Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Aug 3 – Aug 7)

BOE and RBA meetings along with NFP will highlight the upcoming week.

USD

Fed has left the interest rate unchanged at the 0-0.25% range as expected with a unanimous vote. The Path of the economic recovery will largely depend on the virus. They have added that economic activity and employment have picked up a bit in the recent months but are still below their levels from the beginning of the year. Chairman Powell added that Fed will do whatever they can for as long as it is needed. High-frequency data showed that the pace of the recovery has slowed. He reiterated that they are not even thinking about thinking about raising rates. There were no talks about yield curve control or additional stimulus measures. We can expect that members chose to wait for more data before possibly acting on it in September.

Advanced Q2 GDP reading showed a drop of an abysmal -32.9% q/q, better than the expected -34.5% q/q, but still easily the worst in history. Personal consumption plunged -34.6% q/q while business investment fell -27% q/q. Exports were down a historic -64.1% while imports were down a horrific -53.4%. Headline PCE rebounded to 0.8% y/y from 0.5% y/y the previous month, however a worrying sign is the drop in core PCE to 0.9% y/y from 1% y/y the previous month indicating softening price pressures. Personal spending came in at 5.6% m/m vs 5.2% m/m as expected. Spending is still positive but is dying down as the $600 weekly government cheques are about to expire.

Initial jobless claims for the week ending July 25 came in lower than expected at 1434k, but it is the second week of claims rising compared to the previous week. Continuing jobless claims for the week ending July 18, when NFP is calculated, jumped to 17108k from 16151k the previous week. Trends are reversing as parts of the country are again under lockdown due to Covid-19 outbreaks. Consumer confidence in July fell to 92.6, below expectations and the previous month’s reading of 98.3, due to an increase in Covid-19 cases. Gold has breached an all-time high level of $1920 in the early hours Asia-Pacific session on market opening and went above $1940 level. It rose all the way up to $1980 before dropping sharply to the $1905 level on Tuesday and then again testing the $1980 level a couple more times during the week.

This week we will have ISM PMI and trade balance data as well as NFP data on Friday. Expectations are for an increase of jobs in the range of around 2.3m while the unemployment rate is seen at around 10.5%.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI
• Trade Balance

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Ifo business climate index for the month of July came in at 90.5 vs 89.3 as expected and up from 86.2 the previous month. Expectations index came at 97, indicating belief about the Q3 rebound in the German economy. Ifo sticks with their forecast of 6.9% Q3 GDP. Sentiment data for the EU showed an improvement compared to June, but the pace of improvement is not impressive, indicating doubts about the strength of the Q3 rebound.

Preliminary Q2 GDP came in at -12.1% q/q as expected. German reading was worse than expected while French reading came in better than expected which put the EU reading on par with expectations. Inflation in July surprised to the upside, improving the mood of policymakers, with the headline number coming in at 0.4% y/y vs 0.3% y/y the previous month. Core inflation came in at 1.2% y/y vs 0.8% y/y the previous month. Headline German inflation fell into deflation territory for the first time since April 2016 coming in at -0.1% y/y as price pressures strongly declined.

This week we will have final July PMI numbers as well as consumption data.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)

Wednesday:

• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)
• Retail Sales

GBP

Prime Minister Johnson stated that they will have to slow down the easing of lockdown measures. Reopening of leisure facilities will now be postponed for at least two weeks. He confirmed that this means a return to social distancing. The pound enjoyed a very strong week. It has gained across the markets with GBPUSD crossing over 1.31 level and breaking above W1 200SMA. It now constitutes eleven trading days of rising prices.

This week we will have final July PMI numbers as well as BOE interest rate decision. There will be no changes in the rate but talks about possible introduction of negative rates may occur.

Important news for GBP:

Monday:

• Markit Manufacturing PMI

Wednesday:

• Markit Services PMI
• Markit Composite PMI

Thursday:

• BOE Interest Rate Decision
• BOE Governor Bailey Speech

AUD

Q2 CPI data came in at -1.9% q/q vs -2% q/q as expected. The headline number represents the biggest fall in more than 70 years and signals deflationary conditions in the economy. Core inflation came in at 1.2% y/y vs 1.4% y/y as expected.

Company profits in China for the month of June rose 11.5% y/y while dropping -12.8 y/y for the period from January to June of 2020. Both numbers show improvement compared to figures from May led by rising profits in state-owned enterprises. Official manufacturing PMI for July improved yet again to 51.1 for a fifth consecutive month of expansion. Non-manufacturing and composite PMIs saw slight drops coming in at 54.2 and 54.1 respectively, but they are still safely in the expansion territory.

