The Week Ahead: Germany CPI, UK election, US jobs

Welcome to Michael Kramer’s pick of the top three market events to look out for in the week ahead. 

It’s set to be a quiet week for economic and company news in the US, where markets are heading into a holiday-shortened trading week – they’ll close early on Wednesday and will remain closed all day on Thursday for the 4 July public holiday. Thursday is also the day of the UK general election, with opinion polls suggesting that Britain is heading for a change of government.

Germany June CPI

Monday 1 July

Germany’s preliminary consumer price index (CPI) reading for June could be critical, especially following the hotter-than-expected Australian and Canadian CPI reports. The release is expected to show that German CPI increased 0.2% month-on-month in June, up from 0.1% in May, while rising 2.3% year-on-year, down from 2.4% in May. Meanwhile, Germany’s harmonized CPI, which uses a different methodology from standard CPI and is also due out on Monday, is expected to have increased 0.1% month-on-month in June, down from 0.2% in May, while rising 2.5% year-on-year, down from 2.8% in May. 

The data could have a bearing on EUR/USD. The euro has taken a battering after the European Central Bank cut its main interest rate by 25 basis points to 3.75% on 6 June, with the next rate cut expected in October. The only thing likely to change the trend for the euro versus the dollar in the near term would be a hotter-than-expected CPI report. Failing that, the euro could make its next leg lower after consolidating since mid-June around the $1.07 level. A break of this support region could set up a potential drop back to mid-April lows around $1.06.

EUR/USD, April 2024-present

^{Sources: TradingView, Michael Kramer}

UK general election

Thursday 4 July

While the election's outcome may not significantly impact markets overall, the odds of a Labour win are likely being priced into the pound, which has been slipping against the dollar since the middle of June as the party pulls away in the polls.

The election could be important for the pound because GBP/USD has edged below a crucial support level at $1.265. The election result could push the currency down towards $1.25. Even if GBP/USD rallies following the result, a move higher could run into significant resistance at $1.27 and $1.28. At this point, the path of least resistance may be towards lower levels.

GBP/USD, February 2024-present

^{Sources: TradingView, Michael Kramer}

US jobs report

Friday 5 July

The latest US jobs report is expected to show that the world’s largest economy added 185,000 payrolls in June, down from 272,000 in May. The unemployment rate is expected to remain unchanged at 4%, while wages are expected to have risen 0.3% month-on-month, down from 0.4% in May, and are set to be up 4% year-on-year, in line with May.

Recently, these non-farm payroll reports have become more about hedging flows than anything else. We’ve seen big moves higher in short-dated implied volatility on the day before the data, followed by an implied volatility crush on the day of the data. This creates the potential opportunity to be a buyer of volatility the day before the news and a seller of volatility after the news. In other words, risk assets can rally following the job report – no matter the data, at least shortly after the data release – if the implied volatility levels get high enough heading into the report. 

The VIX 1-Day, a closely watched volatility index, offers a glimpse of the recent trend. The index rose to around 20 points before the reports in April and May, and to about 14 points before the report in early June. If the index doesn’t make a big move higher the day before the July report, many traders may heed the warning that a post-report rally in US stock indices such as the S&P 500 and the Nasdaq 100 could be unlikely to materialise.

Key economic and company events

Here’s our rundown of notable economic announcements and company reports scheduled for the coming week:

Monday, 1 July 2024

• China: June Caixin manufacturing purchasing managers’ index (PMI)
• Germany: June consumer price index (CPI)
• US: June Institute of Supply Management (ISM) manufacturing PMI

Tuesday, 2 July 2024

• Australia: Reserve Bank of Australia meeting minutes
• Eurozone: June harmonised CPI
• Results: MSC Industrial Direct (Q3), Simulations Plus (Q3), Supreme (FY)

Wednesday, 3 July 2024

• Australia: May retail sales
• China: June Caixin services PMI
• US: June ADP employment change, June ISM services PMI, Federal Reserve meeting minutes
• Results: Constellation Brands (Q1)

Thursday, 4 July 2024

• Australia: May imports, exports and trade balance
• Switzerland: June CPI
• UK: Parliamentary election

Friday, 5 July 2024

• Canada: June net change in employment, June unemployment rate
• Eurozone: May retail sales
• US: June jobs report, including non-farm payrolls, average hourly earnings and unemployment rate

Note: While we check all dates carefully to ensure that they are correct at the time of writing, the above announcements are subject to change.