Weekly Macro Overview 31W

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.

All rights reserved ©2016 www.landoftrading.com Contact: landoftradingATgmail.com