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Week Ahead for FX, Bonds: U.S. ISM Services Data, Australian Rate Decision in Focus

Below are the most important global events likely to affect FX and bond markets in the coming week starting Aug. 5.

U.S. ISM data on services sector activity and an interest-rate decision in Australia are likely to prove the highlight of an otherwise quieter week. Rate decisions are also due in India and Mexico, while Japanese data will be watched closely after the Bank of Japan’s recent interest-rate hike.

Investors will be keeping a close eye on U.S. data after recent evidence suggesting the economy could be slowing, adding to expectations that interest rates will soon be cut.

Focus will center on ISM data on services sector activity in July, due on Monday, to see whether it replicates unexpected weakness in the equivalent survey on manufacturing.

“Investors will keep an eye on employment and prices components [in ISM services data] following a big miss for the manufacturing gauge,” Deutsche Bank economists said in a note.

The U.S. Federal Reserve left interest rates unchanged at its July 31 meeting but suggested that it could reduce rates at its September meeting. Following weak U.S. jobs data for July, money markets are pricing in a minimum of three 25 basis point interest-rate cuts by year-end, with a risk that the Fed may opt for a bigger 50 basis-point reduction, according to Refinitiv.

The rest of the week is relatively quiet in terms of data releases, with U.S. trade data for June due on Tuesday and weekly jobless claims on Thursday.

Canadian monthly jobs data for July due on Friday will be closely watched after recent stronger-than-expected second-quarter gross domestic product data cast some doubt over whether the Bank of Canada will cut interest rates again in September.

“It is activity in the second half of the year where we see scope for more substantial downside surprises relative to the Bank of Canada’s current forecasts,” Citi analysts said in a note.

TD Securities’ analysts said they are leaning toward a hold on rates in September but note that this remains a very tight call.

Canadian trade data for June are due on Tuesday and the latest Ivey PMI survey on Wednesday.

Mexico’s central bank announces an interest-rate decision on Thursday, with investors uncertain over whether it will cut or hold rates.

“The next central bank meeting is a close call. But on balance we think softness in the economy, alongside the fall in core inflation in the first half of July and the prospect of a rate cut in the U.S. in September, will prompt Banxico to resume its easing cycle,” Capital Economics emerging markets economist Kimberley Sperrfechter said in a note.

Recent data suggest that the eurozone’s economic recovery is starting to falter but at the same time inflation remains elevated, potentially complicating the European Central Bank’s task.

A majority of investors expect the central bank will probably cut interest rates next month, but they will be looking to see whether coming data support that view or not.

Final purchasing managers’ surveys on services-sector activity during July are due on Monday, alongside eurozone producer price inflation figures for June. Eurozone retail sales data for June on Tuesday will give an indication of how the region’s consumers are holding up.

German industrial production and trade figures are due on Wednesday, followed by French unemployment and German final inflation data on Friday.

Government-bond issuance slows down significantly in August, in line with the seasonal pattern. Germany will conduct two auctions, selling the October 2029-dated federal note, or Bobl, on Tuesday and 2038- and 2041-dated bunds on Wednesday. Also on Tuesday, Austria will tap 2034- and 2040-dated bonds.

The Treasury will auction $58 billion in new three-year notes on Tuesday, $42 billion in 10-year notes on Wednesday and $25 billion in 30-year bonds on Thursday.

The Bank of England announced its first interest-rate cut in four years at its Aug. 1 meeting, although it resulted from a very tight 5-4 vote, suggesting that policymakers could be cautious about cutting interest rates too fast from here.

Investors will be looking to see whether data suggest the U.K. economy is continuing to hold up well and on whether there are any signs of services inflation starting to drop.

The final purchasing managers’ survey on U.K. services-sector activity during July is due on Monday, followed by the British Retail Consortium’s retail sales monitor for July on Tuesday. Data later in the week will give an indication on the health of the housing market, with the RICS July house price balance due on Thursday.

The DMO will sell October 2043 gilts on Tuesday and July 2029 gilts on Wednesday.

Norwegian inflation data for July are due on Friday. These are unlikely to alter expectations that Norway’s central bank, or Norges Bank, is unlikely to cut interest rates before December.

Denmark and Norway are scheduled to hold bond auctions on Wednesday.

