Week Ahead: Pressure builds on RBA to go negative, high hopes for US ISM

Coming up this week – can Eurozone retail sales follow in Germany’s forecast-shattering footsteps; will the US ISM Nonmanufacturing Index return to growth against expectations, and is the pressure mounting on the RBA to push interest rates into negative territory? 

Read on for your full breakdown of the key events to watch this week.

Eurozone confidence and retail sales 

Investor confidence in the Eurozone improved last month, although the Sentix index missed expectations with a rise from -41.8 to -24.8 against forecasts of a rebound to -22.5. 

It still represented a solid rebound after May’s index barely moved, and participants reported a much more positive outlook than before. Since then we’ve had a lot of positive data in terms of PMIs and forecast-crushing German retail sales, which grew 13.9% on the month in May, against expectations of 3.9%, which could prompt another uptick in confidence when the next reading is published on Monday. 

Eurozone retail sales figures are also due on Monday. Forecasts are for growth of 7.8% on the month after May’s -11.7% decline. 

Surprise return to growth on the cards for US ISM Nonmanufacturing Index? 

Last week’s US ISM Manufacturing Index smashed expectations with a surprise leap back into growth territory. Economists had expected the index to recover to 49.5, just shy of the 50 level that shows no change, but the index instead jumped to 52.6, with the majority of industries surveyed reporting expansion, in particular improvements in employment, production, and new orders. 

This week’s nonmanufacturing index is predicted to improve from 45.4 to 49, but after the strength seen in the manufacturing counterpart, markets will be hoping to see a reading above 50 here as well to reinforce hopes of a quick recovery for the US economy. 

Markets bet on Reserve Bank of Australia rate cut 

The Reserve Bank of Australia held interest rates at 0.25% during its last policy meeting. ASX 30 Day Interbank Cash Rate Futures show the market is pricing in a 60% chance that the RBA will cut rates to 0% during the next board meeting. Doing so would effectively take rates negative, which policymakers have been reluctant to do. 

However, pressure is mounting after localised spikes in coronavirus infections forced the government to lockdown parts of Melbourne. A further spread of infections could hamper Australia’s economic recovery, forcing the RBA to unleash more stimulus. 

Corporate earnings: Paychex, Walgreens Boots Alliance 

Paychex is expected to report earnings of $0.61 per share for the quarter ended May 2020, down -3.1% on the same period the previous year. Revenue is projected -7% lower compared to Q4 of the previous fiscal year at $911 million. The stock has moved largely in tandem with the S&P 500 all year, although since the March selloff Paychex has struggled to recoup losses as quickly, leaving it down -10% on the year, compared to -4% for the S&P 500. 

Walgreens Boots Alliance stock is up 11% from its year-to-date low, but remains over 30% lower since January 1st. According to research from Thompson Reuters, the stock has an average “Hold” rating amongst 21 analysts – you can download the full report from the Key Statistics tab in the platform. Q3 earnings are due ahead of the market open on July 9th. 

Weekly US jobless claims remain in focus 

US weekly jobless claims figures have proven stubbornly high over the past few weeks, despite having come down significantly from the record high of 6.6 million reported on April 5th. However, while initial claims have continued to disappoint forecasts, the number of continuing claims has come down a bit more than expected – although at 19.5 million it remains remarkably high and shows just how far there is to go to restoring anything like normal levels of employment. 

The latest figures are due on Thursday.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

Key Events this Week

Watch out for the biggest events on the economic calendar this week: