· UK consumer borrowing to provide clues over household confidence
· Eurozone inflation could tip negative
· US employment data likely to show another contraction after surprise bounce in May
The week starts with UK Consumer Credit data for May. The economic shockwave that emerged off the back of the COVID-19 pandemic saw month on month borrowing contract sharply in both March and April. Expectations are that a net reduction will be reported again for May, with a number around -£2 billion forecast. However, with non-essential retailers being shuttered until June, the shortfall will be of little surprise. Subsequent figures will better illustrate the appetite for lending and also consumer confidence about the economic outlook.
Later, on Monday, the preliminary German Inflation rate for June will be published. An annual rate of 0% is expected, the lowest reading in over four years and something that will cause concern at the ECB. With classic monetary stimulus measures as good as exhausted, the risk of deflation taking hold within the Eurozone – and then being difficult to shake off – cannot be ignored.
Following on from German price data, the Eurozone Flash Inflation Rate for June will be published on Tuesday. Again the year-on-year figure is tipped to slide into negative territory, although once the impact of food and fuel is removed, the figure will be rather less dramatic. With oil prices trending higher, this may provide some consolation that deflation can be avoided at least for now.
The Chicago PMI reading for June will also be under scrutiny, as markets look for a rebound after May’s 40-year low. Expectations are that this barometer of US business confidence will be showing signs of recovery and should the forecast of 45 hold true, could offer some assurance that the country’s economy can rebound relatively quickly.
Keeping with the US, ADP Payrolls for June will be published on Wednesday, with expectations that another negative print will be seen, although one which was far lower than the 2.76 million jobs lost in May. A further decline of 600,000 is called, something which may serve to rock any positive sentiment, should it emerge from data releases earlier in the week.
Wednesday’s release of FOMC meeting minutes will also be worth following. Federal Reserve chief Jerome Powell sounded a warning shot to equity markets in the bank’s press conference earlier this month and that knocked confidence, but there’s still no shortage of concern that equity market valuations may be out of kilter with the reality of a post-COVID economy. The release of meeting minutes may serve to reinforce this idea.
The Eurozone Unemployment Rate for May will be published on Thursday, with forecasts suggesting this will jump to a 12-month high of 7.7%. To offer some perspective here, that number was over 12% in the depths of the Eurozone credit crisis so the market is unlikely to be too concerned over a modest uptick here, especially if economic sentiment can continue to rise across the currency bloc as the reopening process continues.
With US markets closed on Friday in lieu of the July 4th holiday, June’s Non-farm Payrolls are being published a day early. After the surprise jump in employment last month, a return to contraction is expected here. However, the more reflective figure stands to be the unemployment rate which has the potential to jump above 15%, setting it higher than the 14.7% recorded in April, and a timely reminder of the fact that even if business confidence is returning, consumers could still be left waiting for some time.
Article by Tony Cross of Monk Communications. This article first appeared in Octo Members, the app-based private community for UK financial services professionals.
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