Week Ahead for FX, Bonds: Fed Decision, U.S. Jobs Data, Tariff Deadline in Focus

By Dow Jones Newswires staff

Below are the most important global events likely to affect FX and bond markets in the week starting July 28.

A U.S. Federal Reserve interest-rate decision; President Trump's August 1 deadline for reciprocal tariffs; and key data on U.S. jobs, economic growth and inflation will take center stage in a busy week for markets.

Rate decisions are also due in Japan and Canada, alongside gross domestic product data and inflation figures from the eurozone.

In China, officials are expected to gather at some point in the final days of July for a crucial economic policy meeting.

U.S.

Focus in the coming week will center on a decision by the U.S. Federal Reserve on Wednesday, where it is expected to leave interest rates on hold at the current range of 4.25%-4.5%. This follows recent data showing rising inflation and a robust economy.

"We believe this [Fed] meeting will be a non-event with rates left on hold and quantitative tightening likely left unchanged," ING analysts said in a note.

However, the decision comes amid criticism from President Trump of Fed Chair Jerome Powell and repeated calls for the central bank to cut interest rates. Trump has also threatened that he could oust Powell amid claims of fraud related to a refurbishment of the central bank running over budget. Concerns about potential threats to Fed independence have weighed on the dollar and sparked some doubts about the currency's safe-haven status.

A raft of key data on inflation, the economy and the labor market will give clues on whether the Fed could be justified in cutting interest rates in the coming months.

Any signs of a cooling job market, a weakening economy and ebbing consumer confidence could increase prospects for rate cuts to restart in September or October. However, this will be balanced against the expectation that tariffs will stoke inflation. U.S. money markets currently fully price in a rate reduction in October, LSEG data show.

Key data include the release of the advance estimate of second-quarter U.S. gross domestic product on Wednesday; PCE inflation data--the Fed's preferred measure--on Wednesday, and nonfarm payrolls figures for July on Friday. The closely-watched ISM manufacturing survey for July is also released Friday.

"As long as the jobs picture holds up, firmer inflation may well delay the restart of the Fed easing cycle and provide the dollar with a lift this summer," ING's analysts said.

Ahead of Friday's payrolls data, more clues on the job market will come from June JOLTS job openings data Tuesday, ADP private payrolls on Wednesday and weekly jobless claims Thursday. Other data include the July Conference Board consumer confidence index and Case-Shiller home price index for May on Tuesday, plus the University of Michigan's final consumer survey for July on Friday.

Another key event for markets will come on Friday: the August 1 deadline for the U.S. to impose reciprocal trade tariffs.

Optimism has been growing that the U.S. will soon reach agreement with the European Union and various countries, although any expectedly harsh announcements could cause volatility in financial markets.

The Treasury will auction two- and five-year notes on Monday and seven-year notes on Tuesday.

Canada

The Bank of Canada announces a decision on Wednesday and is expected to leave interest rates on hold at 2.75%. Canada's economy has proven relatively resilient recently following a string of rate cuts, although there are concerns about the detrimental effects of U.S. tariffs.

Gross domestic product data for May are due on Thursday.

Latin America

Brazil's central bank announces a decision on Wednesday. It is expected to leave rates on hold at 15.0% after delivering 275 basis points of rate hikes this year.

Rate decisions are also due from Chile on Tuesday and Colombia on Wednesday. HSBC economists expect both central banks to cut interest rates by 25 basis points.

Eurozone

Key data on the eurozone economy are due during the week, with the first estimate of second-quarter gross domestic product on Wednesday and provisional inflation figures for July on Friday.

These come after the European Central Bank left interest rates on hold at its recent meeting on July 24 and chances for a ninth rate cut in the current cycle are becoming thinner.

"With growth holding up and inflation at target, we believe the cutting cycle is drawing to a close," Pimco portfolio manager Konstantin Veit said in a note.

GDP data will give the first insight about how much tariff uncertainties weighed on the economy.

Ahead of the eurozone figures, preliminary second-quarter GDP data are due from Spain on Tuesday, then from Germany, Italy and France on Wednesday. Flash estimate inflation data for July are also released from Spain on Wednesday, then from France, Italy and Germany on Thursday.