This week we will have trade balance data as well as RBA interest rate decision and monetary policy statement. We expect RBA to keep the rates unchanged and let their monetary policy measures take effects, although talks regarding further monetary stimulus may emerge. Out of China we will have Caixin PMI and trade balance data.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision
• Retail Sales
• Trade Balance

Wednesday:

• Caixin Services PMI (China)
• Caixin Composite PMI (China)

Friday:

• RBA Monetary Policy Statement
• Trade Balance (China)

NZD

Final ANZ business confidence in July came in at -31.8 vs -34.4 the previous month. Activity outlook came in at -8.9 vs -25.9 the previous month. ANZ' stated that the vigorous bounce out of lockdown appears to be topping out and that the retail sector has driven much of the rebound since June.

This week we will have Q2 employment data.

Important news for NZD:

Wednesday:

• Employment Change
• Unemployment Rate

CAD

GDP data in May came in at -13.8% y/y vs -17.1 y/y the previous month. On the monthly basis GDP rebounded 4.6% m/m vs -11.7% m/m which was a record low. Goods were up 8% m/m while services were up 3.4% m/m. Canadian dollar did not take advantage of the seriously weak USD this week and USDCAD pair finished the week basically unchanged from where it started.

This week we will have trade balance and employment data.

Important news for CAD:

Wednesday:

• Trade Balance

Friday:

• Employment Change
• Unemployment Rate

JPY

Final Q1 Capex data came in at 0.1% q/q vs 4.3% q/q as preliminary reported. Company profits have plunged -28.4% y/y. Considering the great uncertainty in the world combined with falling company profits a drop in business investment was expected. Retail sales in June came in at 13.1% m/m vs 8% m/m as expected and -1.2% y/y vs -5.7% y/y as expected. Consumption picked up strongly with healthy beats. The unemployment rate positively surprised, ticking down to 2.8% vs 3.1% as expected. Preliminary industrial production came in at 2.7% m/m vs -8.9% m/m the previous month for the first positive reading in five months.

Fitch has confirmed Japan’s A rating but has lowered the outlook to negative from stable. They expect Japan's economy to contract by 5% for 2020, before rebounding to 3.2% in 2021. Japan has downgraded its GDP forecast for 2020, they now expect it to shrink by 4.5% before rebounding to 3.4% in 2021.

This week we will have final July PMI numbers and final Q1 GDP data as well as Tokyo area inflation, earnings and spending data.

Important news for JPY:

Monday:

• GDP
• Markit Manufacturing PMI

Tuesday:

• CPI

Wednesday:

• Markit Services PMI
• Markit Composite PMI

Friday:

• Household Spending
• Labor Cash Earnings

CHF

SNB total sight deposits for the week ending July 24 came in at CHF692.6bn vs CHF691.5bn the previous week. Steady increase in the deposits as SNB keeps intervening in the forex market. Retail sales in June came in at 1.1% y/y vs 6.2% y/y the previous month. The food, beverages and tobacco category was the biggest contributor.

This week we will have inflation data.

Important news for CHF:

Monday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Aug 10 – Aug 14)

RBNZ meeting, consumption data from US, preliminary Q2 GDP from UK and second Q2 GDP estimate from EU will highlight the week.

USD

ISM manufacturing PMI in July surprised to the upside and came in at 54.2 vs 52.6 the previous month. New orders and production categories crossed into 60s while new export orders returned to expansion with 50.4. The only concern is slow rise in the employment category which came in at 44.3 but overall this is a strong report for the manufacturing activity in the US. ISM Non-manufacturing PMI smashed expectations coming in at 58.1 vs 55 as expected. It continued to rise after posting 57.1 the previous month. Business activity and new orders rose to 67.2 and 67.7 levels respectively. Troubling signs appeared in new export orders which slipped below 50 level and employment which fell from the last month’s reading indicating rise in lay-offs.

Trade balance in June came in at -$50.7bn, an improvement from -$54.8bn the previous month. Exports were up 9.4% m/m while imports rose by 4.7% m/m. Initial jobless claims continued their decline after the rise in previous two weeks and came in at 1186k vs 1435k the previous week. Continuing claims also dropped to 16107k from 16900k previously. Fitch revised US outlook to negative from stable but kept the AAA rating. They have noted growing US deficit as the main concern and reason for the cut. They have, however, noted that US enjoys “exceptional financing flexibility” and that "It is a truism that the US government cannot run out of money to service its debt."

