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)

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