Economic Analysis

Friday's US Non-Farm Payrolls report was the highlight of the past week, but it certainly didn't say anything to traders or even policy makers. According to estimates by the American Research Institute, the US economy added 850 thousand jobs in June, the best reading (after revisions) in 10 months! While the headline reading was fairly strong, some minor aspects of the report were more mixed, with average hourly earnings up just 0.3% month over month and the unemployment rate rising to 5.9%.

Overall, the report shows that the US labor market continues to recover after the damage from the recession caused by the coronavirus, but policymakers (and the population more broadly) would like to see the recovery extend for an additional two months before beginning to remove or at least reduce stimulus. .

central banks

We have this week: Australia and the United States. The Reserve Bank of Australia meets on Tuesday and may adjust some asset purchases and yield curve control efforts. While the Australian economy has seen a relatively strong recovery, buoyed by continued strong growth in China, 80% of Australia's population is currently under lockdown amid fears of a possible outbreak of the coronavirus. Vaccination rates in the country have risen recently, the Australian economy continues to reopen intermittently, so the Reserve Bank of Australia is likely to keep interest rates on hold until next year at the earliest.

Meanwhile in the US, traders will get a much-needed peek behind the proverbial curtain at the FOMC in the release of the FOMC meeting minutes on Wednesday. Remember that the central bank saw a positive shift toward expecting two rate hikes by the end of 2023 at that meeting, so the market will be scrutinizing the minutes to see what policy makers are hiding and trying to get insights into when the central bank might announce its plans.

OPEC +

The highly anticipated OPEC+ meeting was postponed a day until Friday after an initial agreement was believed to have been blocked at the last minute the day before. According to reports, the United Arab Emirates objected to a plan to ease and extend the cuts until the end of next year. As always, tension exists between the rich Middle Eastern countries with vast reserves that generally take a long-term perspective and the poorer surrounding members of the group who favor maximizing near-term revenue by exporting more oil immediately.

yields

While short-term rates indicate the risk that the Fed will raise rates sooner or more aggressively than was determined at the last meeting of the Federal Reserve, the benchmark 10-year US Treasury bond fell by about 10 basis points last week to settle near from 1.44%. Essentially, bond traders are indicating that they are not worried that inflation will take hold, a view shared by Federal Reserve officials.

Both traders and policy makers will be watching the economic data closely as it moves forward, but if long-term interest rates continue to fall, there will undoubtedly be a spillover effect across all global markets. First, falling interest rates could eventually become a headwind to the dollar's bullish trend. Similarly, diminishing returns tend to benefit growth stocks over more value-oriented names and can boost the price of gold by reducing the opportunity cost of capital.

Economic data

It's a fairly quiet week for economic data, albeit with some highlights worth watching. For AUD and ASX200 traders, Tuesday's RBA meeting will be worth watching, although the governor is unlikely to make any immediate changes with Sydney in lockdown due to coronavirus concerns. We will also get more details on what led to the Fed's big hawkish shift last month in the FOMC meeting minutes on Wednesday. Finally, the G20 meeting on Thursday and Friday will grab some headlines, although the immediate impact on the market may be limited.

Here are the most important data expected:

Monday

Australia: Retail Sales (May)

United States: Bank holiday

Tuesday

Australia: Reserve Bank of Australia monetary policy meeting

Australia: Reserve Bank of Australia Governor Lowe's speech

Germany: ZEW Economic Confidence Survey

United States: BMI Service

Wednesday

Europe: European Commission third quarter economic outlook

Canada: Ivy PMI

United States: JOLTS Job Opportunities

United States: Federal Open Market Committee meeting minutes

Thursday

Globally: G20 Meetings (Day 1)

Australia: Reserve Bank of Australia Governor Lowe's speech

US: Initial jobless claims 

US: Crude Oil Inventories

Friday

Globally: G20 Meetings (Day Two)

Europe: European Central Bank - Lagarde's speech

United Kingdom: Bank of England Governor Bailey's speech

Canada: Employment Report (June)