NFP reading came in at 1763k vs 1480k as expected. Not a big number as president Trump was announcing on twitter but it beat expectations. The unemployment rate declined almost a full percentage point to 10.2% from 11.1% the previous month while participation rate slightly declined to 61.4%. Gold has breached $2000 level for the first time in history going over $2070 during the week.

This week we will have inflation and consumption data.

Important news for USD:

Wednesday:

• CPI

Friday:

• Retail Sales

EUR

Final July manufacturing PMI came in at 51.8 vs 51.1 as preliminary reported on the back of improvements in both German and French readings. Markit notes: “Growth of new orders in fact outpaced production, hinting strongly that August should see further output gains.” Services PMI came in weaker than preliminary reported at 54.7 with composite rising to 54.9 on the back of improvement in manufacturing reading. Overall Markit noted that “the renewed expansion of the service sector bodes well for the economy to rebound in the third quarter after the unprecedented slump seen in the second quarter. Whether the recovery can be sustained will be determined first and foremost by virus case numbers.” Retail sales in June came in at 5.7% m/m and 1.3% y/y with previous month’s data being revised higher. Textiles, clothing and footwear were the biggest contributor to rise in consumption.

This week we will have ZEW survey as well as second estimate of Q2 GDP, recent improvements in German factory data should help revise the reading higher.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment (EU and Germany)

Friday:

• GDP

GBP

Final July manufacturing PMI slipped to 53.3 vs 53.6 as preliminary reported. Markit notes that job losses despite the reopening can hinder further readings. Services came in at 56.5 vs 56.6 as preliminary reported which pulled composited to 57 vs 57.1 as preliminary reported. Markit stated that “Higher levels of service sector output were almost exclusively linked to the reopening of the UK economy after lockdown measures and the subsequent return to work of employees and clients. However, these are still the very early stages of recovery.” Employment picture still remains worrisome.

BOE has left both interest rate and QE program unchanged at 0.10% and £745bn respectively, as widely expected. The vote was unanimous. Policymakers noted that higher frequency indicators imply that spending has recovered significantly and that their projections assume that direct impact of the virus will dissipate gradually. They now project 2020 GDP to fall by -9.5% vs -14% as previously projected. Regarding negative interest rates policy makers feel that other instruments, like asset purchases and forward guidance, should be tweaked first. Overall the statement had more of a positive tone which pushed GBP even higher.

This week we will have employment data and preliminary Q2 GDP reading.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• GDP

AUD

RBA left the cash rate unchanged at 0.25% as widely expected. They have reiterated their commitment to do what they can to support jobs and businesses. They will step in to resume bond purchases which will be done as necessary. They see their mid-March package working as expected. The outburst of virus in the state of Victoria had them lower the economic outlook. There was also no mention of AUD strength indicating that they are satisfied with its current levels. RBA statement showed that board members now see the economy recovering at a slower pace. Trade balance data in June came in at AUD8202bn vs AUD7341bn the previous month on the back of exports rising 3% while imports rose 1%. Retail sales for the same period improved 2.7% m/m.

Caixin manufacturing for July rose to 52.8 putting it deeper into expansion territory on the back of rising new orders. It is a highest reading since January of 2011, although overseas demand was subdued and employment remained week. Caixin services dropped to 54.3 from 58.4 the previous month for the big miss since 58 was the expected reading. It dragged composite down to 54.5 vs 55.7 the previous month. Although the reading is well above 50 level it indicating struggles that smaller companies, that are not state owned, face.

Chinese trade balance data for July say a rise in surplus to CNY442.23bn from 328.94bn the previous month. Exports were up 10.4% while imports were up 1.6%. In the USD terms trade balance came in at $62.33bn vs $46.42bn previous month on the back of exports rising 7.2% and imports falling -1.4%. Exports in both yuan and dollar terms beat expectations sending positive signals regarding overseas demand. Overall imports were low due to lower crude oil and agricultural products imports. Exports to US rose 12.5% while imports rose 3.6%.

This week we will have employment data from Australia as well as inflation, consumption and industrial production data from China.

