Key events in developed markets next week

Markets are still backing the Fed’s 50bp calls for June and July and the coming week’s data is unlikely to shift expectations. The interesting question is over September and beyond. Some officials want the Fed to continue with 50bp hikes to ensure inflation is brought under control. Others argue that there is already evidence of the growth outlook weakening and inflation pressures tentatively softening, which could justify a pause in September. We are currently looking for a 50bp move in September but our conviction is weakening, especially with the very soft housing numbers we have recently seen.

Next week’s highlight is the US jobs report and that should be firm. Once again the main constraint will be a lack of worker supply with nearly two vacancies for every unemployed American (we will get an update on vacancies in next Wednesday’s JOLTS report). This means wages will continue to be bid higher and the unemployment rate will likely fall to 3.5%.

Unfortunately, the ISM reports may not be quite so good with regional data pointing to downside risks as supply chain strains and higher input prices make businesses more cautious on the outlook. This could negatively impact the new orders series and point to weaker growth in the second half of the year after a 3%+ GDP growth number for the second quarter.

A 50bp rate hike from the Bank of Canada is widely expected given that inflation is at 30-year highs, employment and job vacancies are both at record levels and the growth outlook is being boosted by strong demand for Canadian-produced commodities. We expect a further 50bp hike in July and another in September with the hot housing market another issue for the BoC to deal with.