RBA rate hike, US jobs report in focus

In the holiday-shortened week ahead, Friday's jobs report and Wednesday's minutes from the Federal Reserve's June meeting are set to be the highlights. With the Fed rapidly tightening monetary policy to quell the highest inflation in decades, US equity markets are heading into an uncertain third quarter after the worst first half since 1970. Despite soaring inflation, Australia's central bank is expected to hike rates by half a per cent on Thursday.

Stocks on Wall Street shot higher on Friday after the stock market experienced its worst half in decades. Still, all three futures indexes are hovering in the red on Monday. There are several possible pivotal events in July that could determine the direction markets take over the next few months. As investors focus their attention on Friday's employment report, the following week's inflation data will significantly impact the Fed's decision-making at its upcoming meeting on July 26 and 27.

FX market

The US dollar, trading above 105 against a basket of competitors, has benefited from investor demand for the most liquid safe haven. A flat euro trades between $1.06 and $1.035, roughly where it was five years ago. It is expected that the European Central Bank will increase interest rates for the first time in a decade this month. The euro could get a boost if it decides to move at a faster pace by half a point hike.

Recession concerns persist

Earnings for the second quarter start arriving the week of July 11, indicating whether companies can meet expectations despite surging inflation and growth fears. The Atlanta Federal Reserve's much-watched GDP Now forecast for the second quarter slid to an annualised -2.1% for the second quarter, after the economy's shrink of 1.6% in the first quarter. It will likely become clear that the country is already in a technical recession.

RBA increases rates again

In an attempt to curb inflation running at two-decade highs, the Reserve Bank of Australia is expected to hike interest rates by half a percentage point on Tuesday. This will be the first time rates have been hiked by that magnitude in successive meetings, bringing its cash rate to 1.35%.

US Job openings figures

US labour market data is among the most important data this week. The US will release JOLTs job opening data for May on Wednesday, with the number of vacancies expected to slow only slightly to 11 million, from 11.4 million in April, which is almost two vacancies per unemployed person in the country. On the other hand, as companies compete for labour, wages have increased due to the shortage of skilled workers.

NFP data for June

Due to the Fed's inflation/employment mandate, investors will closely watch Friday's nonfarm payrolls report as further evidence that the economy is cooling amid aggressive policy tightening by the Fed. In June, the number of jobs added by the economy is expected to have been 270,000, down from 390,000 a month earlier. The unemployment rate will likely stay at 3.6%, indicating strong demand despite a cooling economy. Hourly earnings are expected to have increased by 5% year-over-year.

After the Fed's most recent 75 basis point rate hike, a weaker-than-expected jobs report could exacerbate fears of a recession and reinforce the argument for slower rate hikes in the future.

US PMIs

Also, this week, the US will publish the ISM services PMI for June following the ISM manufacturing PMI last week, which pointed to a slowdown in input prices, factory orders, and jobless claims.

Fed's speakers

Several Fed speakers are scheduled during the week, including New York Fed President John Williams on Wednesday and again on Friday, along with Fed Governor Christopher Waller and St. Louis Fed President James Bullard.