaller year-on-year decline in pork price in June.  CPI inflation in South Korea, Taiwan, Thailand and the Philippines are all expected to climb, led by energy, food and import prices.

Bank Negara Malaysia may be set to go for a jumbo rate hike

After its first rate hike of the current cycle in May, Bank Negara Malaysia (BNM) is possibly now fighting the same battle as many other central banks – whether to go for a 25bps or 50bps rate hike. Headline inflation rose to 2.8% y/y in May, up from 2.3% y/y previously, while core inflation reached its highest levels in almost five years at 2.4% y/y. Wage pressures have also been picking up, suggesting that the rising inflation may be sticky and become broad-based. While the central bank had guided for a gradual tightening pace at the last meeting, rising inflationary pressures, Fed’s 75bps move in June (and another similar hike expected in July) as well as the fact that BNM only meets once in two months means the central bank may be tempted to be more aggressive, and we will know that on July 6.

Indian equities on watch following windfall taxes on oil firms

India slapped taxes on fuel exports and local crude oil production to tap windfall gains from surging global oil prices, targeting overseas sales of gasoline, diesel and aviation fuel. Meanwhile, import taxes on gold were also hiked. These measures are aimed at capping the ballooning fiscal and trade deficit which is weighing on the rupee. Reliance Industries (RIGD) plunged on the news on Friday, while Gold (XAUUSD) slid below the psychologically important $1,800/oz level for the first time since mid-May. Further pressure on Indian equities – especially oil and gas - and Gold can be expected be in the week ahead.

Equities kick off a half year; volatility tipped to rise as more layoffs are expected ahead of earnings season kick off

With layoffs increasing across different industries from the EV market (Tesla and VW), to travel and tourism (Air France), to Pharma, to Cryptos (Coinbase), this week we will be watching for more potential layoffs, as some businesses brace for a possible recession. Facebook parent Meta (META)  has warned employees, it needs to “execute flawlessly in an environment of slower growth” saying employees shouldn’t expect “influxes of new engineers and budgets”. Ahead of US reporting season kicking off July 11, you might expect more layoffs to be announced. This week Samsung Electronics (005930) quarterly earnings will be released and watched, along with its outlook which could give an indication for what we might expect from Apple (AAPL) when they report July 29. And you’d think the personal electronics giants will report that revenue and income will grind lower for the rest of 2022 and into 2023.

Key economic releases & central bank meetings this week

Monday July 4
U.S. Markets Closed (Independence Day)
Eurozone Sentix Survey (Jul)
Eurozone PPI (May)

Tuesday July 5
U,K. BoE Financial Stability Report
France Industrial Production (May)
Spain PMI Comp (Jun), Italy PMI Composite (Jun), Eurozone PMI Services (Jun-fin), Eurozone PMI Composite (Jun-fin)
UK PMI Services (Jun-fin), UK PMI Composite (Jun-fin)
China Caixin PMI Services (Jun)
Japan Shunto Spring Wage Negotiation Final Data (2022)
Australia RBA Policy Meeting (Jul)
S. Korea CPI (Jun)
India Market Services PMI (Jun)
Singapore Retail Sales (May)
Thailand CPI (Jun)
Philippines CPI (Jun)

Wednesday July 6
U.S. ISM Services (Jun)
U.S. JOLTS Job Openings (May)
U.S. FOMC Meeting Minutes (Jun)
Germany Factory Orders (May)
Spain Industrial Production (May)
Eurozone Retail Sales (May)
U.K. PMI Construction (Jun)
Malaysia BNM Policy Rate (Jul)

Thursday July 7
U.S. Initial Jobless Claims
Germany Industrial Production (May)
Japan Economic Coincident Index (May)
China FX Reserves (Jun)
S. Korea Current Account Balance (May)
Australia Exports, Imports & Trade Balance (May)

Friday July 8
U.S. Nonfarm Payrolls, Average Hourly Earnings & Unemployment Rate (Jun)
Italy Industrial Production (May)
Japan Current Economic Condition Index (Jun)
Japan Consumer spending (May)
Japan Current account (May)
Malaysia Industrial production (May)  

Saturday July 9
China PPI (Jun)
China CPI (Jun)

July 9-15
China Aggregate Financing (Jun)

Key earning releases this week

Wednesday July 6: Aeon Co Ltd (8267.JP)

Thursday July 7: Seven & i Holdings (3382.JP), Gushen Inc (GSHN.US), LG Electronics (066570.KS), Samsung Electronics (005930.KS)

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.