Week Ahead for FX, Bonds: Markets to Watch French, U.K. Elections; U.S. Jobs Data Back in Focus

In Europe, investors’ attention will be glued firmly to politics as a new quarter gets underway, while in the U.S., focus will switch back to jobs data and the question of how soon the Federal Reserve is likely to start cutting interest rates.

Markets will start the week reacting to the results of the first round of French parliamentary elections on Sunday, where the far-right National Rally party is expected to make substantial gains, while looking ahead to the final run-off on July 7. Elections in the U.K. are scheduled for July 4, where the opposition Labour party is expected to win.

The European Central Bank’s symposium in Sintra, Portugal takes place from Monday to Wednesday, with speakers including Federal Reserve Chair Jerome Powell and ECB President Christine Lagarde.

In Asia, a stream of PMI and CPI releases is the main focus in an otherwise calm week for data.

Minutes from the Australian central bank’s last meeting will also draw eyes, along with data including retail sales and trade that will help inform bets on the country’s monetary policy path.

Japanese data releases include fresh growth numbers and business sentiment, while renewed yen weakness will keep traders guessing about potential policy responses.

U.S.

With the most recent data showing cooling U.S. inflation, focus now turns to the economy and the all-important monthly U.S. non-farm payrolls data for June on Friday. Any evidence of a slowing jobs market could increase prospects of the Federal Reserve starting to cut interest rates as early as September.

Markets currently assign a 72% probability of a rate cut in September, and “some cooler jobs figures would help cement that,” said ING’s chief international economist James Knightley in a note.

Economists at Citi said jobs growth could be “particularly weak” in construction and leisure and hospitality where hiring typically picks up at this time of year but recently demand has been weak.

Markets will look for further hints on the health of the U.S. jobs market from JOLTs job opening figures on Tuesday, ADP private payrolls figures on Wednesday and weekly jobless claims numbers on Thursday.

ISM data on U.S. manufacturing activity in June on Monday and on services activity on Wednesday will also be closely watched. U.S. trade data for May are due on Wednesday.

U.S. markets will be closed on Thursday for the independence day holiday.

CANADA

Canadian jobs data for June are due on Friday amid signs that demand for labor is easing. A weak number could potentially increase prospects of the Bank of Canada proceeding with another rate cut in July, despite recent firmer inflation.

EUROZONE

Investors will be watching closely to see how French government bonds, French banking stocks, the CAC-40 index and the euro react following the first round of France’s legislative elections on Sunday, June 30.

Marine Le Pen’s far-right National Rally party is expected to make substantial gains, to the detriment of President Emmanuel Macron. Expectations are that National Rally won’t gain enough for an absolute majority—although this is a risk—while parties from the far left are also likely to perform well.

The result is likely to spark concerns about French public finances and the potential for sizeable public spending plans, alongside a legislature with a very different agenda to that of the president. There is also the possibility of future disagreements between France and the European Union.

“Debt metrics look poor for France, and, in our view, no outcome [in the election] will ensure sufficient spending cuts to bring the debt-to-GDP trajectory back down,” Mizuho rates strategist Evelyne Gomez-Liechti said in a note.

Beyond the elections, focus will be on preliminary eurozone inflation data for June on Tuesday, as well as comments from European Central Bank President Lagarde at Sintra and ECB minutes due on Wednesday as investors look to gauge when interest rates will be cut again.

Money markets show investors are pricing in a substantial 87% chance of another rate cut in September and a 38% chance of a move as early as next month, according to Refinitiv data.

Final eurozone purchasing managers’ surveys for June are also due, with manufacturing data on Monday and services data on Wednesday.

As elections put the focus on France, French trade and industrial output data for May on Friday may garner more attention than usual.

France’s government bond auction on Thursday, its first after Sunday’s elections, will be gauged for investor demand.

Germany will offer EUR1 billion, in equal split, in August 2030- and August 2050-dated green Bunds on Tuesday, and will launch a new 10-year Bund with maturity in August 2034 for EUR5 billion on Wednesday.

Spain has a bond auction on Thursday.

