The Week Ahead – Geo-politics and a Busy Economic Calendar in Focus
On the Macro
For the Dollar, It’s a big week ahead for the Dollar, with May’s consumer confidence figures on Tuesday, May’s ADP nonfarm employment, April trade and 2nd estimate GDP numbers for the 1st quarter on Wednesday, the FED’s preferred April Core PCE Price Index figures along with personal spending numbers on Thursday providing the Dollar with direction ahead of May’s nonfarm payroll and wage growth figures on Friday, positive stats likely to raise the prospects of a more aggressive rate path once more, while geo-political risk will also be a factor. The Dollar Spot Index ended the week up 0.66% to 94.253.
For the EUR, it’s a busy week ahead, French and German retail sales figures on Wednesday, alongside prelim May inflation numbers out of Spain, May employment numbers out of Germany and GDP numbers out of France to consider, with French, Spanish and the Eurozone’s prelim May inflation numbers, Spanish GDP and Eurozone unemployment figures due out on Thursday. The week is rounded off with finalized May manufacturing PMI numbers, which will likely weigh on the EUR, with Spanish and Italian PMI numbers expected to come in softer, inflation numbers forecasting a bounce back in the EUR on Thursday. The EUR/USD ended the week down 1.03% to $1.1651.
For the Pound, It’s a quiet week on the data front, with May’s house price figures on Thursday and May’s manufacturing PMI on Friday the only key stats scheduled for release through the week. Following better than expected retail sales figures last week, positive PMI numbers would support a recovery in the Pound, with Carney having already stated that he believed the 1st quarter slowdown to be temporary. If that’s the case and the stats stack up, an August rate hike could be back on the table, though there is always Brexit noise to muddy the waters. The GBP/USD fell by 0.53% to $1.3309 last week.
For the Loonie, it’s a big week ahead with the Bank of Canada’s interest rate decision and release of the rate statement on Wednesday following on from 1st quarter current account and April RMPI numbers. Some weak stats, extended NAFTA talks and fears of punitive tariffs have pinned back the BoC of late and will likely leave the BoC in a holding pattern this month, pinning back the Loonie from any major moves, ahead of 1st quarter and March GDP numbers on Thursday, which are forecasted to be Loonie positive. A slide in oil prices will be a negative for the Loonie ahead of Wednesday’s stats and BoC policy decision. The Loonie ended the week down 0.71% to $1.2973.
Out of Asia, key stats include housing sector data out of Australia and New Zealand and retail sales figures out of Japan on Wednesday, private sector PMI numbers out of China, business confidence numbers out of New Zealand and private new CAPEX and private sector credit out of Australia on Thursday, ahead of manufacturing PMI numbers out of China and Australia, Japan’s 1st quarter capital spending and new home sales out of Australia on Friday. While geo-politics will be the key driver, China’s private sector PMI numbers will have the greatest impact on the data front. The AUD/USD ended the week up 0.49% to $0.7548, the Kiwi Dollar up 0.14% to $0.6917, while the Japanese Yen rallied 1.24% to ¥109.41 against the U.S Dollar.
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On the political front, there’s plenty to consider through the week…
Loonie Woes: NAFTA talks will continue to be in focus this week, with the Bank of Canada’s hands tied on the policy front until the remaining issues are ironed out. The news wires are suggesting that there will be an agreement by the end of the year, things could move far more quickly however, exemptions on aluminium and steel tariffs expiring on Friday also an issue for the Loonie.
U.S – China Trade Pact: Confusing press releases on trade talks between the U.S and China last week could see more of the same through the week ahead, with the threat of tariffs on U.S auto imports raising the stakes of a trade war once more, which would certainly fuel demand for the safe havens.
Italy’s 5-Star League and Spain’s Rajoy: With PM nominee Giuseppe Conte forming his cabinet, all eyes will be on the new government and its first moves, anti-EU chatter and a desire to break EU laws likely to weigh move heavily on the EUR. Thrown into the mix are calls from Spain’s opposition part of a vote of no confidence in Prime Minister Rajoy. The last thing the Establishment and market needs now is a snap election and the possibility of Podemos victory.
Iran: The Iran nuclear agreement is now on the ropes, with Iran announcing that it will decide in the coming weeks on whether it will withdraw from the nuclear agreement. Chatter from the U.S, the EU and Iran on the agreement through the week will garner attention and provide direction for the majors and safe havens in particular.
The FED will be in focus this week, not just from a monetary policy perspective, but also with a 30th May vote on proposed changes to the Volcker Rule that begins the deregulation process for the financial sector. On the policy front, members scheduled to speak include Bullard on Tuesday and Bostic on Thursday, though expect more members to be in the news this week.
Crude Oil: U.S active rig counts on the rise and OPEC and Russia talking of lifting output by between 300,000 bpd and 1m bpd had the markets rattled last week. There’s likely to be more news hitting the wires on the subject through the week, particularly as Iran’s nuclear agreement grabs more of the headlines.