July 2023’s Week Ahead: What to Expect

July 2023 is finally here and traders, analysts, and consumers alike may want to keep track of any upcoming financial events. From job data to PMI releases and Fed minutes to central banks’ rate decisions, this week brings numerous events that can shift the trajectory of the markets and set the stage for the rest of the month.

Already, key economic data like the Chinese factory PMI has been published today, Monday, July 3rd, and revealed that China’s PMI fell to 50.5 in June compared to May’s 50.9 which may indicate that the world’s second-biggest economy’s factory activity may be slugging a bit.(Source:Reuters)

But beyond China’s PMI, here’s what you need to know about this week ahead:

4th of July: Markets Close Early 

Today, Monday, July 3rd, the US markets will close earlier than usual ahead of the 4th of July celebrations. The 4th of July, otherwise known as Independence Day in the US, is a federal holiday that celebrates the Declaration of Independence in the USA and is celebrated on July 4th of each year. 

As such the markets will close early on Monday, will close on Tuesday, and will reopen on Wednesday, July 5th. 

RBA Decision: Is Another Rate Hike on the Horizon?

The Reserve Bank of Australia (RBA) is scheduled to meet on Tuesday and release its interest rate decision accordingly. With so much uncertainty looming larger regarding rate hikes, it may be interesting to keep track of the central bank’s upcoming decision to see what monetary policy it will undertake to tackle the rising inflation. 

It even seems that economists are torn between the possibility of the RBA hiking rates further, on the one hand, and the possibility of a rate pause, on the other hand, due to the fact that the central bank has already hawkishly hiked rates in the past few months and many posits that it needs to assess its hikes before continuing to do them. Nonetheless, while economists may be conflicted as to what will happen tomorrow, traders seem to be anticipating a pause at 60%. (Source:Bloomberg)

One analyst commented that “the debate will likely be over zero or 25 basis points as the RBA deliberates on just how restrictive rates need to be” and that “the case for both can be made but at the margin, we think the prudent move is another 25-basis-point hike in July.”

While the decision is still as vague as ever, it may be worth noting that it comes against the backdrop of weak Australian retail sales data, and sticky inflation. In addition, tomorrow’s decision follows last week’s hawkish speeches by Fed Chair, Jerome Powell, and ECB President, Christine Lagarde during which they revealed that further hikes are on the horizon for some of the world’s biggest economies. It may also be worth noting that ahead of the RBA decision and as of the time of writing, key Forex pair, the AUD/USD, is trading  0.1% lower as traders digest the uncertainty perhaps adding to the 2.3% loss it experienced since the beginning of the year up till now. 

Fed Minutes: Will Any New Insights Be Revealed?

The US Federal Reserve Bank is set to release the minutes of its June 13-14 meeting during which the central bank took a brief pause on its famous hawkishness and held kept rates unchanged. 

The minutes follow last Friday’s US PCE figures, which are closely monitored by the Fed and which revealed that consumer prices in the US may be easing a bit. Yet, despite these much-needed results, the Fed has already revealed multiple times that further hikes are still warranted to target inflation in the US. 

Therefore, it may be useful to keep track of the minutes' release so traders could gain a better understanding of the rationale behind the central bank’s decision and Powell’s ambivalence when it comes to the bank “doing too little” or “going too far on policy tightening.”  

Also, we can see if it will affect any decisions in the near future, especially in relation to the Fed’s upcoming rate meeting on July 25-26.

US NFPs: What Can Be Expected from the US Labor Market?

Among this week’s main events is the US Nonfarm Payrolls (NFPs) which will shed light on the employment status in the US and can reflect the world’s biggest economy’s health. The report which will reveal the number of various-sector workers in the US is expected to take place on Friday, July 7th. 

Despite the latest economic headwinds like inflation, a potential recession, and tensions with China, it seems that analysts and economists are expecting the labor market to strengthen a tad and the expectations stand at an addition of 200,000 jobs in June. This is in contrast to May’s above-expected 339,000 jobs. 

If, indeed, the labor market shows signs of a recovery, then the chances of the US avoiding a possible recession in light of the Fed’s persistent hawkishness may be induced. A leading big bank CEO, Omar Aguilar, even revealed that “the labor market is probably going to end up proving to be the big catalyst for what may happen market-wise and also monetary policy-wise.” Only time will tell if the predictions come true.

In conclusion, this week brings with it a multitude of crucial economic events and releases that every trader, consumer, and analyst may want to keep an eye on. We’ll have to wait and see what trading opportunities this week will usher forth and what other events the month of July will bring with it.