The Reserve Bank of Australia appears set to keep its official cash rate on hold at 4.35% at its policy meeting that concludes Tuesday, but remain vigilant about inflation. Core inflation is still well above target and income tax cuts delivered to workers from July 1 pose upside risk.

Speculation had been building that RBA Gov. Michele Bullock might have to announce a deeply unpopular interest increase this month, but most economists think second-quarter inflation data failed to produce the smoking gun needed to tighten the policy screws further.

In New Zealand, second-quarter job market data on Wednesday are expected to show that unemployment jumped from the prior quarter, amplifying calls for the Reserve Bank of New Zealand to quickly shift the policy needle toward interest-rate cuts, and potentially deliver a string of reductions over the next year to revive the country’s moribund economy.

Japan reports a string of data during the week, including household spending and balance of payments data for July. Minutes from the Bank of Japan’s June meeting due Monday, plus a summary of opinions from its July meeting on Thursday, are also due.

Traders will keep a watchful eye on any policy comments from officials after Japanese stocks slumped and the yen strengthened in the wake of the BOJ’s rate increase. Analysts have been split on whether the rate increase has come too soon, given signs of continued weakness in the economy. That puts the week’s data releases in particular focus.

The BOJ is scheduled to buy Y350 billion of 1- to 3-year Japanese government bonds, Y375 billion of 3- to 5-year sovereign notes and Y150 billion of 10- to 25-year government securities on Wednesday. The Ministry of Finance is slated to auction Y2.6 trillion of 10-year JGBs on Tuesday and Y900 billion of 30-year JGBs on Thursday.

China is set to release trade and inflation data, along with another indicator of the health of the services sector.

ING expects to see some tentative signs of strength in the figures, which would be welcome after a continued run of down beat data.

July’s data is likely to show that exports remained in high single-digit or low double-digit growth amid a supportive base effect, and a modest recovery in import growth, the economists said. Inflation may have trended a touch higher as well, ING added.

PPI deflation may have weakened slightly in July, Barclays economists expect, given declines in the PMIs for input and output prices despite low base effects.

Services PMI will also be watched on Monday after a surprise slip in the manufacturing gauge.

Indonesia reports second-quarter economic growth data on Monday, which is expected to show still-robust momentum in Southeast Asia’s largest economy.

Economists polled by The Wall Street Journal project growth at 5.09% on year in the April-June period, easing a tad from the first quarter’s 5.11%.

Recent data indicate that domestic demand has slowed as the boost from the election earlier this year faded, ANZ economists Dhiraj Nim and Sanjay Mathur said.

Exports might also not contribute as much to economic growth moving forward, as the outlook for external demand seems challenging as global growth slows and commodity prices weaken, they said. Domestic demand could remain the primary growth driver for Indonesia in 2024, the economists said, tipping full-year growth at around 5%.

India’s central bank is likely to keep rates on hold at its rate meeting on Thursday, with policymakers seemingly under little pressure to either cut or hike.

The Reserve Bank of India has a lot to digest since its last meeting in June: sticky food price pressures, a new government budget pointing to continued fiscal consolidation, and the Federal Reserve starting to hint at a September rate cut, Barclays economists Shreya Sodhani and Amruta Ghare said.

While broadly steady domestic growth indicators offer a source of comfort for the Indian central bank, the RBI also seems increasingly cautious about food inflation, which has been preventing durable disinflation in the headline rate, the economists said. Barclays only sees a rate cut window opening in December, with risks that the start of easing may be delayed into 2025.

ING economists also think RBI will hold fire but don’t fully dismiss the chance for a cut.

“As long as the dollar remains under weakening pressure and the inflation data plays out the way we think it will, then an October rate cut is definitely within reach and we cannot absolutely rule out a cut on 8 August,” they said.

Data on Tuesday and Thursday will show the Philippines’s progress on the inflationary front and how its economy has fared in the second quarter.

Both releases will be looked at for hints as to when the central bank might start cutting rates.

ING economists think more time might be needed to see how inflation develops, given the potential impact of rice tariff cuts and typhoons.

“That probably puts a lid on Bankgo Sentral ng Pilipinas’ ambitions to front-run the Federal Reserve with rate cuts as soon as this month, though conditions are becoming more favorable, and BSP could well still see a window for easing in the fourth quarter of 2024,” they said.

ING expects economic growth to clock in to 7% on year for the second quarter, though this will be mainly a base-effect driven result.

Any references to days are in local times.