Light week ahead, as is usually the case following the NFP release. Monday’s highlight will be the U.S. ISM services PMI and on Tuesday, Japan will release average cash earnings y/y, while the U.S. will publish the ADP employment change. Two ADP releases are expected, as last week’s report was not published by the source.
Wednesday will start with the RBNZ monetary policy announcement followed by the FOMC meeting minutes in the U.S. Thursday will bring the U.S. unemployment claims and existing home sales data.
Finally, on Friday, Canada will release its employment change figures and the unemployment rate. Several FOMC members are also expected to deliver remarks throughout the week.
In Japan, the consensus for the average cash earnings y/y is 3.4% vs. the prior 3.6%. Following stronger-than-expected wage data in April, this week’s release will provide a clearer picture of whether wage growth remains on a firm footing.
This year’s Shuntō wage negotiations resulted in average pay increases of over 5% for a third consecutive year, with the higher wages taking effect from April.
Given the gradual pass-through of negotiated settlements into the broader economy and official earnings data, wage growth is expected to remain supported over the coming months, analysts from Wells Fargo said. Lower oil prices may also help ease cost pressures on smaller businesses, allowing more for non-unionized firms to also implement wage increases in response.
From a monetary policy perspective, the BoJ is expected to continue normalizing policy. The case for further tightening is supported by inflation, which is likely to pick up as government subsidies continue to fade and the weaker yen keeps upward pressure on import prices. Resilient economic growth and sustained wage gains would also strengthen the case for additional rate hikes.
The majority of analysts expect the RBNZ to raise the official cash rate from 2.25% to 2.50% at this meeting. However, Westpac anticipates a hold, arguing that the sharp decline in oil prices since the May meeting has eased inflationary pressures giving policymakers greater flexibility to assess incoming economic data before making further policy adjustments.
The central bank is expected to maintain guidance that points to the possibility of an OCR increase later this year, but the statement will place greater emphasis on a data-dependent approach than it did at the May meeting, the Westpac analysts said. They believe a hold decision could be reached by consensus, even if three of the six MPC members voted for a hike in May.
This week’s FOMC minutes will be closely watched as traders look for clues on whether policymakers are becoming more inclined to shift from holding interest rates steady toward further tightening. The latest dot plot revealed a divided Committee and with forward guidance becoming more restrained under Chair Warsh, the policy outlook remains uncertain.
The minutes will be scrutinized for policymakers’ assessment of whether the recent rise in inflation is viewed as persistent or largely driven by temporary supply-side factors. Markets will also focus on members’ views on the impact of labour market conditions.
In Canada, the consensus for employment change is 10.0K, compared with the prior 87.8K, while the unemployment rate is expected to remain unchanged at 6.6%.
The unemployment rate remains high by historical standards, but has gradually improved since peaking at 7.1% last year. Looking further ahead, employment gains are likely to remain modest, but slower population growth is reducing the pace of labour force expansion, contributing to gradual improvements in labour market conditions on a per-worker basis, RBC analysts said.
Wage growth will also be closely monitored following its sharp slowdown in May. While monthly wage data can be volatile, the still-elevated unemployment rate is expected to continue limiting underlying wage pressures in the near term.
This article was written by Gina Constantin at investinglive.com.