U.K.

Thursday’s general election is set to be the highlight of the U.K. calendar in the coming week, with results likely to be known early on Friday.

The opposition Labour party is expected to win a comfortable majority while the incumbent Conservative party could suffer major losses, partly to the benefit of the far-right Reform party.

With the outcome looking fairly predictable and given that Labour have no plans for substantial government spending, the impact on sterling, gilts and U.K. equities looks likely to be marginally positive but limited.

“While Labour’s polled vote share has fallen in the last five weeks, its margin over the Tories has been maintained and with only days to go, any result other than a huge Labour victory on 4 July would be remarkable,” said Investec economist Lottie Gosling in a note.

“We do not expect much volatility in sterling or other U.K. markets.”

Analysts at ING said the election result is unlikely to make any difference to Bank of England policy either. ING expects a first interest-rate cut in August.

U.K. economic data due in the coming week include final purchasing managers’ surveys for June, with manufacturing data on Monday and services data on Wednesday.

Data on the housing market will also be of interest, with Nationwide’s house price survey for June due on Monday and Halifax’s house-price index for the same month on Friday. Data on mortgage approvals, mortgage lending and consumer credit for May are also released on Monday.

The U.K. will auction a 2027-dated gilt on Tuesday.

SCANDINAVIA

Swedish May GDP data are released on Friday.

Norway will conduct a bond auction on Wednesday.

SWITZERLAND

Swiss inflation data for June are due on Thursday.

POLAND

Poland’s central bank announces an interest-rate decision on Wednesday, with the base rate expected to be left on hold at 5.75%.

“Despite relatively low inflation, the Monetary Policy Council remains cautious and is unlikely to hurry with rate cuts. We expect the central bank to start the easing cycle in mid-2025 when the central bank has more clarity about CPI outlook,” Citi analysts said in a note.

AUSTRALIA

The coming week will be pivotal for the Reserve Bank of Australia and bond traders, with the release of the minutes of the bank’s June policy meeting on Tuesday.

The board considered raising interest rates further at the meeting, and the minutes might give some hints as to how close it got to delivering a fourteenth rate hike since May 2022.

Traders are betting big on a hike in August after the board’s next policy meeting, following news this week that inflation spiked in May.

That added to a growing list of data showing inflation pressures are still strong, and that the RBA’s hopes of getting inflation back into the target band by the end of 2025 might be fading.

Still, retail sales data for May on Wednesday could damp expectations for further policy tightening. Consumers have pulled back spending sharply, and the economy has slowed sharply as a result.

The week is set to highlight the mixed picture of the economy before RBA policymakers.

JAPAN

Japan is set to release a fresh revision to gross domestic product figures for the January-March quarter on Monday, when eyes will also be on the Bank of Japan’s Tankan survey that gauges business conditions.

Revised data published earlier this month showed that the Japanese economy shrank at almost the same pace as initially estimated in the January-March quarter amid sluggish spending by households and companies.

ING economists expect the Tankan survey to confirm an improvement in business sentiment. “A normalization in auto production, a recovery in exports and tourism, and an optimistic outlook for consumption should all boost business sentiment,” they said.

But they caution that a weak Japanese yen is starting to eat into business confidence as excessive input price increases squeeze corporate profits.

Traders will stay laser-focused on any comments related to the yen after it slipped to 38-year lows versus the dollar. That has triggered talk about potential FX intervention.

Maybank analysts think intervention could happen once the dollar approaches the 165.00 yen level.

Japan’s Finance Minister Shunichi Suzuki has said the government will take appropriate action against excessive yen moves, but declined to comment on whether he thinks the currency’s recent depreciation is excessive.

Services and manufacturing PMIs for June will also be released, with household spending data for May rounding out the week on Friday.

SOUTH KOREA

South Korea reports trade data for June on Monday, followed by inflation data on Tuesday.

The figures could show that export growth moderated during the month as there were fewer working days, but brisk semiconductor shipments likely continued to support momentum. Exports from Asia’s fourth-largest economy could rise 5.0% on the year, following a revised 11.5% increase in May, according to the median forecast of 13 economists polled by The Wall Street Journal.

