Weekly Economic Overview
This week starts off pretty quietly on Monday, without any major data expected to shake up the Forex market. However, come Tuesday, all eyes in Australia will be on the RBA’s monetary policy announcement. In the UK, we’ll get a look at the average revenue index over three months, along with updates on claims and unemployment figures. The U.S. will be focusing on inflation data as the key highlight for the day.
Wednesday looks to bring insights from the Australian Wage Price Index and the Bank of Canada (BOC) discussions. A busy Thursday will see Australia releasing employment changes and unemployment rates while the U.S. presents its PPI month-on-month and unemployment claims.
On Friday, the U.S. will release retail sales month-on-month, along with preliminary consumer sentiment and inflation expectations from the University of Michigan.
This week, many analysts expect the RBA to lower the cash rate by 25 basis points, from 3.85% down to 3.60%. Interestingly, during their last meeting, the bank surprised many by keeping rates steady, citing consistent inflation, robust household spending, and a tough labor market as key reasons.
Yet, recent data has painted a more cautious picture, according to insights from Wells Fargo. Inflation showed signs of easing in the second quarter, with headline consumer prices dropping below expectations, but still remaining comfortably within the RBA’s target range. The labor market also seems to be slowing, with job growth in June falling short of estimates and unemployment sitting at 4.3%.
Wage growth numbers that will come out after the meeting are going to be crucial since they could significantly influence future policy decisions. Market expectations hint at potential further rate cuts in November and into next year, but, of course, that all hinges on incoming data and the global uncertainty we’re facing.
Moving to the UK, the average revenue index for three months is expected to land around 4.7%, which is a drop from the previous 5.8%. Change in claims is projected at 20.8k, revised down from 25.9k, with unemployment estimated to remain at 4.7%.
The Bank of England took a surprisingly mild approach in its policy decision in August, despite noticeable declines in the labor market over the last few months. It’s noteworthy that while this month’s employment report could signal another sharp drop in hiring, previous figures have often seen upward revisions in later reports.
As for the U.S., the forecast for core CPI month-on-month stands at 0.3%, up from the prior 0.2%. Looking at the overall CPI month-on-month, it’s estimated to be around 0.2%, comparing to 0.3% earlier, while CPI year-on-year is expected to be 2.8%, a slight increase from 2.7%. This week’s data is going to be critical for figuring out if the Fed will consider cutting rates. July’s inflation numbers may suggest that prices continue to rise.
In fact, core CPI saw a month-on-month increase of 0.3%, marking the strongest growth in six months and nudging the year-on-year rate back to 3.0%. This uptick seems to reflect rising product prices that service costs haven’t mitigated. Meanwhile, headline inflation is poised for a modest 0.2% increase, buoyed by decreasing gas prices and slower food price growth.
According to Wells Fargo, it’s still a bit tricky to discern who’s bearing the brunt of the tariffs. Domestic producers or foreign exporters may be more affected. Prices are expected to rise, but consumer fatigue could hinder any quick acceleration in spending. The market anticipates a 25 basis points Fed rate cut come September, mainly due to signs of a weakening labor market.
Back in Australia, employment change is forecasted at 25.3k, compared to just 2.0k last time, with unemployment expected to dip slightly from 4.3% to 4.2%.
However, Australia’s June employment report didn’t meet expectations. Employment only grew by 2.0k, falling short of the anticipated 20k, while the unemployment rate climbed to 4.3%, the highest since 2021. July’s labor numbers will be closely watched to see if this trend of weak employment and rising unemployment continues.
In the U.S., core retail sales month-on-month is predicted to be 0.3%, down from 0.5% previously, while overall retail sales month-on-month is expected at 0.5%, slightly lower than the prior 0.6%. Nevertheless, Wells Fargo’s analysts forecast a 0.6% jump in retail sales for July.
A recent surge in car sales, which have increased at a yearly pace of 7% since June, along with higher prices, is largely driving this. Apart from vehicles, sales are projected to rise just 0.3%, hinting that overall sales might appear flat for the month. Recent patterns indicate a shift in consumer behavior, showing growing caution. Spending on discretionary items has dropped for three months straight, and the same goes for discretionary services. It seems the tepid labor market and worries over tariff-driven price increases are steering consumers toward more selective spending choices.