Important news for AUD:

Monday:

• CPI (China)

Thursday:

• Employment Change
• Unemployment Rate

Friday:

• Retail Sales (China)
• Industrial Production (China)

NZD

The unemployment rate for Q2 came in at 4% q/q vs 5.6% q/q as expected for a tremendous beat. The employment change came in at -0.4% q/q vs -2% q/q as expected for another big beat. Participation rate came in at 69.7% as expected but down from 70.4% the previous quarter to put a dent in the reading. The reading shows that New Zealand economy weathered crisis caused by virus outbreak much better than any other developed economy. GDT price index at first auction in August came in at -5.1%. This is the second consecutive auction of falling prices and it shows a much bigger decline than 0.7% previously. Whole milk powder prices were the main culprit falling -7.5%.

This week we will have RBNZ rate decision which is expected to stay unchanged so talks about further stimulus will be closely monitored.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

Trade balance data for June showed a widening of deficit to -CAD3.19bn vs -CAD0.9bn as expected. Exports rose by 17.1% m/m but were outpaced by imports which rose 21.8% m/m. Almost half of the imports and biggest contributor to exports were imports of motor vehicles and parts. Surplus in trade with US narrowed down to CAD1.1bn while deficit with other countries rose to -CAD4.3bn.

Employment report in July showed a change of 418.5k vs 380k as expected. The unemployment rate dropped to 10.9% from 12.3% the previous month and it was achieved along with participation rate rising to 64.3%. Full-time employment came in at 73.2 k while part-time employment came in at 345.3k. It is a bit concerning that great majority of new positions are part-time but other numbers show that labour market is heading in the right direction.

JPY

Final Q1 GDP reading came in unchanged at -0.6% q/q and -2.2% y/y while final manufacturing PMI for July improved to 45.2 from 42.6 as preliminary reported but still in the contraction territory with a dim outlook. Final services PMI improved to 45.4 which pushed composite PMI to 44.9. Slow recovery with all of the readings below 50 level which adds concern in regards to the rebound projected for Q3 GDP. Labour cash earnings in June continued their decline and came in at -1.7% y/y vs -3% as expected. Household consumption on a yearly basis is yet to post a positive reading and came in at -1.2% y/y vs -7.8% y/y. At least beatings of expectations are a positive.

July inflation from Tokyo area surprised everyone coming in at 0.6% y/y vs 0.3% as expected and as previous month. CPI excluding Fresh Food came in at 0.4% y/y vs 0.1% y/y as expected while excluding Fresh Food, Energy came in at 0.6% y/y vs 0.3% y/y as expected. All of the readings beat the expectations and moved the inflation in the desired direction. While it is still far away from 2% level every move up is warmly welcomed by BOJ officials.

CHF

July CPI rebounded to -0.9% y/y from -1.3% y/y the previous month with core coming at -0.4% y/y vs -0.8% y/y the previous month. This is a very welcomed rebound but it indicates just an easing of deflationary pressures in the month of July. Total sight deposits for the week ending of 31 July came in at CHF693.7bn vs CHF692.6bn the previous week showing that SNB still acts to prevent Swissy from getting too strong for their taste.

This week we will have employment data.

Important news for CHF:

Monday:

• Unemployment Rate

 

[ForexTus]

Great read. Thank you

 

[katetrades]

Forex Major Currencies Outlook (Aug 17 – Aug 21)

Preliminary Q2 GDP reading from Japan followed by preliminary August PMI numbers from EU, UK and Japan will highlight the relatively quiet week ahead of us.

USD

Headline inflation in July rose to 1% y/y from 0.6% y/y the previous month. Core inflation for the same period rose to 1.6% y/y vs 1.2% y/y the previous month. Headline inflation is continuing its path toward 2% level while core staged a first rebound after four months of falls which was unprecedented in its history. Initial jobless claims for the week ending August 8 came in at 963k vs 1100k as expected. This is the first time that claims came below 1 million number in 21 weeks. Continuing claims came in at 15486k and continued with their downward trajectory.

Retail sales in July came in at 1.2% m/m vs 2.1% m/m as expected but previous month’s reading was revised up from 7.5% m/m to 8.4% m/m. Core retail sales came in better than expected at 1.4% m/m and previous month’s reading was revised up. Electronics and appliance stores were the biggest contributors with 22.9% m/m followed by gasoline stations at 6.2% m/m. Sporting goods, musical instruments and book stores were the biggest drag on the reading with -5% m/m. The $600/week benefit package stopped on July 31 so we can expect that numbers in August reading will be much weaker.