Other data include eurozone business and consumer surveys on Wednesday, followed by eurozone unemployment data on Thursday.

French consumer spending for June is due on Wednesday. Final readings of Spanish, Italian, French, German and eurozone manufacturing PMI data will be released Friday.

Belgium will auction government bonds on Monday. Germany will tap October 2030-dated Bobl on Tuesday. Italy's end-of-month auction is due on Wednesday.

U.K.

U.K. consumer credit and mortgage lending data for June are released on Tuesday, while the final reading of the purchasing managers' index on manufacturing activity for July is due Friday. Nationwide's house price indicator for July is also due during the week.

These come against a backdrop of concerns about a relatively weak U.K. economy and about fiscal sustainability.

The U.K. is due to auction gilts maturing in 2028 on Tuesday.

Scandinavia

Sweden will release June trade data on Monday, followed by second-quarter gross domestic product figures Tuesday, then June retail sales and the July consumer confidence indicator on Wednesday.

Purchasing managers' surveys on manufacturing activity in July for Sweden and Norway are released Friday.

South Africa

South Africa's central bank, the South African Reserve Bank, announces a rate decision on Thursday.

Following recent weak inflation data for June, analysts say the central bank is likely to cut interest rates by 25 basis points to 7.0%.

Japan

The Bank of Japan is expected to keep its policy rate at 0.5% when its two-day meeting concludes Thursday. While a trade deal between the U.S. and Japan reduced some economic uncertainty, policymakers will likely adopt a wait-and-see approach to the impact of tariffs. The central bank will also release its quarterly growth and prices outlook.

Industrial production for June, due Thursday, is expected to show a further decline in manufacturing. Retail sales for June and auto sales for July, out Thursday and Friday, respectively, will offer insights into household spending, while the June jobless rate is also due Friday.

The Bank of Japan plans outright purchases across four Japanese Government Bond sectors, including longer-tenor and inflation-indexed bonds.

The Ministry of Finance will auction about 2.6 trillion yen of two-year sovereign notes Tuesday, which could draw institutional interest as two-year yields hover near their highest levels since April.

Uncertainty over fiscal policy persists, with questions around the leadership of the Liberal Democratic Party and coalition changes after reports of Prime Minister Ishiba's plan to resign following the Upper House election, Barclays analysts said. "Attention is focused on whether there will be strong demand for the front end," of the Japanese government-bond yield curve, they said.

China

All eyes are on trade talks between the U.S. and China, with just weeks left before their temporary truce is set to expire.

A commitment to continue the detente, which rolled back some tit-for-tat tariffs and countermeasures, could further support markets and spark hopes of eventually reaching a formal deal.

ING economists think that a tariff ceasefire extension is attainable, while markets in the meantime will closely watch for any adjustments to tariffs in either direction, they said.

On the domestic policy front, a high-level meeting is expected to take place at some point in the final days of July. The Politburo, China's top decision-making body, will likely focus on reducing excess competition and tackling overcapacity, while many analysts see major stimulus as unlikely.

PMIs for July are also on the docket for China, as markets watch for signs that easing tensions with the U.S. are lifting sentiment for businesses hit by tariffs.

Official PMI data covering the manufacturing, services and construction sectors are due Thursday, followed by a private gauge of manufacturing activity on Friday, which focuses more on smaller private companies.

ING economists expect the official figures to show manufacturing remained in contraction at the start of the third quarter. That would mark a fourth straight month of decline as trade frictions weigh.

Analysts will also scrutinize China's nonmanufacturing PMI, which spans both service and construction activity, for more signs of improvement.

Australia/New Zealand

Investors' focus will be on the release of the second-quarter consumer price index on Wednesday, which is expected to confirm inflation is safely back within the Reserve Bank of Australia's 2% to 3% target band.

The RBA kept interest rates on hold this month in anticipation of seeing the inflation numbers come in line with expectations. In the absence of surprises, economists expect another rate cut in August, marking the third this year.

Since keeping the official cash rate at 3.85% this month, the RBA has received data confirming that unemployment is again rising. RBA Governor Michele Bullock said the rise in the unemployment rate to 4.3% in June, which was met with alarm from some analysts, had been anticipated in its forecasts.

