The first half of the year is behind us now and many will be relieved after one of the worst six months in decades for the stock market. The second half starts sedately enough with the July 4th holiday seeing US markets closed Monday, but with earnings season just around the corner there is a lot happening for traders. 

US labour market data will be the main event this week as the latest Nonfarm Payrolls report is due Friday amid the holiday-shortened week stateside. Meanwhile the Reserve Bank of Australia is expected to once again raise interest rates. 

Jobs 

Friday’s Nonfarm Payrolls report is the week’s highlight as markets wrestle with inflation and central banks hiking interest rates. The strength of the labour market will be important, but market focus will be just as much on the wage data. As inflation pressures persist, the worry is that a wage price spiral takes hold, which could lead to a more entrenched high inflation regime that is harder to get out of. “We may be reaching a tipping point, beyond which an inflationary psychology spreads and becomes entrenched,” the Bank for International Settlements said in its flagship reported published last week. This came as US consumer one year ahead inflation expectations rose to a record high 8% in June, from a revised 7.5% in May. Therefore, the wage component will be of great importance to market participants.  

RBA 

The Reserve Bank of Australia meets on Tuesday and is expected to raise rates again, by either 25 or 50bps. Since surprising markets with a 50bps hike in June, the RBA has revised its inflation forecasts higher twice, suggesting it will be opting for another bumper hike. Governor Lowe has stressed that the bank won’t consider a 75bps, but inflation forecasts higher and retail sales stronger than expected, the likelihood of another 50bps is high. 

FOMC meeting minutes 

Minutes from the most recent Fed meeting will be parsed for clues as to where monetary policy is headed. But in reality, we are pretty sure where the Fed stands right now. “There’s a clock running here,” Chair Jay Powell said last week. “The risk is that because of the multiplicity of shocks, you start to transition into a higher-inflation regime.” 

Data may change the equation but we understand that the Fed is intent on breaking inflation even if it means a hard landing for the economy. “The process is highly likely to involve some pain, but the worse pain would be in failing to address this high inflation and allowing it to become persistent,” said Powell. 

Economic calendar