Consensus is for imports to have fallen 2.7% on the year in June after the prior month’s 2.0% drop, resulting in a $5.15 billion trade surplus.

Export growth momentum may weaken after peaking in the second quarter, but the trade balance is likely to remain in surplus until end-2024, Hana Securities economist Chun Kyu-yeon said.

Headline inflation is expected to have remained below 3% for a third straight month in June.

The benchmark consumer-price index is tipped to have risen 2.7% on the year, the same pace of growth as in May, according to the median forecast of 11 economists polled by the WSJ.

That would still overshoot the central bank’s 2.0% annual target.

Tamer prices for agricultural products and energy likely kept goods inflation in check despite pressure from rising prices for stock products, Citigroup economist Jiuk Choi said. The Bank of Korea expects inflation to average 2.6% for 2024.

ASIAN INFLATION DATA

Inflation prints from Indonesia, Philippines, Thailand and Taiwan take the temperature of price pressures in the region that will help determine the direction for monetary policy in the quarter ahead.

On Monday, Barclays economists expect CPI inflation data from Indonesia to show a slowdown in June. Base effects in core CPI plus a further cooling of food prices likely pulled down the headline number, they said.

That would be welcome news for Indonesia’s central bank, which opted to keep rates on hold at its June meeting in part to ensure that inflation remains under control.

Though inflation likely stayed low, ING economists note that the slump in the rupiah may yet pressure Bank Indonesia to respond with further supportive rate hikes. The BI surprised markets with a rate hike in April to bolster the weakening currency.

Philippine inflation data on Friday will be looked at for signs that price pressures are cooling after the central bank cut inflation forecasts for 2024 and 2025 at its June rate meeting as it delivered a dovish hold.

Bets that policymakers are shaping up to start easing have firmed, though economists say the next batch of growth and CPI releases will be key to the timing of cuts. The Philippine central bank is likely also keeping an eye on the peso and the prospects for Federal Reserve cuts, which could pressure the currency.

Economists at both UOB and Barclays expect Philippine CPI growth to have moderated in June.

Taiwan also publishes inflation data Friday. ING economists are looking for a small uptick in June CPI.

Though there has been an abundance of caution about inflationary pressure after a rise in electricity and housing prices, ING thinks Taiwan’s inflation will stay manageable, expecting it to pull back toward the 2% target by the fourth quarter.

Inflation in Thailand likely cooled in June from May’s surprisingly high print, Barclays economists expect. That could shift views about the likelihood that the central bank will lower borrowing costs this year.

Some economists scrapped their calls for rate-cuts this year after the Thai central bank’s last meeting, viewing tepid inflation and economic growth as not conducive to easing.

Bank of Thailand has said it expects headline inflation to gradually return to target by the fourth quarter. The consumer-price index rose 1.5% in May from a year earlier, compared with the central bank’s inflation target range of 1.0%-3.0%.

PMI DATA IN ASIA

Monday will see a flood of PMI data, with June readings due for China, Japan, Taiwan, Malaysia, Philippines, Thailand, Vietnam, India and South Korea.

Flash PMIs that have so far alluded to slowing developed economy growth momentum, and softening price pressures, economists at S&P Global Market Intelligence said.

Slower momentum in key trading partners could spell a slowdown for Asian manufacturing activity as well. May’s PMI prints suggested that Asian manufacturers seem to be on firmer ground, with survey data signaling stronger output and orders, but also building cost pressures that could stoke concerns about inflation.

June’s surveys will be watched for signs that the recovery is on track, or starting to get shaky again.

A private gauge of China services PMI is also due Wednesday, while two PMI readings for Singapore will be released—one on Tuesday and another on Wednesday.

(All references to days are in local times.)

Megumi Fujikawa, James Glynn, Kwanwoo Jun, Miriam Mukuru, Emese Bartha and Paul Vieira contributed to this article.

Write to Jessica Fleetham at [email protected] and Fabiana Negrin Ochoa at [email protected]