Weekly Macro Overview 32W

This week’s Macro Overview is a little shorter due to holidays. We saw 2 rate cuts in the Commonwealth last week, both well expected. The first came from Royal Bank of Australia on Tuesday and the later from the Bank of England on Thursday. Traders were also watching the US employment data in the second half of the week, which were in general better than expected pushing the USD higher.

Monday:

It was a PMI day but the traders mostly didn’t get what they were expecting. The Chinese numbers were rather mixed and the Spanish, UK and US numbers were worse than expected.

Tuesday:

Tuesday early morning the RBA cut its benchmark rate by 25 bps. After the initial depreciation of AUD the traders reversed the direction as the wording of the Rate Statement suggested this could be the end of the easing. The AUDUSD rallied above 0.7600. Later in the morning the UK construction sector PMI was better than expected. In the afternoon the US PCE Price Index came out at 0.1% vs previous 0.2% and the unchanged Personal Spending couldn’t help the dollar which reached 1.1200.

Wednesday:

After the boring morning with only an unchanged UK services PMI we had ADP employment from the US. The improving data (also upward revision of the last figures) gave us a hint that the NFP Friday won’t be as low as expected. The dollar started the appreciation and this was probably the key moment of the week however, the Friday’s confirmation was still needed to let the dollar bulls run.

Thursday:

The worse than expected Australian Retail Sales didn’t really stop the bulls but managed to slow down the momentum after the Tuesday disappointing Rate Statement. The BoE cut the key rate as expected by 25 bps, also increasing the Asset purchase by GBP 60 bln, raising the questions whether this step wasn’t premature. The GBPUSD fell 200 bps in reaction to Carney’s speech half an hour later. In the afternoon, the US jobless claims came out more or less in-line with expectations and with muted reaction prior to US NFPs on Friday.

Friday:

After a sleepy morning the awaited job data caused the USD strengthening around 100 points against most of its peers despite the unchanged Unemployment Rate. The NFPs were worse than the previous (which was revised to the upside) but was much better than expected. Also the Average Earnings improved by 0.3% vs. forecasted 0.2% and previous 0.1%, what creates a better ground for an increase of the inflation.

Next week

Monday:

The only thing worth to watch is the Chinese trade balance, but not much of a change is expected. Maybe later the Canadian housing data could give some hint which direction the loonie will take.

Tuesday:

During Tokyo session, the Chinese inflation data can spur some volatility and later in the European session, the UK manufacturing will give us some hint, regarding the impact of the Brexit vote to the British economy. In the afternoon keep an eye on US job market data.

Wednesday:

The JOLTS job openings from the US will be released in the afternoon. They are expected to support the last week’s improvement in NFPs. The kiwi traders should be vigilant in the evening, as RBNZ may follow the RBA and cut the benchmark rate.

Thursday:

The regular US jobless claims and the New Zealand retail sales could be the only important data but don’t expect too much volatility around unless there is a huge surprise.

Friday:

Early in the morning, the Chinese Industrial production will be released with no change expected. We have also flash GDP from Europe later in the morning (Eurozone and Germany) which may have impact mainly on EUR crosses. In the afternoon, the Retail sales data and PPI are expected to be released in the US (expecting all worse than the previous set of data). However, given the rejection of the resistance in EURUSD (former support of the uptrend line) last week, a positive outcome could give a nice boost to the dollar bulls.

Have a successful week and don’t forget:

Watch you risk and be consistent in your trading!

Mr. TechMan

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. Contact: landoftradingATgmail.com

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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

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Weekly Macro Overview - Week 30

After the failed Turkish coup attempt market started the week in quiet tone. Despite it was an ECB week the EURUSD was stuck in 100 pts range most of the week but closing Friday below the 1.0980 as light negative momentum seems to be prevailing. Two most interesting moves of the week were the USDJPY sell off on Thursday after a release of a rather old interview with Kuroda, were he rejected the idea of helicopter money. The second was on Friday caused by the record weak UK Services PMI followed by a 180 pts sell off in cable.

Monday - The New Zealand CPI came out little worse than expected but better than previous (0.4% vs exp. 0.5%, prev 0.2%) stopped the selloff from the record highs of the previous 14 months. The main upward contributor was Petrol, also real estate prices rose. The Quarterly inflation is in an uptrend this year after the 4Q dip of -0.5%. Also from Monday there were news that Italy is working on setting up a bad bank to clean up the banking sector. According to Fitch rating agency, Japan may face fiscal risks after activating planned government stimulus package.

