Proactive Investors – The coming week brings a fresh round of macroeconomic data as we move into the new month of July.
We’re also starting the second half of the year with national elections in France and the UK that have already been having an influencing on markets and hence economics.
As for macro data, the UK has house prices at the start and end of the week, along with and PMI surveys, while in Europe as well as PMI data there are flash inflation and jobs releases.
For markets, the big data point is Friday’s , which is also preceded by new PMIs, JOLTS job openings and minutes from the last Fed meeting.
UK general election
Britain goes to the polls on Thursday, with first results dues overnight and, based on Labour’s lead in the polls, a decisive result likely to have emerged by the time the market opens on Friday.
Opinion polls strongly indicate a sizeable Labour majority, after a 14-year Conservative rule characterised by Brexit and the cost-of-living crisis.
Compared to French and US election, the UK snap general election does not appear to be having the same impact on volatility or geopolitical concerns, said analyst Kathleen Brooks at XTB.
Based on the Bank of England’s financial policy report this week, the biggest risk from this election is that the party who wins power overspends, which causes bond markets to revolt and bond yields to move higher.
“The bond market is wary of spendthrift fiscal plans, and if the winning party looks like they are pushing the boundaries of fiscal prudence, the market will punish them, as it did Liz Truss,” says Brooks. “The same is true if Marine Le Pen’s party wins in France.”
Saxo’s head of FX strategy, Charu Chanana, says markets may be “too complacent” about the UK election.
While the Labour manifesto suggests that leader Keir Starmer and shadow finance minister Rachel Reeves are likely to maintain fiscal conservatism in early years, Chanana says if the election result shows a commanding lead, it “could leave room for some bold policy moves”.
She adds: “A favourable policy environment, along with the potential for BoE rate cuts, may offer investors an opportunity to reassess UK equities, where valuations are attractive and return prospects look strong.”
But a smaller majority could upset the pound, Chanana says.
“ has been the top performer in the G10 FX space due to a stabilizing economy, high yield, the , and expectations of political stability. However, this sense of complacency might be challenged if Labour’s victory isn’t as strong as anticipated.”
French election
In the Bank of England’s financial policy report this week it warned that French and US elections could pose a risk to UK financial markets due to the policies that the winning candidates could put in place, which may include protectionist trade policies.
Results from the first round of the French legislative election will emerge on Sunday night, from 8pm Paris time (7pm in London, 2pm US Eastern), with these results determining which candidates will make it into the second round run-off on 7 July in each constituency. Emmanual Macron’s party are in third place, according to polls on Friday.
French elections “could be bad news for the euro”, said UBS currency analysts.
“The outcome of the elections is either status quo or a cohabitation, which could remain a currency burden.”
As only five out of 577 candidates were decided in round one last time France held elections, UBS economists said the number of candidates in round two rather than the vote share is the important figure to watch.
“Following round 1, it will be important to see whether parties will give explicit guidance to their voters on which candidate to vote in round 2 in constituencies where their own candidate did not make it into round 2.”
Spreads between French and German bond yields hit a higher peak than was witnessed in the 2017 election run-up and associated concern over a Le Pen victory and to a level not seen since August 2012.
Macro data
The US jobs report on Friday is expected to see a 180,000 increase in non-farm payrolls in June, following the 272,000 rise the month before.
The is forecast to remain at 4%, though some economists see it retreating to 3.9%.
A slowdown in wage growth to 0.3% on a monthly basis and 3.6% year-on-year is also expected after average hourly earnings climbed 0.4% from April to May and were up 4.1% on a year earlier.
Various PMI data from China will also be in focus in the week ahead, which often moves shares in Western stock markets, particularly miners, some banks and some consumer stocks.
The National Bureau of Statistics publishes the official and non-manufacturing PMIs on Sunday morning, with the Caixin PMI releases later in the week on Monday and Wednesday.
Major economic announcements in the week ahead
Monday 1 July
Economic announcements: , BoE Consumer Credit (UK), M4 Money Supply (UK), , (UK, EU, US), Construction Spending (US), , ISM Prices Paid (US)
Tuesday 2 July
Economic announcements: , , Auto Sales (US), , API Crude Stock (US)
Wednesday 3 July
Economic announcements: , , HCOB Services (EU), , MBA Mortgage Applications (US), , Initial Jobless Claims (US), , PMI Services (US), Factory Orders (US), ISM Prices Paid (US), ISM Services (US), Inventories (US),
Thursday 4 July
- UK general election and US national holiday for Independence Day
- Economic announcements: New Car Sales (UK), (UK, EU),
Friday 5 July
- UK election results
- Economic announcements: , , Non-Farm Payrolls (US),
