Bits and pieces of Brexit referendum were still
present in the market with not surprising suspension of redemptions from
real-estate UK funds, making GBP 15 bln out of GBP 24 bln locked. The GBP is
firmly sitting below 1.3000 handle, USDJPY very close to critical level (please
bear in mind, that BoJ may show its teeth soon). The Italian banking crisis is
keeping Rome, Brussels and Frankfurt busy, as the banks cope with EUR 360 bln
of non-performing loans (1/5 of country’s GDP), but the highlight of the week
were US NFPs. US stocks flirting with all times highs at the same time as bond
yields are printing new lows. No comment on that… Meanwhile, Yuan is weakening
fifth week in a row and PBoC doesn’t seem to care as FX monthly report showed
big one month rise in foreign FX reserves. Likely, PBoC has stopped its
interventions, so the CNY is left to weaken to support the growth. As the
situation in Chinese economy deteriorates, another round of RRR cuts may also
be on the table in the weeks to come.
Monday – Australia’s
elections didn’t resolve the deadlock and S&P lowered the outlook to
Negative due to strong budget deficit risks that may not be properly addressed.
S&P also commented on UK’s GDP and see it declining 1.2% and 1.0% (2017/18)
on Brexit, BoE lowering rates 50 bps before yearend. EZ Sentiment Index was
lowest since Jan 2015, UK June Constructions PMI was horrible and corporate tax
rate can do to 15% from 20%. All in all more UK is slowing down, more QE we can
see. After Boris Johnson, Nigel Farage was the second key Brexit figure leaving
the mess he had created to be cleaned up by someone else. I love politicians…
Tuesday – after RBA
market sees further easing already in Aug (55% probability); ECB – no need for
rate cuts at the moment & bank sector needs consolidation; EZ June Services
PMI better, UK’s worse; BoE report – Brexit risks crystallizing, to provide
substantial FX liquidity and to support jobs and growth. US Durables and
Factory orders lower than expected and Dudley (Fed) pointing to patience with
hikes due to low inflation and global uncertainty. Fed stays data dependent and
US economy doing OK on average according to him.
Wednesday – Ireland,
Spain the highest growth in EU; Greece may return to bond market next year; CH government
proposed automatic tax exchange; GE FinMin Schauble on Deutsche Borse/LSE
merger – must follow the rules, location of HQ key to approval; US Trade
Balance worse, Final Markit Services PMI better, ISM Non-Manufacturing PMI
better – proving growing confidence in US economy, will reflect good in Q2 GDP
number.
Thursday – UK
Industrial & Manufacturing production declined less than expected, ECB
Minutes – Brexit risks, inflation conditions weak, not important which assets
are purchased under QE, recovery proceeding as expected, drive by domestic
demand. US ADP Employment Change and Initial Jobless Claims better, EU –
Spain/Portugal failed in reducing budget deficits, may face sanctions.
Friday – US NFPs –
headline 287k vs 180k exp, Unempl. rate 4.9% vs 4.8% exp, Average hourly
earnings 0.1% vs 0.2% exp M/M, 2.6% vs 2.7% exp Y/Y, Participation rate 62.7%
vs 62.6% exp. Overall very strong report that put the September rate hike again
on the table but recall the above comments from Dudley (Tuesday). The negative
was the 11k revision down of previous number from 38k to 27k, what brings the
May/June reports at 157k each, thus Q2 average moves to 147k vs 196k in Q1.
Goldman Sachs see markets underpricing the
likelihood of Fed hiking the rate at this point and we should see the 2/3
probability or rate hike by yearend.
Upcoming Week Outlook
Sunday were held General elections in Japan where Abe`s Liberal Democratic Party have won a simple majority and will probably
able to form a super majority coalition. As the Japanese ultra-easy monetary
policy didn`t bring the desired boost to the economy, the government is
expected to introduce a stimulus package after the election that could exceed
10 trillion yen. Despite this seems to be partially in-line with the recommendations
of the world` s central banks to activate fiscal policies the success is not
granted. If the government goes for big infrastructural projects only the
positive effects will be short-lived without the tough structural reforms so
needed for the economy. The Chinese inflation data released on Sunday were
in-line with the expectations.