Tuesday – the UK inflation figures came out much better than expected. CPI y/y 0.5% vs exp 0.4% & prev. 0.3%. IMF again cuts world growth outlook for 2016 (3.1% from 3.2%) & 2017 (3.4% from 3.5%). The ZEW economic indicators were much worse than expected both for Germany and the EZ too mostly due to the uncertainty around Brexit, EURUSD had a delayed reaction 75pips to the downside. The US housing market was more or less in line with expectations while Housing starts seems to be stabilising around 1.2 mil the Building permits are in downtrend from last summer record highs, which could be a leading indicator of the slowing momentum of the economy. The GDT price index of diary auction in New Zealand was better at 0% than the previous months but still not indicating any growth momentum in the most important industry of the country no growth.

Wednesday – the main focus was on UK employment data. The Average earnings increased 2.3% in line with the expectations  while New claimants number went down to only 0.4k but the previous reading was revise to the upside from -0.4k to +12.2k. Unemployment rate was 4.9% vs exp/prev 5%. The Crude inventories declined more than expected.

Thursday – ECB day but we started with the economic outlook of RBNZ which dragged down the Kiwi (NZDUSD) after the CB clearly stated that the NZD exchange rate is too high, damaging the diary and manufacturing sector. The ECB didn`t change monetary policy as expected. Draghi stressed several times during the press conference that it too early to assess the Brexit effect but ECB is prepared to do whatever its needed inside his mandate to balance negative impact. Afternoon the US Unemployment claims came out better than expected and it seems to stabilize around 250k. The Philly manufacturing index couldn’t hold the positive pace from last month when dipped below zero. Existing home sales kept rising in June for the fourth consecutive month so overall we closed a USD positive day.

Friday – In the morning we saw several European PMIs coming out better than expected more or less in line with the consensus. The worst was the UK services PMI which hit the lowest level since April 2009 (at 47.4 from 52.3) followed by a 180 pts sell off on Cable in the next few hours. According to Reuters Greece eased slightly Capital Controls after creditors approval. The Canadian inflation data came out as expected (0% m/m 2.1% y/y) however lower than the previous month. The speculative net long in WTI keeps declining, last week at 289.6k from the peak in May at 368.8k.

Next week we have FOMC rate decision where no change is excepted in the wake of the shock vote for Brexit in the UK in June. However, traders will look for indication if there is any chance for a hike in the US this year. The Calendar is also full of prelim GDP figures from UK, EZ, Canada and US which can move the market.

Monday – in the morning the German Ifo Business Climate is expected to break its improving trend reflecting the worsening mood among managers, business owners after the UK voters decided to leave the EU. Late night the New Zealand trade balance figures could add some pressure on kiwi.

Tuesday – we have a few interesting data out from US starting with S&P home price index 1:00 PM and Flash Services PMI at 1:45 PM. However, the most important will be the Consumer Confidence published by the Conference Board Inc. which expected to maintain the downward trend from the beginning of last year. The same time the New Home Sales will give some hints what`s behind the declining trend of building permits but stable housing starts data.

Wednesday – in early morning the AUD traders may see some rock&roll as the quarterly CPI data may confirm the negative trend even a rebound is expected due to the higher commodity (mainly oil) prices. Later in the morning the forts GDP data of the week will be released in the UK, where the consensus expectation is slight increase to 0.5% from 0.4%. However due to the pre-Brexit negative sentiment could have caused some surprise. In the afternoon US Durable Goods orders and Pending Home sales will come out prior the FOMC. Even there are expected some improvement they will probably have diluted impact due to the upcoming rate decision in the evening where the Fed is expected to keep rates on hold and the statement will be the main driver. Don’t forget there will be no Press Conference this time.

Thursday – after FOMC the market will be digesting the news and therefore the early morning German CPI and Unemployment will not cause big moves. The main event will be the US jobless claims in the afternoon which seems to be stabilizing the last 3 months. Late night or for some early morning there will be a bunch of Japanese data in 20 mins starting with CPI, Unemployment, Retail sales and prelim industrial production mostly with medium importance.

Friday – early morning the Japanese Monetary Policy Statement and Rate Decision is due with the BOJ`s outlook report and press conf. Later European prelim GDP will be released at GMT 9:00 AM with An expected moderate 0.1% increase in the annual rate.  After the lunch break the markets will focus on Canadian and US GDP. While the Canadian monthly figures are expected to decline, the Quarterly US GDP is expected to rise annually to 2.6%. Keep in mind that this is the first US GDP release this used to have the most impact on the market.

One more thing, Friday late evening the European Bank Stress Test Results will come out and this could mean a significant risk if some big banks or several smaller players would fail. Italy will be in main focus due to the current discussions about the huge amount of NPLs in the country’s banks.

