Previous Week Summary
The whole week was about trying to figure out what
will be next after Brexit referendum. Investors reassessing the impact and fleeing
to safe assets, GBP hitting the low of 1.3149 (1985 levels), the 10yr/30yr
yield on Gilts at 1%/1.88% respectively, gold trading above USD 1300 level.
Question mark about offshore RMB trading in Europe raised in case of UK leaving
EU (China picked London for RMB offshore operations).
Monday – US Lew –
strong USD is in the interest of US.
Tuesday – ECB:
monetary policy created destabilizing spillovers, divergent policies creating
uncertainty about future direction, higher exchange rate volatility and risk
premiums. Merkel – EU strong enough to handle UK exit, no informal talks before
Article 50 is activated. Farage (strong Leave) - Reiterates desire to be good
friends, neighbors and trading partners with the EU. What an irony…
Wednesday – Japan is
likely to implement a large (2% of GDP) fiscal stimulus after July elections;
verbal interventions heavy the whole week. German monthly Preliminary June CPI
slightly lower; Atlanta Fed US Q2 GDP forecast raised to +2.7% from +2.6% and
real Consumer spending to +4.3% from +4.1% and lowered the next exports
forecast; May Core PCE was in line with forecast +0.2%/+1.6% (monthly/yearly);
Consumer spending for May was up 0.4% mainly due to strong demand for autos
what can make a positive footprint on Q2 GDP number; Personal income grew but
slightly below expectations and Pending home sales fell on monthly basis.
According to Powel Brexit has increased global risks and Fed likely not hiking
rates this year.
Thursday –
interesting formula for UK: Sum of FDI + portfolio investments + current account
= 12.8% of GDP. Portfolio investments and FDI inflows more than offset the Current
account deficit of 5.1% GDP, but what if the inflows reverse? UK is still able
to finance its current account with foreign money, but likely would need to
decrease the consumption at certain point as the inflows reverse also on lower
yields. EZ June Advanced CPI Est. at +0.1% vs 0.0% exp. Y/Y, CPI Core +0.9% vs
0.8% exp. Y/Y, the better number was due to higher core and slower decline in
energy prices. Draghi - EZ GDP will be lower by 0.5% in 2017/18 due to Brexit.
Carney (BOE) – further easing in July post Brexit likely, Chicago PMI higher on
production and new orders, US Initial claims higher but in line with healthy
job market (below 300k).
Friday – ECB
loosening QE buying rules helped peripheral issues and other HY bonds should
benefit as well. EU PMIs better, EZ May Unemployment rate at 10.1% in line with
exp, lowest since Sep 2011. Bullard (Fed) – sees US GDP still at +2% rate, no
further contagion from Brexit, Fed still tools to use, productivity needs to
increase, low bond yields to continue. Fisher (Fed) – wait & see
data/tightening, US economy pretty doing pretty well, no plans to move into
negative rates.
Stocks rallied towards the end of month (Q2 &
H1), as we saw lots of short-covering, window dressing but not sure how long
will it last.
Upcoming Week Outlook
Monday – we can
expect a refocusing of markets from assessing Brexit impact/uncertainty to
incoming data. The Brexit even was a huge thing, despite being expected well in
advance, but now it is a time to go back to work.
Tuesday – RBA will
be in focus, followed by Carney and BOE Financial Stability Report. Will Mr
Carney bring up more hints on a pre-announced July easing? Isn’t having GBP
down 13% a perfect stimulus tool? Dudley and Tarullo (both Fed) will be out
(Tuesday/Wednesday) and in spite of their planned agenda, we may learn more
about the impact of Brexit on US jobs creation. Recent economic data were
solid, except for May NFPs hiccup, employers are hiring but productivity growth
is missing. Actually, all of that in the light of “upcoming” rate (non) hikes
from Fed (market pricing them in 2017), will be watched and thought through.
Wednesday – US Trade
Balance (going more negative) and ISM Non-Manufacturing PMI (better than previous).
The highlight will be FOMC Minutes from the last before Brexit meeting. They
will not be that relevant in the light of new situation after the vote, but may
provide some guidance on job creation, macro data vs Fed hike likelihood.
Thursday – BoJ
Kuroda speaking, well Japanese officials were pretty busy with verbal
interventions last week and it would be nice to see Kuroda shedding some light
on potential new QE. ECB’s even non-monetary meeting can bring some surprise
comments/ideas in Brexit, aftermath as Italian banks are getting fragile. ADP
Non-Farm Employment Change, Challenger Job Cuts and Initial Jobless Claims will
be definitely watched ahead of Friday for some hints on US NFPs after May
debacle with +38k only.
Friday – US
Non-Farm payrolls will be highly watched event as market is trying (again) to
solve the Fed rate hike puzzle. Market is expecting the number between
175k-181k for June and unemployment rate rising to 4.8% from 4.7% previously.
Earnings – Samsung (Wednesday), PepsiCo Inc (Thursday), other companies are not
that relevant. Samsung – EPS
expected to be down, revenue up but sales of S7 Galaxy seem to be strong. Ready
for a positive surprise here when we are getting more to price than features
game? PepsiCo – sales should be
above analysts’ estimates giving us a good insight in EM and overall consumer
demand, but investors will also listen to any comments on
potential impact of Brexit on product lines. The changes in health trends
affecting Coca-Cola are also the same for PepsiCo. Well, think twice…
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