Saxo Spotlight: US jobs, China stimulus, Apple and Amazon earnings – July 31-Aug 4

US NFP jobs data on watch to get clarity on how soon the cycle can turn

US labor market data will be particularly important this week after last week’s Fed meeting that has signalled a data-dependent approach. Goldilocks continues with disinflation trends being a key focus for the markets while economic growth is holding up well too. This is giving room for markets to rally until something breaks as the effects of Fed tightening pass through. Labor market could be one of those, and a sharp rise in unemployment rate could trigger more calls for a recession and an eventual turn in the Fed policy. However, if tight labor conditions persist, it will remain hard to see an end of the inflation problem and the Fed tightening cycle. Bloomberg consensus expects headline NFP change to remain near 200k after gains of 209k in June and unemployment rate could remain steady as well while average weekly earnings is expected to slow to 0.3% MoM/4.2% YoY from 0.4% MoM/4.4% YoY previously. Still, a lot more data is due before the September Fed meeting and market may not read too much into this month’s report. For a better understanding of US non-farm payrolls, read this primer.

China PMIs and stimulus announcements could keep China and China-proxy trades in favor

China’s official PMIs were reported on Monday morning, and manufacturing PMI strengthened slightly to 49.3 in July from 49 in June, still remaining in contraction as stimulus measures have remained targeted and slow. Non-manufacturing PMI slowed to 51.5 in July from 53.2 previously. Caixin PMIs, which focus on small and medium-sized enterprises, will now be in focus for the rest of the week.

Further stimulus announcements are also awaited to bolster consumption. China's State Council Information Office has said that Li Chunlin, vice chairman of the National Development and Reform Commission, and officials from the Ministry of Industry and Information Technology, the Ministry of Commerce and the State Administration for Market Regulation will hold a press conference at 3pm Beijing time on Monday. This could bring a further push to the recovery in China and HK markets, after HK50 crossed a key psychological barrier at 20k at the start of the week. ETFs like KraneShares CSI China Internet ETF (KWEB) and Invesco Golden Dragon China ETF (PGJ) also offer exposure to China stocks. Proxy-China trades could be of interest as well, and investors can refer to our Luxury Goods or Asia tourism equity theme baskets for inspiration.

Bank of England hike will bring rates to 15-year highs

Bank of England policy decision is due on Thursday and expectations are for another rate hike to bring interest rates to 5.25% from 5% and the possibility of a 50bps move has reduced with inflation on the downward trajectory after June CPI came in softer-than-expected albeit still high at 7.9% YoY. But risks remain that the central bank could follow through with another 50bps move as price pressures are proving to be persistent and sticky. The BOE will also publish new forecasts, and investors will be keen to watch whether recession calls return. Medium-term inflation forecasts will also be key as rates are expected to peak below 6% now.

Eurozone GDP and inflation data will be key for ECB and EUR trajectory

The Eurozone is to release a preliminary estimate of July inflation and second quarter GDP on Monday that will be closely watched amid debate over whether the European Central Bank (ECB) may raise interest rates again at its next meeting in September. The GDP data is expected to show that the bloc’s economy returned to growth in the second quarter, with consensus expecting 0.2% QoQ growth after the economy stagnated at the start of the year. Inflation is expected to moderate and come in at 5.4% YoY for the core from June’s 5.5% YoY. With ECB turning more data-dependent at the meeting last week, these data points will be key to determine how much more ammunition is left for the ECB to fight inflation. Germany’s PMIs and Ifo survey has indicated some scope for caution. EURUSD broke below 1.10 following the ECB turn last week but closed just above, and focus remains on 100DMA at 1.0907.

Reserve Bank of Australia faces a complex setup at this week’s meeting

The complexity on Tuesday’s RBA meeting is clear with consensus and market expectations diverging. While the consensus expects another 25bps rate hike from Australia’s central bank, market is not pricing in another rate hike. The decision will be a close call even as inflation is cooling, because labor market conditions are still tight. Australia’s Q2 CPI came in softer-than-expected at 6.0% YoY from 7.0% YoY in Q1 and unemployment rate is at record lows of 3.5%.

Earnings season continues to roll: Big tech, chip stocks and consumer names on the radar

After a packed week of earnings which more or less met analyst expectations, this week brings further test of the concentrated equity rally that we have seen in the first half of the year. Big tech earnings season rolls forward with Apple and Amazon reporting after-market on Thursday. Apple’s big focus will remain on iPhone sales and targets, while VR headset and Chinese production bottlenecks will also be a focus. Amazon streaming and advertising growth could remain a key focus area, while the impact of cost-cutting on margins and the sustainability of the ecommerce business could also be key. Meanwhile, chip stocks like AMD (reporting on Tuesday) and Qualcomm (reporting on Wednesday) also remain in focus after Intel reported Q2 results last week and offered a better-than-expected outlook for this quarter. US economic health remains a key debate, and earnings from Caterpillar, Starbucks, Shopify, Paypal may bring a fresh test for that, while travel demand will be on check with earnings from Airbnb and Expedia.

Asia earnings season also heats up, with several key Japanese companies reporting earnings including Toyota (7203) and Nintendo (7974). Hong Kong’s HSBC (5) could be supported by the recent rebound in Hibor despite the sluggish loan growth. Singapore banks will also be in focus as DBS and OCBC report earnings. Singapore earnings focus will also be on REITs, with Capitaland Integrated Commercial Trust, Frasers Logistics & Commercial Trust, Frasers Hospitality Trust scheduled to report this week.

Earnings this week: