Macroeconomics: The Day Ahead for 11 July

The UK labour market data tops an otherwise relatively modest run of data, with UK BRC Retail Sales and Australian Business and Consumer Confidence surveys to digest, along with some further measures to bolster China’s woe-ridden property market, with only the German ZEW and US NFIB Small Business Optimism surveys ahead. There are a few ECB and Fed speakers, who will be closely watched after yesterday’s speakers were rather more emphatic about rates being at their peak, doubtless encouraged in part by markets having priced out a pivot, above all for the Fed. Meanwhile, the EIA kicks off this week’s run of monthly Oil Market Reports, and France’s Agriculture Ministry issues its crops update. A busier day for government debt sales has auctions of Dutch 7-yr, German 5-yr and US 3-yr.

German’s ZEW survey is forecast to show Expectations dipping to -10.5 from -8.5, with some downside risks given the fall in the DAX with which the headline index is closely correlated, and following a run of downbeat economic data the Current Conditions is expected to slide to -62.0 from -56.5, all very much in tune with the run of downbeat data from Germany. US NFIB Small Business Optimism is seen edging up for a second month to 89.9 from 89.4, and a cyclical low of 89.0 in April, which was the weakest reading since December 2012. There would appear to be some downside risks, given that the already published Employment sub-indices saw Plans to Hire back at its recent low, and the proportion of companies intending to raise wages and benefits drop 5 pts to 36%, the lowest level since May 2021.

** U.K. – May/June labour market data **

While the employment components showed some signs that labour demand is easing, it is the again higher than expected Average Weekly Earnings which sustains the pressure on the BoE. Headline earnings were slightly than expected 6.9% vs. forecast 6.8%, with the ex-Bonus measure marching its post-pandemic higher at 7.3%, vs. expectations of 7.1%, and an upwardly revised prior 7.3%. A 25.7K rise in the Claimant Count, an unexpected though modest -9K drop in HMRC Payrolls, and an uptick in the ILO Unemployment Rate to 4.0% vs. an expected and also prior 3.8% all point to the labour markets loosening, and fitting with survey evidence such as yesterday’s REC survey. On balance, markets will likely continue to discount a fairly high probability of a 50 bps rate hike at the August Monetary Policy Report meeting.