Look Ahead: Policymakers may tighten money supplies

A major report on the US economy will headline a week that could foreshadow changes to monetary policy around the world.

The main event is the semiannual economic report from US Federal Reserve Chair Janet Yellen, which will signal whether the government intends to further limit the supply of money by raising interest rates.

Investors also will be watching for developments for the Australian housing market and the Japanese currency that could result in similar changes. Meanwhile, crucial data on labour, business spending, and exports will inform opinions of a recovery that has brought surprisingly low wage growth in the US and abroad.

Monday: The US Federal Reserve will release its Labor Market Conditions Index, a multifaceted data set that can influence the US central bank’s policy. The 19-factor index has struggled to break an up-and-down cycle in recent years, most recently falling in May. Still, members of the Federal Open Market Committee generally see the labour market as strengthening, with some regions reporting higher wages and demand for workers – a belief supported by June projections from the US Labor Department. A rise in wages and prices could strengthen the Federal Reserve’s resolve to raise interest rates.

Monday’s release of housing data from the Australian Bureau of Statistics will bring potential warning signs into sharper focus. Loans will be of particular interest, considering recent speculation that the Reserve Bank of Australia would raise interest rates to curb household debt from record levels. The RBA most recently indicated that it wouldn’t do so in the near future, citing slow growth in wages.

Tuesday: A monthly survey of small businesses will show whether a streak of near-record optimism can keep burning hot in the US. The release for May showed increases in plans for new hires and capital outlays along with general optimism about the economy. One factor for policymakers to watch: A tight labour market means shorthanded owners can’t keep up with demand – and they also might be holding back on capital investment as a result.

The Bank of Japan’s index of prices for domestic goods will show whether inflation or deflation has taken hold after two months of stability for the yen. Wages and prices have made modest gains this year, falling short of the central bank’s goals. Business confidence is at a three-year high, but weak inflation will be a topic of debate for the BOJ board.

Wednesday: Federal Reserve Chair Yellen will speak before the US House Financial Services Committee on Wednesday morning, Washington time. In a break with tradition, the Federal Reserve was scheduled to release its semiannual monetary policy report five days ahead of the chair’s appearance. Based on generally stronger economic indicators, some analysts expect a “hawkish” message that could presage a third interest rate rise this year. That would tamp down inflation and speculation. It also could drive down stock prices while raising bond yields.

Meanwhile, labour statistics from Britain will indicate whether employment will continue to climb past the record high reported last month. (Unemployment also is at a longtime low.) Those new data may figure into the UK debate over workers’ rights, especially for the gig economy. Falling worker productivity is a reason for concern, as it may be slowing wage growth even as urban housing prices rise.

The Bank of Canada’s quarterly monetary policy report will give an overview of expectations for the country’s economy, which in previous issuances have remained relatively stable at 2% to 2.5% growth for 2017 and the years ahead. The bank’s governor has hinted that the current low interest rates have “done their job” in aiding recovery from the drop in oil prices.

Thursday: A report will total new loans from Chinese banks. Last month’s release showed that net new yuan loans outstripped expectations. The government encouraged banks to lend a record sum in 2016, raising fears of a debt bubble.

Friday: New data on euro-zone imports and exports will show how the continent’s economies are faring amid Brexit negotiations. In the long term, potential new tariffs on trade with the UK could hurt the euro-zone countries. For now, though, a weak euro and strong demand have driven euro-zone exports to six-year highs.

The US Commerce Department’s release of retail sales figures for June will show whether consumer spending recovered from an unexpectedly sharp decline, which largely was caused by lower auto sales. Analysts expect new vehicle sales may fall by 3% this year, breaking a years-long streak of gains for the industry.

Lastly, major US financial institutions will release earnings reports on Friday. Citigroup, JPMorgan, PNC, and Wells Fargo will detail their financial performances in the second quarter. All four topped expectations with their first-quarter results. Banks in 2016 edged to another year of record profits.