ECONOMICS COMMENTARY — Jul 28, 2023
Week Ahead Economic Preview: Week of 31 July 2023
The following is an extract from S&P Global Market Intelligence's latest Week Ahead Economic Preview. For the full report, please click on the 'Download Full Report' link.
Worldwide PMIs, BOE, RBA meetings and US payrolls in focus
The week ahead features another busy schedule before the diary starts to quieten down for the holiday season. Highlights include global PMI surveys, US nonfarm payrolls, eurozone GDP and central bank meetings in the UK, Australia and Thailand, not to mention the ongoing US earnings season.
The policy focus shifts to the Bank of England and Reserve Bank of Australia in the coming week, as central bank watchers wait to see if policymakers follow the US Fed and ECB in hiking interest rates again. Another hike is widely expected for both banks. However, a rise by the RBA is by no means a done deal, and there is great uncertainty resting on whether the BoE will err on the side of caution and plum for a 25 rather than 50 basis point rise. Forward guidance will of course also be carefully scrutinised, alongside the Bank of England's Monetary Policy Report, to assess whether these will be the last hikes before a pause. Most likely is that policymakers are likely to keep options open by stressing the need to be data dependent.
The Federal Open Market Committee (FOMC) meeting unfolded largely in accordance with market expectations, seeing a 25 basis points hike and policymakers retaining their flexibility on the path forward as the data flow unfolds. A key factor that will continue to shape monetary policy expectations will therefore be the labour market update for July. Further indications of a tight labour market are expected, though the pace of nonfarm payroll additions is expected to slow. This is in line with flash PMI signals. A key focus will no doubt also be with wages, as any surprises on the upside pertaining to wage growth will potentially fuel concerns of stubborn inflation, and adds to risks of further Fed tightening in September.
In the eurozone, the ECB has retained a hawkish tone, hiking rates again in July to an all-time high for the single currency area. Justification for the rate rise will likely be lent weight by news in the coming week of eurozone GDP growth having picked up in the second quarter. However, the national accounts data are backward looking, and markets are likely to remain focused on the final PMI numbers, the flash estimate of which pointed to a deepening downturn in the third quarter.
Inflation figures from the eurozone, Indonesia, South Korea and Switzerland will also offer greater insights into price developments in various parts of the world.
UK recession?
The Bank of England comes under the spotlight in the coming week as its Monetary Policy Committee meets to set interest rates, a meeting which is accompanied by the updated projections for growth and inflation in the Bank's quarterly Monetary Policy Report.
Although consumer price inflation showed a faster than expected cooling in June, the improving picture merely shifted market expectations to a quarter point rather than half point rate hike at the August meeting. After all, inflation has merely fallen to 7.9% against a target of 2%.
S&P Global Market Intelligence economists see the MPC having to hike rates further still later in the year as they seek to quash the stubbornly high inflation, in turn driven by rising wage pressures. The upshot will be a UK recession, albeit mild, according to our forecasting team; something which certainly seems to be a growing risk when the PMI data are charted against Bank of England policy rates (see chart). With the lagged impact of prior rate hikes appearing to take an increasing toll on business activity, growth of which came to a near stand-still in July according to the flash PMI data, the risks of GDP falling into decline look high as rates are hiked further.
The big question is whether the worsening economic outlook is enough to stay the Bank of England's hand and cause a pause in policy tightening after August. The final PMI data for July, also due out in the coming week, will therefore be eagerly assessed.
