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Bob Mason
The Week Ahead

On the Macro

For the Dollar, it’s a particularly busy week, with pending home sales on Monday to give further evidence of a possible peaking in the housing sector. Tuesday’s core PCE price index, consumer confidence and personal spending figures will be in focus, especially after softer 2nd quarter PCE price index figures last Friday. On Wednesday, the market’s preferred ISM manufacturing PMI and ADP Nonfarm Employment change are due out ahead of the release of the FOMC Statement and interest rate decision. A September green light or concerns over softer inflation? Thursday’s weekly jobless claims and June factory order numbers come ahead of Friday’s wage growth and non-farm payrolls, with service sector PMI and trade data also to consider. While the FED will be the key driver, there are plenty of stats that will influence the Dollar through the week. The Dollar Spot Index ended the week up 0.20% at $94.669.

For the EUR, it’s another busy week ahead, with finalised July private sector PMI numbers due out on Wednesday and Friday, prelim July inflation figures due out of Spain and Germany on Monday and out of France, Italy and the Eurozone on Tuesday, with German retail sales, unemployment figures, 1st estimate GDP numbers out of Spain and the Eurozone and the Eurozone’s June unemployment rate also due out. Of lesser impact will be Spanish unemployment numbers and Eurozone retail sales figures out on Thursday and Friday. GDP and inflation numbers will certainly influence, as will the stats out of Germany. The EUR/USD ended the week down 0.57% to $1.1657.

For the Pound, A quiet first half of the week, has key stats limited to July house price figures and July’s manufacturing PMI, which comes ahead of Super Thursday and the BoE’s anticipated rate hike. Ahead of the BoE’s inflation report, interest rate decision and Carney press conference, the July construction PMI will likely have a muted impact. Assuming rates are raised, direction for the Pound will be hinged on whether there’s talk of another rate hike before the end of the year. Suggestions of a need to hold due to some softer data and over Brexit woes and the Pound could actually take a tumble. The inflation report will also need to be considered. The week is wrapped up with the July services PMI on Friday, which will influence, while unlikely be able to sway sentiment from Thursday’s press conference. The GBP/USD ended the week down 0.24% to $1.3105 last week.

For the Loonie, a slightly busier week, with GDP and RMPI numbers due out on Tuesday, ahead of trade data on Friday. While NAFTA chatter may well be the key driver, the GDP and trade numbers will need to hold up to maintain the BoC’s hawkish stance on policy. The Loonie ended the week up 0.68% to C$1.3055 against the U.S Dollar.

Out of Asia, it’s particularly hectic week ahead.

For the Aussie Dollar, June’s trade and retail sales figures on Thursday and Friday will be the key drivers through the week, while we can expect private sector credit numbers on Tuesday and manufacturing data on Wednesday to have some influence. Other stats include building approvals and new home sales numbers due out on Tuesday that are unlikely to have too much of an impact. Trade war chatter will also likely continue that would influence commodity prices and ultimately the Aussie Dollar. The AUD/USD ended the week down 0.20% to $0.7400.

For the Japanese yen, it’s a busier week ahead, with key stats including retail sales figures on Monday, household spending, job applications ratio and industrial production figures on Tuesday, with Tuesday’s BoJ interest rate decision, policy statement and press conference the ultimate driver through the week, Friday’s release of June’s BoJ monetary policy meeting minutes unlikely to have too much of an impact. The stats are unlikely to be considered material to the BoJ’s decision, some tweaking to policy anticipated. The Japanese Yen ended the week up 0.23% to ¥111.05 against the U.S Dollar.

For the Kiwi Dollar, the key driver through the week will be 2nd quarter employment data that are scheduled for release on Wednesday, while we can expect building consents and business confidence on Tuesday to provide some direction, while we can expect the Kiwi to also be sensitive to any trade war chatter through the week. The Kiwi Dollar ended the week down 0.28% to $0.6790.

Out of China, July private sector PMI numbers are due out through the week, with the SoE numbers due out on Tuesday, ahead of the Caixin manufacturing and services PMI figures due out on Wednesday and Friday respectively, the manufacturing numbers being the key drivers for commodities, commodity currencies and market risk appetite in general. Talks of fiscal policy support could ease some of the pain, as could Trump’s signing of the tariff bill passed through both houses last week. Any disappointing figures and market angst over the ongoing trade war could intensify, which would certainly be a risk off scenario.