When considering the unemployment news alongside weak economic growth, uncertainty in the global economy, and low inflation, economists will again expect a cut in interest rates next month. RBA Deputy Gov. Andrew Hauser will speak on Thursday in what is likely to be an opportunity for the central bank to comment on the inflation numbers.

Singapore

The Monetary Authority of Singapore will release its monetary policy statement Wednesday and is expected to stay on hold, with the central bank likely to adopt a 'wait-and-see' approach, said DBS senior FX strategist Philip Wee.

Singapore avoided a technical recession in the second quarter, though uncertainty lingers as the U.S. extended its tariff pause to Aug. 1. Wee said hints of a third easing may emerge at the October review.

Second-quarter employment data is due midweek, while the purchasing managers index for July, compiled by the Singapore Institute of Purchasing and Materials Management, is due on Friday. The reading will signal whether manufacturing continues to rebound amid U.S. tariffs.

Taiwan

Taiwan will release its advanced second-quarter GDP on Thursday. After a 5.48% expansion in the first quarter, economists expect growth between 4.6% and 7%, driven by strong exports, particularly in chips and hardware from TSMC and Foxconn.

Exports in May rose at the fastest pace in nearly 15 years, with shipments to the U.S. up 87%. Markets are closely watching U.S.-Taiwan trade talks ahead of the Aug. 1 tariff deadline, which could shape the economy's outlook.

Economists expect Taiwan's economy to have continued to grow at a fast speed thanks to robust exports, with forecasts ranging from 4.6% to as high as 7%.

Enthusiasm surrounding artificial intelligence has further supported exports of key technological products from Taiwan's chip and hardware makers. Given Taiwan's export-reliant economy, developments around trade talks could set the tone for Taiwan's growth for the rest of the year.

Hong Kong

Investors are watching for signs of Hong Kong's economic strength as the economy navigates trade tensions.

Market sentiment has been supported as the city's equity market welcomed a number of new listings during the quarter. Separately, Hong Kong's retail sales in June rose by a low single-digit on year, while retail sales of the first five months declined 4% on year by value.

South Korea

South Korea is due to release its July trade data Friday. Most analysts expect exports from Asia's fourth-largest economy to sustain growth following a resilient rebound in June despite challenges from higher U.S. tariffs.

"Despite the softening momentum, we continue to expect a mid-single-digit increase in exports and a decent trade surplus in July," Barclays economist Bum Ki Son said in a note. Slower tech exports and a summer vacation season starting at some Korean auto factories could soften momentum, Son said.

With some of the quarter-end shipment growth losing steam, the increase in exports of autos to the U.S. may have also slowed, he added.

Regional Asian PMIs

A batch of PMIs are due Friday, Aug. 1, coinciding with the expected start of new U.S. tariffs. Surveys for South Korea, Taiwan and India will show how manufacturers are bearing the pressure from trade policy uncertainty at the start of the third quarter.

Recent prints showed the lack of clarity continues to weigh on demand and investor sentiment, weakening manufacturing conditions across most of the region.

Now that some trade deals have been struck, markets will watch to see if that moves the needle for any of the PMI readings. Market focus will be on how countries balance U.S. tariff policies and increased domestic stimulus, as producers adapt to a rapidly changing trade environment, the S&P Global Market Intelligence team said in a note.

Indonesia

Indonesia will release trade data for June and inflation figures for July on Friday.

ANZ expects inflation to have risen modestly on higher food prices and base effects. Core inflation is likely to have remained subdued, reflecting weak domestic demand.

With inflation under control, there is room for further interest rate cuts to support growth, ANZ economists Sanjay Mathur and Dhiraj Nim said. They expect two more 25-basis-point cuts this year, bringing the policy rate to 4.75%, though the timing will hinge on global market conditions.

Any more details on the trade pact reached with the U.S. will also be in focus.

The newly agreed upon 19% tariff rate on Indonesian goods offers some relief for key export sectors, CIMB economists said, adding that risks persist from Indonesia's ties with the Brics bloc, which could trigger additional U.S. tariffs.

Any references to days are in local times.

Write to Jessica Fleetham at jessica.fleetham@wsj.com and Jihye Lee at jihye.lee@wsj.com