03 July 2023
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FOMC minutes and US payrolls in focus this week

By Khatija Haque

US personal income and spending data released at the end of last week provided something for the doves after the sharp upward revision to Q1 US GDP the day before. After growing strongly in the first quarter, personal spending appears to have slowed sharply, up just 0.1% m/m in nominal terms in May, with the April reading revised lower as well. Real spending was flat in May and has shown little growth since January. The core PCE deflator, the Fed’s preferred measure of inflation, also slowed to 0.3% m/m in May from 0.4% in April and while still elevated at 4.6% y/y, it is at least moving in the right direction.

Personal income growth rose by a higher than forecast 0.4% m/m in May however, and consumers appear to be more optimistic according to the separate University of Michigan consumer sentiment index, which rose to the highest level since February 2022 last month.

The focus this week will be on the release of the minutes of the June FOMC meeting on Wednesday and then the non-farm payrolls data on Friday. The median forecast is for a gain of 225k jobs in June, much slower than the 339k reported in May, with the unemployment rate expected to ease back to 3.6% from 3.7% in May.

Preliminary estimates for June inflation in the Eurozone showed headline CPI in line with forecasts at 0.3% m/m and 5.5% y/y (from 6.1% y/y previously). Core CPI came in fractionally lower than expected at 5.4% y/y although higher than in the May reading. Commentary from central bankers at the ECB’s annual retreat in Sintra Portugal last week was uniformly hawkish and the ECB is expected to deliver another two 25bp hikes this year, before pausing.

Japan’s Q2 Tankan survey of large firms came in stronger than forecast this morning and showed an improvement in sentiment both in the manufacturing and services sectors of the economy. Large firms plan to increase capex this year more than they did in Q1, which is also likely to support stronger economic growth in Q2.

China’s Caixin manufacturing PMI eased to 50.5 in June from 50.9 in May but was slightly higher than expected. The survey of smaller, export-oriented manufacturing firms shows a still-weak improvement in activity. Last week the official manufacturing PMI came in below the neutral 50-level for the third month in a row. Weaker global demand is likely a key factor weighing on China’s manufacturing sector this year.  

Private sector credit growth in Saudi Arabia accelerated in May to 10.3% y/y from 9.7% in April. Public sector borrowing also picked up with both bank claims on government and claims on other public sector entities rising m/m. Broad money supply growth slowed however to 9.1% y/y from 9.5% in April. Net foreign assets at the central bank increased USD 12.6bn to USD 422.9bn, the highest level of net foreign assets since February.

Petrol prices in the UAE were increased slightly in July, with 95-octane petrol prices up 1.8% m/m to AED 2.89/l.  On an annual basis however, petrol prices in July are down -36% y/y off last summer’s high base.  

Today’s Economic Data and Events

  • 12:00 Final Eurozone Manufacturing PMI (June) forecast 43.6
  • 12:30 Final UK Manufacturing PMI (June) forecast 46.2
  • 17:45 Final US Manufacturing PMI (June) forecast 46.3

Fixed Income

  • US Treasuries closed the week mixed after a slower than expected PCE print for May. Yields on the 2yr UST rose almost 4bps on Friday to settle at 4.8954% while the 10yr settled near flat at 3.8367%. For the first half of the year, yields on the 2yr UST have risen almost 47bps while the 10yr ended the first half near unchanged. Markets will be focusing on the non-farm payrolls print at the end of the week to firm up expectations for the July FOMC. Minutes from the June FOMC where the Fed kept policy unchanged will also be released this week.
  • European bond markets closed the week slightly stronger with bund yields down 3bps at 2.388% while 10yr French yields dropped about 2bps to 2.927%. Gilt yields closed near unchanged.
  • Emerging market bonds were mixed with South African 10yrs gaining while Indian bonds dropped on Friday.


  • Currency markets swung against the dollar at the end of the week as slower than expected PCE inflation dampened hawkish rate expectations. EURUSD added 0.4% to 1.0909 while GBPUSD jumped by 0.7% to 1.2703. USDJPY also pulled in favour of the yen, dropping by 0.3% to 144.31. The broad dollar index was near unchanged for the first six months of the year, with a slight downward tilt against most peer currencies. EURUSD rose 1.9% in the first half while GBPUSD gained more than 5% with a hawkish outlook for the Bank of England.
  • USDCAD was modestly lower to 1.3242 at the end of the week, down less than 0.1%. AUDUSD rose by 0.7% to 0.6664 while NZDUSD gained 0.9% to 0.6125. NZDUSD was among the worst performers among major developed market currencies in H1 given the RBNZ announcing that it had brought its monetary tightening to an end.


  • Global equities had a positive week last week, with w/w gains across the globe. In the US, the Dow Jones, the NASDAQ, and the S&P 500 closed up 2.0% w/w, 2.2% w/w, and 2.4% w/w respectively. In Europe, the composite STOXX 600 ended Friday 1.9% higher than the previous Friday’s close, with the DAX adding 2.0% w/w and the CAC 3.3%. The UK’s FTSE 100 lagged with a 0.9% gain.
  • Asian markets saw slighter gains as the Hang Seng and the Shanghai Composite gained 0.1% w/w. Japan’s Nikkei added 1.2%.
  • Regional indices were largely closed for the Eid holidays.


  • Oil prices ended Friday higher with Brent futures gaining 0.8% to USD 74.90/b and WTI adding more than 1.1% to USD 70.64/b. Oil prices had a weak start to the year with both Brent and WTI down 12% in the first half.
  • Saudi Arabia’s voluntary 1m b/d of cuts will come into effect for July, accelerating a tightening in the markets expected for the second half of the year. We expect that Saudi Arabia will choose to prolong its additional cuts over much of the rest of 2023.
  • The US government will reportedly solicit the market to refill its strategic reserves later in the year, planning to rebuild around 3m bbl of crude stocks.  

Written By

Khatija Haque Head of Research & Chief Economist

Edward Bell Head of Market Economics

Daniel Richards Senior Economist

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