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Geo-Politics

On the political front, the markets are far from free from geopolitical risk…

U.S – EU Summit: While there are some minor issues to address, following the U.S – EU mini Summit last week, the EU is going to have to play ball with the U.S, just one week remaining before fresh U.S sanctions-hit Iran. Any hint of EU companies and countries looking to ignore U.S demands and expect talk of tariffs on the EU’s auto sector to return.

U.S – Russia: The Summit may be over, but investigations into the U.S administration colluding with the Russians during the 2016 Presidential Election campaign had the news wires busy over the weekend, with talk of Trump being aware of “The Meeting” between Trump Jnr, campaign aides and the Russians capable of delivering both potential legal and political crisis to the Oval Office door.

Loonie Woes: NAFTA talks are expected to resume as early as in the week ahead, which will undoubtedly create some market noise and deliver some Loonie volatility. Following a relatively painless meeting between Juncker and Trump last week, anything less for Canada would likely hit the Loonie hard.

U.S – China Trade War:  The U.S Senate just passed a bill last week to cut or completely remove tariffs on goods that are no longer produced in the U.S, the tariff bill passing through both houses unanimously and due to hit Trump’s desk next week. Trump’s response will be an interesting one, particularly after having threatened to go all in on tariffs.

U.S – North Korea Summit: Following the return of the remains of U.S. troops, will the North Korean leader look for something in return and how will the U.S President respond, some progress now needed following the Summit in Singapore.

Iran: Sanctions kick in on 6th August. Tensions are likely to build further ahead of the go live date as European countries, who jostled for access to the country in response to the removal of sanctions in 2016, are forced to pull out or face the wrath of the U.S.

Brexit: Talks to resume in mid-August, with the EU having shot down Theresa May’s last proposal before the summer break. As time passes, the chances of a No Deal disorderly departure from the EU becomes ever more real. A last-gasp turnaround in EU attitudes is about the only hope the optimists have. Will the BoE be willing to move on hiking rates to provide some buffer ahead of what could be an unprecedented economic crisis come the 2nd quarter of next year? It’s not looking good for the Pound…


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The Rest

On the monetary policy front, it’s a particularly busy week ahead…

  • For the JPY: The Bank of Japan gets things underway, with Tuesday’s interest rate decision, the release of the monetary policy statement and outlook report ahead of the all-important press conference. There’s been the talk of the BoJ looking to shift on its policy towards the yield curve and policy towards 10-year government bond yields. While inflation continues to sit well below target and the Japanese economy struggles, with household spending and wage growth key concerns, the existing policy just hasn’t worked, though what options the BoJ has remains to be seen. We can certainly expect a choppy first half of the week for the Yen.
  • For the USD, the FED is not expected to be making any moves on Wednesday, though there may be some forward guidance for a possible hike in September. While 2nd quarter GDP impressed, softer PCE price index figures relative to the 1st quarter could give the doves reason to attempt to pin back expectations of two further rate hikes over the remainder of the year, though much will depend on Tuesday’s core PCE Price Index numbers and whether there are expectations of an extended trade war with China. Perhaps some reference to Trump’s rants on the FED’s rate path?
  • For the GBP, the heavily anticipated August decision on Thursday will certainly influence the Pound, recent economic data muddying the waters on whether the BoE will be willing to make a move, particularly with the uncertainty surrounding Brexit and whether Theresa May will be able to pull a rabbit out of the hat after her summer vacation. It’s not just going to boil down to whether the BoE makes its move, but whether there is talk of another before the end of the year. Carney’s press conference will no doubt provide some near-term clarity, while nothing will be set in stone, the UK economy possibly on the precipice of disaster, if the Brexit scaremongers are correct.

Earnings: Another big week on the earnings front will see the equity markets on the move, though Trump and monetary policy could ultimately overshadow any upbeat numbers, particularly if there’s a lack of progress on trade talks between the U.S and China and if the FED raises any concerns over the U.S economy.

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