US earnings season will bring some interesting names during too
including some big banks. These earnings can serve as leading indicators on US
economy as banks are the centre of the economies financial bloodstream.
Monday –EuroGroup
meetings can bring some volatility if info regarding Brexit released. Ester
George, (hawkish voting member of FOMC in 2016) will speak about the US economy
at the Mid-America Labor Market Conference in Missouri, key Q if there will be
any hike this year… The boring start to the week however may offer some healthy
short term trends, in the aftermath of the Japanese elections, most likely
positive effects on the stock market. For CAD traders the key Q is if there is
a housing bubble or not. Housing starts will be released at GMT 12:15 PM may give a hint.
Tuesday – Pound traders should be on the guard during the second day of the
week as Inflation hearings will take place in London. Carney and some MPC
members will testify before Parliament's Treasury Committee on economy and
inflation outlook and while there is no timeline, comments on BOE planned
easing can create market volatility. Later on Tuesday BOE
Quarterly Bulletin will be released at GMT
11:00 AM and US JOLTS
at GMT 02:00 PM. The later will
be watched due to the surge in NFP numbers last Friday. Traders will be likely
looking for what`s behind the improvement.
Wednesday – We will
start the day with the Chinese Trade Balance before European session, no exact
time yet. Bank of Canada will announce overnight rate at GMT 02:00 PM, news conference is held at GMT 03:15
PM. Between them the US crude inventories may create volatility in CAD crosses
due to high dependence of the country from oil industry. No rate change is
expected but one shouldn`t forget
Thursday – Malcolm
Turnbull`s narrow win in the long
Australian elections raises the question how stable will be the new government.
Some rating agencies already declared that strong government is needed to keep
AAA rating for the country as only this will
allow to proceed with the necessary structural reforms which will be painful
for the nation. Therefore, the Employment data at GMT 01:30 AM will be watched
closely by traders and analysts. The trend in Unemployment rate is to the
downside and even there is expected an uptick, this will not change the overall
trend. Turnbull promised in his campaign he will seek change in the country`s dependence on mining industry but didn`t specify how he want to do
that.
The event of the day will
be however the BOE rate decision and Monetary Policy Statement GMT 11:00 AM,
where the expectations are mixed from 25 bps cut to no change. But we can agree
on that if there is a cut it shouldn`t be more than 25 bps. We thing it would
be too soon for the BoE to cut the rates. The pound is weak this itself will
boost the economy and MPC may wait with any major stimulus until the
implications of the Brexit vote on the UK economy will be clearer. Later the
day there will be producer`s inflation and unemployment claims from US, both
are expected to worse compared to the last release.
Friday – China
GDP will be in focus and it`s expected that the slowing trend of growth will
materialize in 6.6% growth rate. As China is the second biggest economy in the
world if the slowing pace of growth is confirmed, this will have broad
implications on the global economy also to the decisions of central banks
(especially Fed) in the coming months.
Later the day Carney
will have a speech in Toronto regarding climate change and economy, we expect
some more hints on how they will deal with the Brexit case. Later a bunch of US
data is expected, foremost the US inflation and retail sales data may bring
some the volatility, no changes are expected except Core Retail Sales. The
trend in total vehicle sales turned down this year. As this could be taken for
a leading indicator to US consumer confidence than there are more clouds on the
horizon as Fed is considering another rate hike this year. The University of
Michigan consumer sentiment index at GMT 02:00 PM will be important for the same reason – are
the consumers confident enough the spend more money and boost the inflation…?
Event Risk Calendar
DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from action where despite this disclaimer someone would consider this material as an investment advice.
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