Calm before the storm

Summary

United States: Calm before the storm

• It was a light calendar of economic data this week. The ISM Services index fell to 50.8, showing that the service sector may be losing momentum. An unexpected spike in jobless claims is a sign that cracks are forming in the labor market. Higher mortgage rates look to be hindering a housing market rebound. Mortgage applications for purchase have now declined for four straight weeks. Net exports are setting up to be substantial drag on Q2 real GDP growth.

• Next week: CPI (Tue), Retail Sales (Thu), Industrial Production (Thu)

International: Hawkish hikes from Bank of Canada and Reserve Bank of Australia

• Bank of Canada policymakers surprised market participants this week, coming out of a pause with a 25 bps rate hike to 4.75%. The BoC indicated that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to target. Elsewhere, the Reserve Bank of Australia also delivered a 25 bps rate hike at its June meeting, bringing the Cash Rate to 4.10%, in line with our expectations but a surprise to many market participants. Similarly to the Bank of Canada, the monetary policy announcement language was hawkish in nature, leading us to believe more monetary tightening is on its way.

• Next week: European Central Bank (Thu), China Activity Data (Thu), Bank of Japan (Fri)

Interest Rate watch: The Fed weighs a potential pause at next week's meeting

• We see the most likely outcome for next week's meeting as the FOMC making no change to its policy rate, but making clear that another hike at its July 26 meeting remains a distinct possibility.

Credit market insights: Student loan debt forgiveness decision nearing

• The Supreme Court of the United States is set to rule on President Biden's plan to forgive student loan debt in coming weeks. But regardless of that ruling, the end to the more than three-year payment pause is coming at the end of August and could provide a headwind to certain households.

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