Read more about our recent forecasts: Persistent headwinds hinder global growth prospects | S&P Global (spglobal.com)
Key diary events
Monday 31 Jul
Japan Industrial Production and Retail Sales (Jun)
Japan Consumer Confidence (Jun)
China (Mainland) NBS PMI (Jul)
Germany Retail Sales (Jun)
Thailand Current Account (Jun)
Thailand Retail Sales (May)
Hong Kong SAR GDP (Q2, advance)
Germany GDP (Q2, flash)
Italy GDP (Q2, flash)
Eurozone GDP (Q2, flash)
United Kingdom Mortgage Lending and Approvals (Jun)
United Kingdom Nationwide Housing Prices (Jul)
Tuesday 1 Aug
Switzerland, Thailand Market Holiday
Worldwide Manufacturing PMIs, incl. global PMI* (Jul)
Japan Unemployment Rate (Jun)
South Korea Trade (Jul)
Philippines PPI (Jun)
Australia RBA Interest Rate Decision
Australia Building Permits and Home Loans (Jun)
Indonesia Inflation Rate (Jul)
Hong Kong SAR Retail Sales (Jun)
Eurozone Unemployment Rate (Jun)
United States JOLTs Job Openings (Jun)
United States ISM Manufacturing PMI (Jul)
Wednesday 2 Aug
New Zealand Employment (Q2)
South Korea Inflation (Jul)
Japan BOJ Meeting Minutes (Jun)
Thailand BOT Interest Rate Decision
United States ADP Employment Change (Jul)
Thursday 3 Aug
Worldwide Services, Composite PMIs, inc. global PMI* (Dec)
Australia Trade (Jun)
Australia Retail Sales (Jun, final)
Germany Trade (Jun)
Switzerland Inflation (Jul)
United Kingdom BOE Interest Rate Decision
United States ISM Services PMI (Jul)
Friday 4 Aug
Philippines CPI (Jul)
Australia RBA Monetary Policy Statement
Singapore Retail Sales (Jun)
Germany Factory Orders (Jun)
Eurozone Retail Sales (Jun)
Canada Employment (Jul)
United States Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings (Jul)
S&P Global Sector PMI* (Jul)
* Press releases of indices produced by S&P Global and relevant sponsors can be found here.
What to watch
Worldwide manufacturing and services PMI for July
Following the release of flash PMI data, worldwide manufacturing, services and composite PMI data will be updated in the coming week to offer a comprehensive view of economic conditions around the world and across sectors.
Flash PMI from four largest developed world economies (the "G4") indicated cooling developed world economic growth at the start of the third quarter. This was accompanied by mixed signals on the prices front, which is significant given the implications for monetary policy trajectories (see special report). As such, worldwide PMI readings will be of interest to study the country-specific trends. Additionally, sector data, due August 4th, will offer more specific industry insights, with consumer resilience a key hotspot.
Americas: US and Canada jobs reports, ISM PMI
Monthly labour market updates from the US will be due Friday with the consensus pointing to sustained solid non-farm payroll additions of around 184k, an unchanged unemployment rate of 3.6% and further wage growth of around 0.3%. This is in line with July's S&P Global Flash US Composite PMI indications, which suggested that higher salaries were keeping cost pressures on the rise.
Europe: UK BOE meeting, Eurozone GDP
The Bank of England convenes with a difficult decision to make between falling inflation, as seen via June's official data, and a sustained rise in wage growth. Stubborn upward cost pressure in the service sector were further confirmed with more up-to-date flash PMI data for July, though the overall pace of inflation looks set to cool further. Thus, while the BOE may opt not to lift interest rates by the expected 50 basis-points (bps) going into the meeting, a smaller 25 bps hike is not ruled out. The focus will be on the languages from the presser in terms of whether this will represent a peak.
Besides the final PMI readings, a second quarter eurozone GDP will be released, including national detail for Germany and Italy, as well as eurozone retail sales. In the UK, mortgage approvals will be eagerly awaited.
Asia-Pacific: RBA, BOT meetings, China PMIs
In APAC, country and sector PMI will be due next week while the attention will also be on central bank meetings in Australia and Thailand. The RBA meeting is likely to be particularly interesting as analysts are divided on the likely decision, albeit with the odds leaning towards a further hike.
Special reports
Flash PMI Signal Further Cooling of Developed World Economic Growth in July - Chris Williamson
APAC Merchandise Exports Remain Weak in First Half of 2023 - Rajiv Biswas
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Purchasing Managers' Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
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