Investment points
The market's expectations for a rate hike at the July FOMC meeting were higher than last week, the minutes of the June meeting remained hawkish, and the ADP employment that exceeded expectations once raised the expectation of a November rate hike, but the non-farm payrolls data fell short of expectations and brought the market back to expectations of another increase; Eurozone manufacturing continues to shrink, but tightening expectations remain firm; Japan has maintained monetary easing to stabilize the economy, but the issue of wage growth cannot be ignored.
US: Monetary policy meeting minutes remain hawkish and expectations of a July rate hike are close to adequate.
- The release of the Fed FOMC minutes, maintaining hawkish management. On Wednesday, local time, the Federal Reserve released the minutes of the June 2023 FOMC meeting, and almost all members expect to continue to raise interest rates in 2023; And maintained the judgment of the recession, but delayed the time of its appearance. Dallas Fed President Logan said two-thirds of the members expect at least two more rate hikes this year.
- A number of data during the week raised interest rate highs, but the non-farm payrolls cooled down and expected a return to only one rate hike. In the United States, ADP added 497,000 new jobs in June 2023, more than double expectations, and the leisure hotel industry grew strongly; at the same time, the S&P service PMI, S&P composite PMI, and ISM non-manufacturing PMI all exceeded the previous values in June. After multiple data points to the resilience of the services sector, CME FedWatch showed two more rate hikes in July and November on Friday morning. However, the non-farm payrolls released on Friday night were only 209,000, less than expected, and expectations of interest rate hikes cooled. As of Sunday, the market priced in a July rate hike that was generally higher than the previous week, but there is no expectation of a second rate hike.
Eurozone: Despite the cooling of economic activity, markets maintained strong tightening expectations.
- Manufacturing activity contracted significantly and major economies weakened. The final manufacturing PMI in June 2023 in the Eurozone fell to its lowest level since the pandemic at 43.4, compared with 40.6 in Germany, the largest economy. Factory activity in all four major economies contracted in June, with factories reducing labor in June for the first time since early 2021 after price cuts still struggled to boost demand, the survey showed.
- Economic activity has waned and some officials have expressed caution, but market expectations remain hawkish. The eurozone job market remains strong, with the unemployment rate remaining at a two-decade low of 6.5% in May, and rising wages becoming a concern for longer-lasting inflation in the eurozone. Faced with the conundrum of downward pressure on the economy and the risk of sticky inflation, some officials expressed caution about monetary policy: the governor of the Bank of Italy emphasized the damage of tightening to economic activity, and the head of the Bundesbank said that he was "cautious about announcing a new era of high interest rates." However, under the continued hawkish management of the ECB, the market is still fully expected to raise interest rates in July and September, and there is no expectation of a rate cut in the first quarter of next year.
Japan: Monetary easing to stabilize the economy, but pay attention to wage growth trends and broadness. Bank of Japan Deputy Governor Ryozo Himino said in an interview that inflation was stronger than previously expected and was approaching the 2% inflation target. Although Himino did not answer the market's concern about the timing of the YCC adjustment and stressed the need to maintain ultra-loose monetary policy to stabilize the economy, he believes that new inflation drivers, including labor shortages, strong domestic demand, and corporate pricing behavior, need to be closely monitored. Japan's service PMI final value in June was 54, the 10th consecutive month in expansion territory; In the second quarter, the short-term non-manufacturing boom hit a new high since June 2019. Rengo, Japan's largest trade union, said this week that a final survey of 5,272 unions showed companies were offering the largest wage increase in three decades in negotiations with workers this year, averaging 3.58 percent, and that the wage hike was spreading from large companies to small and medium-sized businesses. At present, the uncertainty of monetary policy changes is still high, and September this year (that is, the middle of fiscal 2023) is an important observation point emphasized by the Bank of Japan, when the trend progress of inflation and wages will have important guiding significance for policy.
Risk warning: inflation persists more than expected, global monetary policy tightens more than expected, and financial risks intensify.
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Evidence&Analysis
This update of global central bank key data
Risk warning: inflation persists more than expected, global monetary policy tightens more than expected, and financial risks intensify.
This article is selected from the Brokerage Research Report