The Week Ahead – Trade in Focus, with Draghi and Juncker in the Spotlight

Another big week ahead, U.S earnings, 2nd quarter GDP numbers, Trade wars and ECB monetary policy all in focus.
Bob Mason
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On the Macro

For the Dollar, key stats include existing June existing home sales and new home sales on Monday and Wednesday respectively, July private-sector PMI numbers on Tuesday, the weekly jobless claims, trade data and June durable goods orders on Thursday and 1st estimate 2nd quarter GDP numbers and July consumer sentiment figures on Friday. Key drivers through the week will include the PMI, durable goods orders and 2nd quarter GDP figures, all of which can continue to support at least one more rate hike this year, price in a second, whilst also easing near-term concerns over the ongoing trade war and impact on the U.S economy. Trump’s FED attacks could continue as he attempts to offset the effects of a softer Yuan… The Dollar Spot Index ended the week down 0.21% at $94.476.

For the EUR, it’s a busy week ahead, with prelim July private-sector PMI numbers due out on Tuesday, Germany’s Ifo Business Climate Index and GfK Consumer Climate numbers on Wednesday and Thursday respectively and French 2nd quarter prelim figures GDP numbers along with French consumer spending on Friday in focus. Key drivers through the week will include Germany’s manufacturing PMI, the Eurozone composite PMI and business and consumer sentiment numbers out of Germany, with France’s GDP numbers to also influence at the end of the week. While the stats will provide direction, monetary policy and trade talk may well overshadow the stats. The EUR/USD ended the week up 0.33% to $1.1724.

For the Pound, following a particularly dire week for the Pound, stats through the week ahead are limited to July’s CBI Industrial Trend Orders and UK Mortgage Approvals, neither set of numbers are likely to have a material impact on the Pound following a shift in sentiment towards an August rate hike, with focus likely to shift back to progress on Brexit and Theresa May’s troubles at home, though things may get quieter with UK Parliament closing down from Wednesday for the summer break. The GBP/USD ended the week down 0.65% to $1.3136 last week.

For the Loonie, it’s a particularly quiet week on the data front, with key stats limited to May’s wholesale sales figures that will provide some direction on Monday, though we can expect direction through the week to be hinged on noise from the Oval Office and market sentiment towards a near-term rate hike following Friday’s retail sales and inflation numbers. The Loonie ended the week up 0.96% to C$1.3145 against the U.S Dollar.

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

For the Aussie Dollar, following last week’s impressive employment numbers, focus shifts to 2nd quarter inflation figures, with consumer inflation figures due out on Wednesday and producer price index figures due out on Friday. Any uptick in the quarter-on-quarter consumer price figures and expect the Aussie Dollar to find strong support, though there’s going to need to be quite a move for the RBA to shift on its policy stance in the coming months, which is not anticipated. The AUD/USD ended the week down 0.12% to $0.7415.

For the Japanese yen, it’s a quiet week ahead, with key stats limited to July’s Tokyo core consumer price index figures due out on Friday. We’re not expecting to see any sudden acceleration to force the BoJ’s hand, with forecasts pointing to the rate of core inflation to hold steady at 1%. The Japanese Yen ended the week up 0.95% to ¥111.31 against the U.S Dollar.

For the Kiwi Dollar, stats are on the lighter side through the week, with data limited to 2nd quarter employment and unemployment rate figures, which are scheduled for release on Tuesday, along with June’s trade data. While the employment change figure will be the key driver mid-week, we can expect the trade figures to also have an impact, particularly with so much sensitivity to the global trade environment at present. Solid numbers and the markets could begin to consider a shift in RBNZ policy, though the stats in isolation will unlikely be enough, should they impress. The Kiwi Dollar ended the week down up 0.83% to $0.6809.

Out of China, there are no material stats scheduled for release following last week’s stats that disappointed but didn’t completely rile the global financial markets, with trade tariffs and the threat of more having a far greater impact for now. While there are no stats, the focus will be on the direction of the Yuan, with the Chinese government being accused of currency manipulation following the Yuan’s 1-year low on Friday.


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Geo-Politics

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

U.S – EU Summit: Another day another Summit, with EU President Juncker heading to the U.S for a meeting with Trump on Wednesday. Security and trade are on the agenda and Juncker are going to need to play it cautiously on both fronts when considering Trump’s angst with NATO and the renewed threat of tariffs on EU auto imports into the U.S. There’s a lot at stake, with the U.S being the EU’s largest export market. Juncker may also be forced to discuss the ECB’s current monetary policy and fend off accusations of currency manipulation.

U.S – Russia Summit: The dust has settled and world order has been restored for now, though things could get interesting in round 2, should Putin take up Trump’s offer of a visit to the White House, with Trump having made his about turn on whether Russia meddled in the 2016 Presidential Election. Trump’s threat of becoming Putin’s worst enemy should the relationship fail may lead to some chatter, though Putin may ultimately take the high road.

Loonie Woes: There’s talk of NAFTA negotiations resuming in the next few weeks, so things could get choppy for the Loonie that bounced back off the back of some solid stats on Friday that supports a more hawkish Bank of Canada, assuming the economy doesn’t ground to a halt over trade tariffs.

U.S – China Trade War: Things went from bad to worse on Friday, with Trump moving from the threat of tariffs on an additional $200bn of Chinese imports to an all-in $500bn, the moves more akin to going all-in at the poker table, holding the Trump card, than to strategically manoeuver through a trade war. Adding to the talk of more tariffs was the accusation of currency manipulation, as the Yuan hit 1-year lows, which certainly makes the possibility of the tariff threat more real. The Chinese government could take additional steps, one being to stop buying U.S Treasuries, which would become a major issue for the U.S Government, irrespective of what Trump things, all of which makes it yet another interesting week for the global financial markets.

U.S – North Korea Summit: While it’s been on the quieter side, the administration may be looking for some action from the North Koreans in the coming weeks, denuclearisation key for Trump to be able to hail the U.S – North Korea Summit a success.

Iran: Things may be quiet on the nuclear agreement front, but certain importers of Iranian oil are busy looking for agreements to continue importing Iranian oil. Things are pretty dire for Iran and Trump’s strategy and goal of bringing down the regime is appearing to take shape, but what that will mean for stability within the Middle East remains to be seen.

Brexit: Unsurprisingly, the EU shot down Theresa May’s latest Brexit plan. What’s next for the British Prime Minister, whose plans had led to resignations of both David and Johnson? Possibly more discord amongst members of the Conservative Party and renewed threats of a vote of no confidence? What a time for the summer holidays…

The Rest

On the monetary policy front,

  • For the EUR, the ECB monetary policy decision and, more importantly, the Draghi press conference will be in focus on Thursday, the markets looking for any signs of a shift in policy towards interest and deposit rates following some improved economic indicators in the 2nd June inflation figures provided little evidence of a need to even consider a possible shift in position, with the ongoing trade war and threat to the European economy certainly reason for the ECB to remain cautious and affirm support through an extension of the bond purchasing program should the need arise.

Earnings: It’s a big week for the U.S equity markets, with a mass of corporate earnings releases through the week. Facebook, Amazon, Alphabet, Boeing, GM, Ford and oil giants Chevron and Exxon Mobil are on the docket, with a deluge of earnings releases coming from the S&P500.

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