The Week Ahead – Stats, Tariffs and Monetary Policy to Drive the Markets

On the Macro

For the Dollar, key stats through the week include the markets preferred June ISM manufacturing PMI numbers on Monday and U.S factory orders and domestic car sales on Tuesday’s half day ahead of the 4^th July holiday. When the U.S markets reopen on Thursday, stats are on the heavier side, with June’s ADP nonfarm employment change, ISM non-manufacturing PMI and finalized Markit service sector PMI numbers scheduled for release alongside the weekly jobless claims numbers, the stats released ahead of the FOMC Meeting Minutes from the June meeting. The week is wrapped up with the government’s June nonfarm payroll, wage growth and unemployment rate numbers along with May trade figures. Ahead of Friday’s influential wage growth and nonfarm payroll figures, we will expect the ISM private sector PMI numbers to have a material influence alongside car sales figures, the markets looking for any evidence of a slowdown in the U.S economy at the end of the 2^nd quarter. The Dollar Spot Index ended the week down 0.01% to $94.512.

For the EUR, it’s another busy week ahead, with finalized June manufacturing PMI numbers and May’s Eurozone unemployment rate scheduled for release on Monday, ahead of May’s Eurozone retail sales figures on Tuesday. Finalized service sector PMI numbers will need to be considered on Wednesday, with May factory orders and industrial production numbers out of Germany scheduled for release on Thursday and Friday. Barring a material deviation from prelim private sector PMI numbers, focus will likely be on factory orders and industrial production numbers out of Germany in the 2^nd half of the week. The EUR/USD ended the week up 0.28% to $1.1684.

For the Pound, key stats through the week include June’s manufacturing PMI on Monday, construction PMI on Tuesday and the all-important UK services PMI on Wednesday, with positive numbers likely to fuel expectations of a 3^rd quarter rate hike by the BoE, following the upward revision to finalized 1^st quarter growth figures released last week and the 6-3 vote count in the last MPC vote. With BoE Governor Carney scheduled to speak on Thursday, the Pound could be in for a major move, though there will need to be some positive news on Brexit talks from the EU Summit. The GBP/USD ended the week down 0.40% to $1.3208 last week.

For the Loonie, following last week’s rebound driven by BoC Governor Poloz and better than expected economic data out of Canada on Friday, focus shifts to this May’s trade figures and June labour market and Ivey PMI numbers, which are scheduled for release on Friday. While concerns over NAFTA linger, Poloz held back from suggesting that failed talks would halt a shift in policy, giving this week’s stats even greater significance, as Canada retaliates with tariffs of its own on U.S goods. The Loonie ended the week up 1.02% to C$1.3133 against the U.S Dollar.

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

For the Aussie Dollar, stats are on the quieter side, while not lacking importance, with stats including June AIG manufacturing index figures on Monday, May building approvals on Tuesday and the ever important May retail sales and trade figures on Wednesday. Outside of the Aussie stats, private sector June PMI numbers will also influence, with the more influential Caixin manufacturing PMI scheduled for release on Monday. While we will expect the stats out of China to have an impact, immediate focus will be on the RBA interest rate decision and rate statement, a dovish RBA likely to weigh more heavily on the Aussie Dollar. Outside of the stats, expect trade war chatter to also influence, a green light on 6^th July tariffs considered a negative. The AUD/USD ended the week down 0.47% to $0.7405.

For the Japanese yen, it’s a busy start to the week, with 2^nd quarter Tankan index numbers scheduled for release on Monday, with forecasts pointing to a marginal improvement from the 1^st quarter numbers, ahead of May household spending figures on Friday.  Household spending figures will be the key driver late in the week, though risk sentiment will continue to dictate direction as the markets look on to see whether the U.S and China roll out trade tariffs on 6^th July. The Japanese Yen ended the week down 0.72% at ¥110.76 against the Dollar.

For the Kiwi Dollar, there are no material stats scheduled for release through the week, leaving the Kiwi in the hands of market risk sentiment through the week, though risk appetite will need to materially improve for the Kiwi to reverse last week’s losses following a more dovish than anticipated RBNZ. The Kiwi Dollar ended the week down 2.03% to $0.6768.

Out of China, June’s private sector PMI numbers released on Saturday were mixed and will provide some direction at the market open on Monday ahead of the more influential Caixin manufacturing PMI number on Monday. The Caixin service sector PMI number due out on Wednesday will have less of an impact, with the markets not only looking out for signs of a slowdown in the Chinese economy at the end of the quarter, but also whether there has been any evidence of the influence of tariffs on productivity.

Geo-Politics

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

Loonie Woes: Tariffs are there and Canada rolls out tariffs of its own on 1^st July in response to U.S tariffs on aluminium and steel. The Mexico presidential elections taking place on Sunday, 1^st July could throw NAFTA talks into further disarray should presidential candidate Obrador take the votes, with the Loonie at the mercy of the outcome and likely immediate rhetoric aimed at the U.S administration. How the U.S administration respond to Canada’s retaliatory tariff measures will also be of interest.

U.S – China Trade War: While China softened its stance on foreign investments at the end of last week, there’s been no progress on averting the rollout of tariffs on 6^th July. The move comes in response to Trump’s pullback of an outright ban on China investment into U.S tech companies, though both moves are likely to be brushed aside by the markets as we get closer to the 6^th without one side conceding. Neither look willing to lose this war and, with the mid-term elections some way off, it could get nasty.

U.S – North Korea Summit: It’s all a little too quiet and, with speculation of Iran and North Korea possible joining forces, it could all go horribly wrong. Trump’s art of the deal has lacked its normal success rates against both China and Iran, and North Korea could join the list, the combination of which could be quite dire for the market bulls.

Iran: After a jump in oil prices last week, the heat is on following the U.S administration’s call to cut Iran oil imports to zero by 4^th November. Iran may look to China to take the lot, but that’s just going to stir the pot and, with pressure mounting on Iran oil importers, things could get hot under the collar in the week ahead, an Iran pull out of the nuclear agreement likely to drive risk aversion.

Brexit: Unsurprisingly, the EU stood firm at the EU Summit against the Brexiteers. The Pound found much needed support from the latest BoE MPC vote count and upward revision to GDP numbers, but should the prospects of a “No Deal” become more likely, we could see a reversal, the BoE unlikely to be making a move should the British Government be unable to carve a favourable deal to protect the British economy. We can expect plenty of chatter in the wake of the Summit and it’s hard to imagine that anything positive will be hitting the wires.

The Rest

On the monetary policy front, focus shifts to the RBA interest rate decision on Tuesday. While rates are expected to be left unchanged, will the RBA shift on its outlook towards monetary policy? Better than expected 1^st quarter economic growth is a positive, though a lack of a pickup in wage growth and increased global financial market volatility in the face of a possible trade war may pin back anything particularly hawkish. Thursday’s FOMC meeting minutes will also be in focus, with the markets looking for any further clues on the outlook towards policy, though there should be few surprises following the release of the economic projections and FOMC press conference. Elsewhere, BoE Governor Carney, FOMC members and ECB members are also scheduled to speak, with the outcome of the EU Summit and trade war chatter likely to influence sentiment.

Crude Oil: Crude oil prices have surged, leaving the markets to now consider what’s next, with Iran sanctions and the speed of importers shifting away from Iran supply now key to the direction of crude oil prices, with OPEC member producers needing to replace Iran supply on request or face the wrath of the U.S President who has already ordered for OPEC to begin pinning back crude oil prices through increased supply. The Kingdom will be hoping for supply disruption from Canada and Libya to abate at the very least in order to ease upward price pressures.