During the weekend President Trump granted an executive order that will offer federal unemployment insurance for the unemployed of $300 per week if individual states pay $100 per week. This move, although not clear that the president has the power to make it, will slowdown negotiations between Republicans and Democrats and will lower the total amount to below $2 trillion (Democrats wanted a package that is north of $3 trillion).

The funds come from re-directing disaster-relief funds which amount to around $44bn. Considering the demand, those funds are not expected to last much longer than a month.

This week we will have housing data and FOMC minutes from the latest meeting.

Important news for USD:

Tuesday:

• Housing Starts
• Building Permits

Wednesday:

• FOMC Minutes

Friday:

• Existing Home Sales

EUR

ZEW current situation survey came in at -81.3, much worse than expected and down from the -80.9 level the previous month. Expectations category on the other hand smashed expectations and came in at 71.5 vs 59.3 the previous month. This is the highest level in over 16 years. Survey respondents are not satisfied with what they see in the economy but their hopes for a significant rebound are undiminished.

Second reading of GDP came in line with preliminary readings of -12.1% q/q and -15% y/y. Markets are turning their attention toward Q3 data and German economy ministry expects strong growth in that period. They stated that German economy has been recovering since May.

This week we will have final July inflation data and preliminary August PMIs.

Important news for EUR:

Wednesday:

• CPI

Friday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Claimant count in July came in at 94.4k vs -68.5k the previous month. A spike in claims pushed the claimant count rate to 7.5% from 7.2% the previous month. ILO unemployment rate for June stayed the same at 3.9% but employment change dropped by -220k almost doubling the previous month’s -125k. Numbers are skewed by the government’s furlough scheme which makes them hard to interpret and do not paint a proper picture regarding the state of the labour market. ONS acknowledges that employment is weakening. Average weekly earnings came in at -1.2% 3m/y continuing with the decline. If this trend continues, they do not contribute positively to inflation. This may prompt BOE to react in Q3 or Q4. Finance minister Sunak reiterated that extending furlough scheme is not sustainable and that many will lose their jobs.

Abysmal data that is Q2 GDP showed a decline of -20.4% q/q and -21.7% y/y. Private consumption plunged -23.1% q/q while business investment showed an even bigger drop of -31.4% q/q. GDP for the month of June came in at 8.7% m/m. The rise in June reading helped offset the decline in Q2 GDP but not by much. The rebound in the activity was slow but since we are in mid-August markets are turning their attention to Q3 data.

This week we will have inflation, consumption and preliminary August PMI data. Brexit talks will resume in Brussels from August 18 to August 21.

Important news for GBP:

Wednesday:

• CPI

Friday:

• Retail Sales
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

July employment report showed employment change of 114.7k vs 30k as expected. The unemployment rate ticked higher from the previous month to 7.5% but came in much better than 7.8% as was expected. Participation rose to 64.7% making the better than expected unemployment rate more impressive. Additional positive from the strong jobs report is that full-time employment rose 43.5k vs falling -23.6 the previous month. One caveat to the report is that it was conducted before lockdown was reintroduced in the state of Victoria. August numbers will not be this good. RBA Governor Lowe stated that it is possible for rate to stay at 0.25% level for as long as 5 years. He added that it would be nice to see AUD lower, but the currency is not overvalued.

Inflation data from China continued to climb and came in at 2.7% y/y in July on the back of the rise in food prices. PPI posted a smaller decline of -2.4% y/y vs -3% y/y the previous month on the back of rising commodity and industrial product prices. Industrial production remained at 4.8% y/y but missed expectations of 5.1% y/y. Retail sales continued to miss expectations and remain negative for the entire calendar year of 2020 coming in at -1.1% m/m. Domestic demand proves to be the biggest headache for China.

NZD

RBNZ has left the cash rate at 0.25% as widely expected. They have, however, increased their asset purchase program by NZD100bn and extended it from 12 to 22 months. Expectations were for an increase between NZD75 and 90bn. The committee has instructed RBNZ to prepare a package of additional monetary policy measures to be applied if needed. These measures encompass the negative official cash rate as well as purchases of foreign assets. Governor Orr added that rising NZD prices have had impact on exports. Fiscal policy remains primary response to the crises and the path RBNZ of stable inflation and full employment is through low rates and low NZD. Overall, the decision was full on dovish and NZD was pushed down.