Watch your risk and be consistent.

Risk Event Calendar:

Mr. TechMan

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

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Weekly Macro Overview - Week 28

Previous Week Summary

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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Weekly Macro Overview - Week 27

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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Weekly Macro Overview - Week 26

The anti-austerity Podemos is expected to make big gains in Sunday`s Spanish general elections. After the last week’s shocking result of British referendum, another political event that may drive the markets lower. The question whether this could be the start of a bear market... well, the technical picture seems to be confirming this thesis (we have mentioned we are bearish based on weekly DAX chart two weeks ago). There will also be some important data however, the main topic that will resonate coming week is the vote of Britons to abandon the EU and the reaction of the Union.  Any news from the meetings of European politicians can move the markets significantly, therefore please be very cautious with position sizing. This time definitely the less could be more...

Previous Week Summary

Got few questions for you:

1)      Do you know how to get the GBP down to the levels seen back in mid ’80?

2)      Or how to make yields on German 30yr bonds negative?

3)      Eventually, how to knock down CAC 8% and DAX 7% just in one day?

4)      If it is not enough, how to break two unions or make BoE pull out of the pocket GBP 250 bln?

Pretty simple, just announce the Brexit referendum in order to secure election victory, let the false arguments and propaganda run the show and lose the vote at the end. That’s what happened and make the UK public pretty shocked.

Freedom of speech is guaranteed, but also the spike in google’s searches for “impact of UK leaving EU”, “what is EU”, “who are the members of EU”…etc., what is pretty surprising, especially as these searches spiked up in the evening/overnight on Thursday. One would think, that voting takes place first and only then, people check what they we were actually voting about…

…and Scots – they are now looking at securing the place in the EU, followed by Northern Ireland starting to talk about reunification with Ireland.

Tuesday – German Constitutional Court ruling was as expected with some conditions only. Yellen’s testified but didn’t bring any surprise (as expected). She stressed the risk of economic uncertainty, slower productivity growth, data dependency combined with Brexit risks are on the table.

Wednesday – May New homes sales hit the highest level in years, showing the lower inventories. Prices also increased. 
Thursday – the manufacturing PMI numbers from looked pretty decent after hitting the 6.5 yr low in May. It may be another sign of stabilization. 

Friday – difficult to comment any data as markets were “digesting” the Brexit results.

Announcement of Tesla to acquire SolarCity at 20-30% premium caught attention of many in equity space. It looks very visionary to create a one-stop place for electric cars, solar panels and batteries, especially when by combining their customer bases they can leverage sales and marketing expenses. On the flip side, Tesla shareholders may not be open to support such a deal that is combining of two companies still producing the negative cash flow. (the SolarCity shares are down approximately 60% since last year).

Upcoming Week Outlook

MONDAY: no important data, but watch out for the EU reaction to the Brexit vote. EU officials were meeting during the weekend and will continue during the week. They are expected to push Britain to exit the EU sooner rather than later. The As Sunday’s Spanish elections seem to add more uncertainty into the EU’s future, it could be a really rough start to the trading week after the pound’s black Friday.​

TUESDAY: final US Q1 GDP is expected to increase vs. previous prelim. release (0.8%). It will be lower than Q4 (+1.4%) but should maintain the rising trend of the Q1 GDP growth of the last 2 years (-0.9%, 0.6%). The Consumer sentiment should have minor effect on the markets as won`t reflect the Brexit vote effect.​

WEDNESDAY: the Fed’s unofficial inflation indicator will be released, the Core PCE index. The probability of a July hike was brought down to zero by the Brexit vote, therefore currently we expect minor effect. A surprise could however lead to a volatile short term move. Wednesday is as always a Crude oil day and given the current risk off mood and the test of the uptrend line in both WTI and Brent on Friday, traders will look for any confirmation the bull is not dead yet…​

THURSDAY: the Trade balance data of the UK is due on Thursday and the deepening trend of the deficit seems to be very strong, which is the biggest macro concern currently. The recent drastic depreciation of the pound may help in the medium term as trade conditions with EU will stay the same at least for the next 2 years. However further decline in TB could have further negative impact on the GBP.​

FRIDAY: we will end the week with PMIs from all over the world. Most importantly in China where the Official and the HSBC manufacturing PMI will be released within 45 min. A surprise in the UK and US PMIs later the day could be also a market mover. All of these data were oscillating around the 50 point mark which represents the threshold of recession for an economy. 

Weekly Technical Overview

EURUSD weekly chart:

GOLD ( XAUUSD ) weekly chart:

Event Risk Calendar 

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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