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Bob Mason

On the Macro

For the Dollar, key stats include May business inventory, June retail sales and July NY State manufacturing numbers on Monday, industrial production numbers on Tuesday, housing sector stats on Wednesday and July’s Philly FED manufacturing PMI and weekly jobless claims on Thursday. While focus will be on the retail sales numbers, rising inflationary pressures expected to test consumer spending, the markets will also be looking for any signs of softer private sector PMI numbers as the trade war goes on. The Dollar Spot Index ended the week up 0.76% at $94.677.

For the EUR, It’s a relatively quiet week on the data front, with key stats limited to the Eurozone’s May trade figures on Monday, finalized June inflation numbers out of Italy on Tuesday, the Eurozone’s finalized June inflation figures on Wednesday and wholesale inflation figures out of Germany on Friday. The Eurozone’s inflation numbers will be the key driver from a data perspective, though direction will likely be hinged on trade war chatter. The EUR/USD ended the week down 0.52% to $1.1685.

For the Pound, key stats through the week are on the heavier side and likely to have a material bearing on the BoE’s August MPC meeting. Employment and wage growth figures on Tuesday. June inflation numbers on Wednesday and June retail sales figures on Thursday will be in focus. Stable labour market conditions, an uptick in inflation and another solid set of retail sales numbers off the back of 2018 world cup fever could be enough for Carney and the team. Outside the data, noise from number 10 will need to be considered, any threat of a General Election likely to cause the BoE to hit the pause button. The GBP/USD ended the week down 0.46% to $1.3222 last week.

For the Loonie, economic data through the week includes May manufacturing sales figures due out on Tuesday and the more influential May retail sales and June inflation figures on Friday. In spite of the possible impact of an extended trade war on the Canadian and global economy, the BoC brushed aside the threats in its July policy meeting last week, raising the impact of key economic indicators on the outlook for BoC policy. Solid numbers could see the Loonie back at C$1.29 levels, particularly if trade war jitters ease. The Loonie ended the week down 0.58% to C$1.316 against the U.S Dollar.

Out of Asia, it’s a relatively busy week ahead.

For the Aussie Dollar, stats through the week are on the lighter side, with the markets needing to look ahead to Thursday’s employment numbers for direction, though Monday’s economic data out of China will certainly be of influence, as will any trade war chatter. Outside of the data, the RBA meeting minutes on Tuesday will also be in focus, though we don’t expect any major surprises. The AUD/USD ended the week down 0.08% to $0.7424.

For the Japanese yen, it’s another relatively quiet week, with key stats through the week limited to June trade figures that are scheduled for release on Thursday and June inflation figures on Friday. The Yen has taken a tumble of late, with U.S Treasuries becoming the go to safe haven during the current trade war, with the Japanese economy also at risk should Trump divert some focus to Japan’s multinationals. June’s stats are unlikely to shift sentiment towards BoJ policy near-term to provide the Yen with any material near-term support. The Japanese Yen ended the week down 1.73% to ¥112.38 against the U.S Dollar.

For the Kiwi Dollar, stats are limited to 2nd quarter inflation figures that are due out on Tuesday. Following the dovish tones of the RBNZ at the June policy meeting, any uptick in the rate of inflation would certainly give the Kiwi Dollar a boost, though market sentiment towards the ongoing trade war will likely remain the key driver near-term. The Kiwi Dollar ended the week down 1.10%% to $0.6753.

Out of China, key stats through the week include 2nd quarter GDP numbers, June fixed asset, industrial production and retail sales figures all of which are due out on Monday. With market concerns over a possible slowdown in the Chinese economy through the 2nd half of the year doing its rounds, we can expect the stats to have a material impact on risk appetite at the start of the week, though any hints of an agreeable end to the U.S – China trade war may offset the effects of any soft numbers.

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

U.S – Russia Summit: Monday, 16th July could be a horror show for NATO members and Europe in general, the U.S President continuing to rock the boat and this boat is a big one to rock. Main areas of focus will include: Election interference; nuclear arsenals; sanctions; the Middle East, Iran and Syria in particular; and possibly Crimea though it may just boil down to how chummy they appear, from a global financial market perspective. The timing of the Summit may or not coincident following Mueller’s indictment of 12 Russians suspected of meddling in the Presidential Election.

Loonie Woes: The Bank of Canada brushed aside any concerns that an extended trade war could impact monetary policy, though the BoC was also clear that the rate path would be dependent upon economic data. So, if we see the trade war become prolonged and more hostile, the BoC may ultimately have to stand pat and that could see the Loonie back at C$1.33 levels. We could see NAFTA negotiations make progress however and that can only be a good thing for the Loonie.

U.S – China Trade War: The threat of more may not have stopped, but news of a possible return to the negotiating table will have given hope that a full scale trade war can be averted. News in the coming week will no doubt reinforce or quash such prospects, with both sides capable of taking further retaliatory steps that could see the markets balk once more, U.S Treasuries seemingly most in demand, which has pinned back the Dollar, with FED’s rate path to policy normalization adding to the shift in demand during periods of heighted market stress.

U.S – North Korea Summit: No news is good news and, while Trump was tweeting a ‘nice’ letter from the North Korean leader, things could go sideways at any juncture. With the global financial markets currently super sensitive to any risk off events, any negative chatter could send the markets into a spin.

Iran: It’s all a little quiet on the nuclear agreement and sanctions front. A cut back in output from Iran is already priced in, so any shift in sentiment could have a material impact on crude oil prices.

Brexit: The good news is Trump’s flip flop on the prospects of a trade agreement in the event of a soft Brexit, the bad news is that it may not be the Tory Party negotiating it. While we can expect the EU and the British government to continue with their current approaches, things may become trickier for Theresa May, who continues to fail to get the Conservative Party aligned. Any hint of a possible ousting and expect the Pound to tank.

The Rest

On the monetary policy front,

  • For the Aussie Dollar, the RBA meeting minutes scheduled for release on Tuesday will provide further clues on what’s needed for the RBA to move out of its holding pattern, though there are unlikely to be too many surprises, if any, this time around.
  • For the Greenback, while we expect FOMC members to give their views on possible effects of the ongoing trade war on the U.S economy and FED monetary policy, FED Chair Powell will be giving his semi-annual testimony to Congress on Tuesday and Wednesday. The general view is that the ongoing trade war will have a muted impact on growth, with the FED still looking at between 1-2 rate hikes for the rest of the year. With the FED Semiannual Monetary Policy Report already out, it’s going to boil down to the Q&A on whether there will be some volatility in the Dollar and the equity markets, some members of the Committee likely to question the view that the ongoing trade war will have limited to no impact on policy.
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