The Week Ahead – Geo-Politics in Focus, as Central Banks Take a Break

While stats are on the heavy side, it’s all down to Trump and the Oval Office stance on enemies of the State.
Bob Mason

On the Macro

For the Dollar, Key stats out of the U.S include July retail sales figures due out on Wednesday and consumer sentiment figures on Friday, with sensitivity towards the ongoing trade war putting a greater emphasis on manufacturing and production figures due out on Wednesday and Thursday. Geo-political risk will continue to be a key driver however. The Dollar Spot Index ended the week up 1.26% at $96.357.

For the EUR, it’s a busy week ahead, with 2nd quarter GDP numbers out of Germany and the Eurozone, coupled with August economic sentiment figures the key drivers on Tuesday, with finalized inflation figures unlikely to have a material impact, barring a material deviation from the prelim numbers.  The EUR/USD ended the week down 1.34% to $1.1413.

For the Pound, it’s another busy week ahead, with Tuesday’s employment numbers, Wednesday’s inflation figures and Thursday’s retail sales figures all expected to direct the Pound and, while an uptick in inflation could force the BoE to change its stance, should retail sales figures impress, it may well boil down to Brexit news. The GBP/USD ended the week down 1.87% to $1.2758 last week.

For the Loonie, July inflation figures due out on Friday will be the key driver on the data front, with the lack of stats earlier in the week likely to give June manufacturing sales figures due out on Thursday a greater influence, while NAFTA will be the key driver for the week should talks resume. The Loonie ended the week down 1.15% to C$1.314 against the U.S Dollar.

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

For the Aussie Dollar, stats through the week include business and consumer confidence figures due out on Tuesday and Wednesday, with 2nd quarter wage growth numbers also due out ahead of July employment figures on Thursday. We expect the Aussie Dollar to be sensitive to all of the numbers, though there will be some influence from metal prices through the week. The AUD/USD ended the week down 1.38% to $0.7302.

For the Japanese yen, it’s a quiet week ahead, with stats limited to June industrial production on Tuesday and July trade figures due out on Thursday. Positive numbers will provide some upside for the Yen, though geo-political risk will likely remain the key driver near-term. The Japanese Yen ended the week up 0.38% to ¥110.38 against the U.S Dollar.

For the Kiwi Dollar, Friday’s 2nd quarter producer price input figure is the only major stat to consider, which is unlikely to materially influence outlook on policy near-term, the Kiwi having been slammed last week. The Kiwi Dollar ended the week down 2.28% to $0.659.

Out of China, while the stats are on the lighter side, they will certainly have an influence on market risk appetite through the week, with July retail sales, FDI and new loan numbers on Monday and fixed asset investment and industrial production figures scheduled for release on Tuesday, though the trade spat will continue to be the key driver.

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

Turkey: Things just heated up and the markets went into meltdown, with the U.S Dollar surging and the equity markets sliding, the upswing in the Dollar hitting metals prices as Trump hiked tariffs on steel and aluminium imports from Turkey. The week ahead will likely to see plenty of action, with the U.S Dollar the clear market favourite when both aggressor and likely victor.

Loonie Woes: Canada still waits on to re-join NAFTA talks as Mexico and the U.S continue thrash out stumbling blocks relating to the auto sector. A resumption of trilateral talks could have a material impact on the Loonie that has been treading water in spite of a hawkish BoC.

U.S – China Trade War:  As the talk of more tariffs hit the news wires, has China hit the U.S where it hurts most?

Will China change the trade war spiel or continue to respond in what has become more akin to a game of chicken than a motivation to steer the world’s largest economies to the negotiating table.

Iran: Sanctions are back and Iran claims to have found a way to maintain export volumes. With the EU brushing aside warnings from Washington to cut business ties and crude oil imports, things could get interesting, particularly with the Iran economy struggling.

Brexit: There’s talk of kicking the Brexit can down the road a little longer, with the possibility of an extension to Brexit negotiations doing the rounds across the news wires. Perhaps better than a “no deal” scenario if the market truly believes and extension can deliver a better outcome. The Pound has been hit hard and only a Brexit optimist can talk up the Pound at this juncture. If it was in nobody’s interest for a “no deal” outcome, the EU would have chosen an alternative path. Its first priority must be the survivorship of the Union, not the best interests of the UK or concerns over trade.

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