The Week Ahead – Trade Tariffs and Economic Data in the Spotlight- 23/06/18
On the Macro
For the Dollar, key stats through the week include June’s consumer confidence figures on Tuesday, May durable goods orders, pending home sales and trade figures on Wednesday, finalized 1st quarter GDP numbers on Thursday and May personal spending and core PCE price index figures on Friday. A jump in consumer confidence and inflation would certainly give the Dollar a boost, while there will continue to be plenty of attention given to the Oval Office as the risk of a trade war continues to rise. A number of FOMC members are also scheduled to speak, though influence may be muted so soon after the June FOMC. The Dollar Spot Index ended the week down 0.28% to $94.520.
For the EUR, it’s a particularly busy week ahead, with key stats including Germany’s June IFO Business Climate Index on Monday, prelim inflation numbers out of Spain, Germany and Italy, along with retail sales and consumer climate numbers out of Germany and the ECB’s economic bulletin on Thursday. The week is rounded off with prelim inflation numbers out of France and the Eurozone, French consumer spending and Germany unemployment numbers on Friday. Stats out of Germany and the Eurozone’s inflation numbers will be key from a data perspective. Following slightly better private sector June PMI numbers last week, any uptick in inflation and positive domestic consumption figures could provide support for the EUR, though the threat of tariffs on EU car imports into the U.S will need to be considered. The EUR/USD ended the week up 0.35% to $1.1651.
For the Pound, Tuesday’s BoE financial stability report and Friday’s finalized 1st quarter GDP numbers will be the key drivers from a data perspective. With the BoE’s chief economist having joined the ranks of dissent, any upward revision to GDP numbers and a hawkish view on inflation would see the Pound on the move, though the waters will be muddied with the EU Summit, with Brexit also in focus. BoE Governor Carney is also scheduled to speak on Wednesday, Carney more than capable of giving the Pound a nudge. The GBP/USD ended the week down 0.13% to $1.3261 last week.
For the Loonie, following an unimpressive set of inflation and retail sales figures last Friday, stats are on the lighter, with April GDP and RMPI numbers on Friday and the BoC’s business outlook survey the only releases through the week. While there will be some direction for the Loonie upon release of the stats and survey, though it’s going to boil down to trade. The Loonie ended the week down 0.64% to C$1.3269.
Out of Asia, it’s a relatively busy week ahead.
For the Aussie Dollar, it’s a particularly quiet week ahead, with stats limited to May’s new home sales and private sector credit numbers on Friday. Of greater influence will be the private sector credit numbers, though the influence of trade war chatter on commodity prices will likely have a greater influence through the week. The AUD/USD ended the week down 0.03% to $0.7440.
For the Japanese yen, key stats through the week include May retail sales figures on Thursday and June’s Tokyo core inflation, prelim May industrial production and job / applications ratio figures on Friday. Retail sales and inflation will be key, both of which are forecasted to be Yen positive, though market risk sentiment through the week will overshadow the stats, which are unlikely to materially influence the BoJ’s stance on monetary policy.
For the Kiwi Dollar, it’s a big week for the Kiwi, with key stats including May trade and June business confidence figures on Wednesday, ahead of the RBNZ’s interest rate decision and release of the rate statement on Thursday. Focus will be on the rate statement, with concerns over the housing sector and slower growth in the 1st quarter factors to contribute to a more dovish statement. The Kiwi Dollar ended the week down 0.59% to $0.6908.
Out of China, the markets will need to wait until Saturday for the government’s June private sector PMI numbers, with the all-important manufacturing sector forecasted to see slower growth that would be a negative for the markets, providing further support to the view that 2nd half of the year growth would ease. While the markets will consider the release of the stats on Saturday ahead of the weekend, trade war noise will remain the key driver.
On the political front, there’s still plenty to consider through the week…
Loonie Woes: While aluminium and steel tariffs are in, Canada has responded, with $12.8bn of U.S goods including maple syrup and whiskey waiting to get hit with 20-25% tariffs from 1st July. Progress on NAFA will be key and how the U.S responds to Canada’s latest move in the trade war game of chess will certainly have an overriding influence on the Loonie.
U.S – China Trade War: Time’s running out, with both the U.S and China having set aside 6th July as the effective date for the start of more punitive tariffs aimed solely at each other. The week ahead will have tariff talk doing the rounds and will more than likely overshadow all else, both economies expected to buckle should the 6th July tariffs kick in that will then bring the current threats into focus, which includes tariffs on $200bn worth of goods from China into the U.S that would undoubtedly lead to a retaliatory response from China. The markets would certainly enjoy a U.S – China handshake.
U.S – North Korea Summit: The U.S administration has again cited North Korea as an extraordinary threat and has renewed sanctions in what has been quite a turnaround from the euphoria of North Korea – U.S Summit. The shift in Trump sentiment towards North Korea could garner some Kim Jong Un wrath that would rattle the markets.
Italy’s 5-Star League: The panic is over but the work has just begun as the coalition prepares for the EU Leaders Summit on 28th and 29th June. Following the announcement of a debt relief program for Greece last week, early chatter of an intended call for debt relief by members of the coalition may see a rise in volume during the Summit, the EU unlikely to be too generous when considering the hoops Greece had to jump through to get to where it is today. Any friction and expect European stocks and the EUR to struggle. With migration also high on the agenda at the EU Summit, there will certainly be some noise.
Iran: The OPEC meeting has come and gone and oil prices rallied alongside, leaving the markets now to consider the possible implications of Iran pulling out of the nuclear agreement, following the U.S withdrawal and lack of progress in talks elsewhere. The U.S administration’s trade war could have come at just the right time, with the EU now facing the prospect of tariffs on auto exports into the U.S. Expect some progress and updates on the nuclear agreement through the week, a lack of progress positive for crude and the safe havens.
Brexit: If there wasn’t enough geo-political risk for the markets to consider, Brexit will likely begin getting more attention this week that would be an influence on the Pound and the FTSE100, anything negative likely to see the Pound lose more ground, a negative outlook on Brexit also an influence on near-term BoE monetary policy. Theresa May is on the ropes and if the EU continues to strong arm, it’s not going to be looking good with the likes of Airbus now beginning to give the British government timeframes within which to get clarity else face the prospect of a max exodus across the manufacturing sector, BMW having also been vocal in recent days over the continued uncertainty. The EU may want to think its Brexit strategy when considering Trump’s tariff plans, with Brexit on the EU Summit agenda this week.
On the monetary policy front, while the ECB and RBA took the more dovish path, both the FED and BoE diverged, albeit for different reasons. In the week ahead, it’s over to the RBNZ and Thursday’s policy decision, with a 1st quarter slowdown in growth and concerns over the housing sector likely to see the RBNZ go dovish and for the Kiwi Dollar take a hit in the early hours of day.
Crude Oil: The OPEC meeting has been concluded and, while there’s some confusion over the final output number, OPEC’s increase in output is expected to be at around 700,000 bpd that sits well below the 1m bpd line in the sand. Iran and North Korea could provide further direction in the week ahead, as will any escalation in sanction talks, the EU Summit towards the end of the week likely to have a few words to say on tariffs during the economy and finance slot.