All eyes on Powell testimony as jobs gain

Stocks fell on Friday while Treasury yields and the dollar advanced as traders speculated the Fed has less reason to lower rates after payrolls climbed 224,000 in June.

“Powell’s testimony will help set expectations for the timing of the onset of a mini-easing cycle,” said Yelena Shulyatyeva and Carl Riccadonna of Bloomberg Economics. “While the strong June jobs report reduces the case for the Fed to cut rates aggressively in the near term, we still project rate cuts later this year, given low inflation and an inverted yield curve.”

Here’s our weekly rundown of other key economic events:

US

As well as Powell, the other event to watch this week is Thursday’s release of the consumer price index. While the Fed prefers to monitor another gauge, this one isn’t without relevance. It’s predicted to show inflation of just 1.6 per cent in June, a decline from the 1.8 per cent of May. Investors are also waiting to discover when the next round of trade talks between the US and China will take place.

Strong dollar is importing deflation

Europe, Middle East and Africa

The European Commission’s latest economic outlook will on Wednesday sum up the deteriorating state of the Euro-area economy. Minutes of the European Central Bank’s June decision on Thursday may provide an indication of how far policymakers’ discussions went on the need for stimulus to fight the slowdown. Industrial production data on Friday may also help illustrate the economy’s predicament.

At a meeting in Brussels, European finance chiefs may debate who to tap as their candidate to replace Christine Lagarde as managing director of the International Monetary Fund. One potential candidate already being discussed in capitals is Bank of England Governor Mark Carney. On Thursday, he presents the latest bi-annual financial stability report as Brexit nears.

Turkey will be dealing with the fallout of President Recep Tayyip Erdogan’s surprise decision to oust Central Bank Governor Murat Cetinkaya. Meanwhile, Egypt’s central bank will probably keep its main interest rate on hold at 16.75 per cent on Wednesday as it monitors the impact of electricity price hikes on inflation. The Israeli shekel’s standout performance this year means the nation’s central bank may have lost its window to exit years of ultra-low rates; policymakers are expected to hold at 0.25 per cent on Monday. Russia on Thursday will report movements in gold and foreign reserves — last measured at about half a trillion dollars — as a debate picks up over putting more of the country’s stored wealth to work for its citizens.

Asia

Malaysia’s central bank decides on interest rates on Tuesday, with economists expecting it to hold steady after a quarter percentage point reduction in May. Inflation data in China is set to show consumer prices are still rising at a rate close to the central bank’s preferred ceiling.

Indian inflation on Friday is set to remain below the Reserve Bank of India’s target, adding to pressure for more rate cuts. And trade data from Japan, Taiwan, the Philippines and China will be released throughout the week, along with South Korea’s export price index, giving the latest read on how shipments are faring amid a tech slowdown and the US-China tensions.

Latin America

June inflation data due this week is likely to show Latin America’s two largest economies have room to start cutting interest rates. On Monday, Mexico’s consumer prices are forecast to rise 3.94 per cent year-on-year, returning to the central bank target range. On Thursday, Brazil’s benchmark IPCA index is expected to drop to an annual pace of 3.35 per cent — way below the 4.25 per cent target — with possible month-on-month deflation. How early the Brazilian central bank will start cutting rates will depend on how much progress the government’s reform agenda makes in Congress. This week, a key bill to overhaul the pension system may go to a vote on the floor of the lower house.