In this Global Week Ahead, the leaders of our monetary systems will parse fresh macro data. It matters to their economies. It also matters to risk markets and traders.

In recent years, economists applied a fancy term to a new phenomenon-- ‘divergence’ in monetary policies.

What is that?

Divergence relates to the difference in monetary policies adopted by the world’s most systemically important central banks -- the U.S. Federal Reserve System (the Fed), the European Central Bank (ECB) and the Bank of Japan (BoJ).

These three central banks used to synchronize their policy decisions. However in 2014, their monetary policies started to decouple. Investors witnessed the starkest contrast between them in Dec. 2015, when the ECB eased monetary policy, while the Fed raised rates.

What was the main cause of early divergence in monetary policies? It was the fact that the U.S. economy recovered more quickly than Europe’s did after the Great Recession.

Now, there is a new ‘late cycle divergence’. The U.S. Fed is still raising policy rates. But the latest Fed rate hikes are being done in the face of a slower-growing U.S. economy -- with falling consumer inflation.

Meanwhile, the ECB is not raising rates -- and Europe is benefitting from a strengthening growth expansion.

This new ‘late cycle divergence’ bears some deeper thought. It may portend an unseen shift in monetary policies ahead.

Later this week, the emerging U.S. growth and inflation struggle will be on full display…

On Monday, U.S. stock markets close early.

On Tuesday, they are shuttered completely for the Independence Day holiday. These days should see low trading volumes and increased volatility.

On Wednesday, pay attention to the latest minutes to the June 14th FOMC meeting, when the Fed raised policy rates 25 basis points. Traders, tune in to what the discussion was over falling core consumer price inflation. Did the members see it uniformly as a transitory phenomenon?

On Thursday, Fed Vice Chair Stanley Fischer will speak on government policy and productivity.

Then, on Friday, the U.S. non-farm payroll print is out. This is the key data. It will give traders the latest mid-year update on the strength of the underlying U.S. economy. Consensus has forecasted +140K.

That is a sober low U.S. late cycle growth, a hint of what is to come this year.

In Europe, in contrast, the economic story is picking up.

This week, we get the latest PMIs on manufacturing and services.

On Monday, the latest manufacturing PMI data showed activity hit the highest since 2011. The headline June composite PMI lifted from 57.0 to 57.4.

IHS Markit’s survey of Eurozone factories showed Germany (59.6) led, with the Netherlands (58.6), and France (54.8) looking very strong. A reading above 50 points implies expansion.
Even Greece – the laggard – hit expansion at 50.5.

Markit’s covering economist Chris Williamson says the Eurozone manufacturing PMI has now been above the crucial 50-expansion mark for four years. The latest quarterly performance is also the best in over six years.

He highlighted strong export and domestic demand -- as key growth drivers.

“There’s no sign of the impressive performance ending any time soon”, said Mr. Williamson.

“Optimism about the year ahead has risen to the highest for at least five years, backlogs of orders are building up at the fastest rate for over seven years, and factories are reporting near-record hiring, as they struggle to deal with the upturn in demand.”

Three Top Zacks #1 Rank (STRONG BUY) Stocks—

(1) Cummins (CMI Quick QuoteCMI - Free Report) : This is a $26 billion market cap internal combustion engine stock, based in the USA. The stock earned a long-term Zacks VGM score of B.

Does a stock like this suffer when U.S. growth slows?  That is what I would watch for.

(2) Ryanair Holdings PLC (RYAAY Quick QuoteRYAAY - Free Report) : This is a $26 billion market cap discount airline, based in Ireland. The stock carries a long-term Zacks VGM score of C.

Do European stocks like this benefit from a stronger European economic engine? You have to think much of the latest macro PMI news is already priced in.

(3) American Air (AAL Quick QuoteAAL - Free Report) : This is the big $24 billion market cap stock. This U.S. airline you should know. The good news for stock buyers is that, along with the Zacks #1 Ranking, there is a long-term Zacks VGM score of A.

Maybe it is time to be contrarian?  Buy a U.S. airline, and sell a European one?

Key Global/Macro—

On Monday, U.S. vehicle sales have come in at 16.58 million annually. Where does the latest data put it?

The China Caixin (smaller company) manufacturing PMI came in at 50.4, after a prior 49.6 reading. There’s no new news there.

In comparison, the Irish manufacturing PMI was 56.0.

What of the India manufacturing PMI? It was 50.9, after a prior read of 51.6.

Germany’s manufacturing PMI was 59.6, France 54.8, and Italy 55.2.

The US manufacturing PMI, last time, was 52.1

However, the latest South African manufacturing PMI bears notice. It was 45.6. That is a recession reading.

The Feds’ Bullard speaks in London.

On Tuesday, Sweden’s central bank, the Riksbank, will address its -0.5% negative repo rate.

Brazil’s industrial production may turn positive, to +2.8% y/y from -4.5% y/y.

On Wednesday, the latest services PMI get released. France’s prior reading was 55.3, Germany was 55.7, and the Eurozone services as a whole was 54.7.

The Eurozone composite (of both manufacturing and services) was 54.7. Where does it go now?

The latest U.S. FOMC minutes get released.

On Thursday, the U.S. private employer ADP employment survey comes out. The prior reading was 253K.

U.S. initial claims recorded a low 244K. This week should be low again.

The ISM non-manufacturing index comes out. The forecast is for 56.5.
Fed Vice Chair Stanley Fischer will speak on gov’t policy and productivity.

On Friday, the U.S. unemployment rate of 4.3% and Canada’s unemployment rate at 6.6%, get updated.

U.S. non-farm payroll for June is forecast for +140K.