It was a pretty busy week with central bank meetings (Fed
and BoJ rate decisions) and GDPs from all over the world. As FOMC was a
non-event, the most reactions we saw after BoJ and US GDP on Friday with USD
weakness against most of the currencies at the end of the last trading day...
Monday
A few positive data were released at the beginning of the
week with the German Ifo Business
confidence in the focus. The survey of around 7000 business didn`t reflected
the uncertainty caused by the Brexit vote and came out better than expected at
108.3 vs exp. 107.7 even it was a little weaker than the previous reading at
108.8. The market reaction was somewhat muted as the traders were focusing on
Wednesday.
Tuesday
After a data light morning the CB Consumer Confidence
(97.3 vs exp. 95.6 last 97.4) and New
home sales (592K vs exp. 560K last 572K) were released in the US in the
afternoon. Both were better than expected. While the Building permits and
Housing starts are stagnating or in slight downtrend (check last week`s macro),
the demand for new homes seems to be picking up momentum.
Wednesday
The FOMC day a but we started with Australian inflation data which were more or less in-line with
expectations. Later in the morning the little better than expected prelim UK GDP was released at 0.6% vs.
fc 0.5% last 0.4%. which pushed the cable
to the downside. It reversed after testing 1.3075. The negative surprise came
in the afternoon ahead of the FOMC meeting. Both Durable Goods orders and Pending
Home Sales were worse than the forecast and moreover the Crude inventories grew by 1.7 mil.
barrels causing the WTI decline by $1.3
or 3%. The Fed as most of the analyst predicted, didn`t hike the rate but the FOMC Statement gave a little hawkish
feeling opening the door for a potential September hike. EURUSD advanced but no firework as the decision was mostly priced
in already.
Thursday
The dollar weakening continued in the morning especially
after a better than expected European data where the German employment data showed how robust the job market is in
Germany with the new claims falling again now by 7K. The inflation is also picking up in the strongest economy of Eurozone
by 0.3% vs the exp. 0.2% and last 0.1%. in the afternoon however the market
consolidated as waiting for the BoJ. Late evening the better than expected New Zealand Building approvals were
release which helped the kiwi to regain some momentum.
Friday
The day was full of very important data starting with Japanese
figures prior the rate decision … mostly ignored. BoJ failed to deliver
both on the interest rate side and the asset purchase side which caused huge
yen rally. The BoJ only increased
its ETF buying program by 2.7 tril. yen
almost doubling up the annual purchase to 6 tril. Yen which can boost the
Nikkei and the consumer confidence. However, this will hardly stimulate new investments
and Abe´s fiscal stimulus plans will also need some additional financing. Most
probably the BoJ wanted to keep some
gunpowder dry for the coming months as well but overall the market took the
announcement as a big disappointment and a signal the BoJ is running out of ammunition. We have to add the expectations
were super high hence the likelihood of a disappointment was pretty high too. USDJPY reacted sharply to the downside
with a potential of testing recent lows.
European GDP figures were in focus in late morning with the French GDP worse than expected and the Spanish and Eurozone GDP in/line with
the expectations. The bombshell of the day was the Advanced US GDP expected to grow by 2.6% vs Q1 0.5%. But the
reality was a huge disillusion as the Q2 GDP growth was released at 1.2% and Q1
GDP was revise to the upside to1.1%. The
dollar weakened against euro quickly
and almost touched 1.1200 and helped the USDJPY
to test 102.00.
The last event of the week was the EBA bank stress test where European banking authority tested 51 biggest
European banks. The test didn`t have pass or fail levels but the worst result
came as expected from Monte dei Paschi,
going in negative with Tier 1 equity in case of a 7% drop in GDP. Banks from Italy, Ireland, Spain and
Austria were among the worst results but the bailed out Bank of Scotland and Barclays would also experience significant
drop in equity.
Next week
Monday
We will start the week with sentiment surveys, first from China after midnight, where both the
official and the Markit`s Manufacturing
PMI`s will be released. The UK
Manufacturing PMI will give us some insights how the UK companies see the
post Brexit era. In the afternoon the Manufacturing
PMI from US is presented by Institution for Supply management. After the
last significant increase, the same or little worse PMI is expected.
Tuesday
After midnight the Australian
Trade balance and Building Approvals
will be released but don’t expect firework prior the Rate Decision (3 hours later). The market broadly expects some
easing from RBA and rate cut. The pressure mounts especially after the
appreciation of AUD at the end of the last week due to the weak US GDP data.
Later on the UK Construction PMI
will be released which is a key sector for Britain. Any weakness may take Cable
to the downside. Even the probability of Fed rate hike prior the US elections
is close to zero, the Core PCE price
index and Personal spending may bring
volatility to USD crosses in the afternoon. During the night the GDT Diary price index from New Zealand will come out with not
specified schedule and as this is the country`s main industry, Kiwi traders
should stay awake.
Wednesday
After the Chinese Services
PMI early morning the focus will be on the UK, as the UK Services PMI will be released again we are looking for a hint
how the British service providers see the future after the Brexit vote. In the
afternoon US automated data processing employment figures may move the lazy
summer market and later the ISM Services
PMI will be worse to watch. CAD traders should be on alert late afternoon
as Crude Inventories will be
released, as the economy is quite dependent on the oil industry.
Thursday
Aussie Retail Sales
early morning should be watched before the BoE
Rate Decision and Inflation Report. The
expectations are high so reaction to any disappointment could be strong. Carney speaks half an hour later,
explaining the monetary policy in more details. In the afternoon the US ADP unemployment change is worth to watch ahead of Fridays NFP.
Friday
The Asian session will start with the RBA`s quarterly Monetary policy statement where we can get some
idea how the policy makers see the economy and what steps could be expected in
the second part of the year. Later in the morning German Factory Orders could bring some activity. Later the Halifax house price index from the UK. However,
the US Non-Farm Unemployment change is the event of the day where we can
see a downside revision of the previous extraordinarily strong data. The
expectations for the July employment data are 100k lower than the previous
release. Canadian job market and trade data will be released the same
time so USDCAD traders should be also
on the watch.
DISCLAIMER: This material was created
for informational purposes only and represents the Land of Trading team’s view
of the past and current economic and capital market environment. It is not an
investment advice and should not be viewed that way at all, and the creators of
this material cannot be held liable for any potential losses resulting from trading,
where despite this disclaimer someone would consider this material as an
investment advice.
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