Preliminary July ANZ business confidence came in at -42.4 vs -31.8 the previous month. Activity outlook also turned south coming in at -17 vs -8.9 the previous month. These may be warning signs that post-lockdown rebound has run its course.

CAD

Housing starts in July surged 15.8% m/m to 245.6k units in July. This was the highest reading since November 2017. Urban starts led the jump with 17.4% rise m/m. Manufacturing sales in June jumped 20.7% m/m vs 16.4% m/m as expected. The rise in sales was present in all 21 industries. New orders component jumped 23.6% m/m indicating ongoing reactivation of the economy after lockdown.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Tertiary industry index, which measures the change in total value of services purchased by businesses, came in at 7.9% m/m in July. This comes as the first positive reading of the index since the start of the year indicating that the services sector is picking up after the virus outbreak. JPY had a rough week, weakening against all major currencies with GBPJPY going as high as the 140 level.

This week we will have preliminary Q2 GDP reading, industrial production, machinery orders, trade balance as well as national inflation and preliminary August PMI data.

Important news for JPY:

Monday:

• GDP
• Industrial Production

Wednesday:

• Core Machinery Orders
• Trade Balance

Friday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

CHF

The unemployment rate in July stayed the same at 3.3%. Total sight deposits for the week ending August 7 came in at CHF695.8bn vs CHF693.7bn the previous week. SNB is continuing to intervene in the FX markets to keep EURCHF well above the 1.07 level.

This week we will have trade balance data.

Important news for CHF:

Thursday:

• Trade Balance

 

[katetrades]

Forex Major Currencies Outlook (Aug 24 – Aug 28)

Second estimate of US Q2 GDP along with Canadian and Swiss Q2 GDP readings on top of PCE inflation may bring some movements in the Summer lull.

USD

Housing starts in July came in at 1496k for a 22.6% m/m rise while building permits came in at 1495k for a rise of 18.8% m/m. Low rates environment suits well for the housing market which is brimming with activity. Initial jobless claims for the week ending August 15 came at 1106k, thus again posting over 1 million claims after the drop from previous week. Continuing claims have dropped below 15 million coming in at 14844k.

Minutes from July’s FOMC policy meeting showed that the central bank is in no hurry to expand its stimulus program. They are opting for the forward guidance and expansion of QE if needed to keep the borrowing costs low. Talks about yield curve control have been ruled out. The yield curve control would only provide modest benefits to the current environment, as assessed by the board members. Gold reclaimed the $2000 level when the week started but after the FOMC minutes, take profit on gold occurred and it dropped almost $100.

This week we will have housing data, durable goods data, second estimate of Q2 GDP as well as PCE inflation and personal spending data.

Important news for USD:

Tuesday:

• New Home Sales

Wednesday:

• Durable Goods Orders

Thursday:

• GDP

Friday:

• PCE
• Personal Spending

EUR

Preliminary August manufacturing PMI slipped to 51.7 vs 51.8 the previous month while the big drop was seen in services PMI which came in at 50.1 vs 54.7 the previous month. A drop was caused by a fall in demand due to travel restrictions. Composite was dragged down to 51.6 from 54.9 the previous month. French readings have all disappointed with manufacturing dropping below 50 level. Manufacturing in Germany improved but services were battered. The readings weighed heavily on EUR, pushing it down across the markets as concerns surrounding exhaustion of economic recovery mount. Final inflation in July came in at 0.4% y/y with core at 1.2% y/y. Both readings came in same as preliminary reported.

This week we will have business climate data from Germany and sentiment data from EU.

Important news for EUR:

Tuesday:

• Ifo Business Climate (Germany)

Friday:

• Economic Sentiment Indicator

GBP

Inflation in July surprised to the upside coming in at 1% y/y vs 0.6% y/y as expected. Even more impressive was the jump in the core CPI which came in at 1.8% y/y vs 1.2% y/y as expected. ONS stated that the largest rise came from recreation and culture. As lockdown ended people were hurling outside. The rising prices in clothing, petrol, household goods also contributed to the rise in inflation.

Retail sales for the month of July came in at 3.6% m/m vs 2% m/m as expected and are now 3% above the pre-pandemic levels in February of 2020 while online retail sales are up 50.4% from pre-pandemic period. Preliminary August PMI data heavily beat the expectations. Manufacturing came in at 55.3 vs 53.3 the previous month while services rose to staggering 60.1 level from 56.5 the previous month. Composite capped the good data coming in at 60.3 vs 57 the previous month. The “Eat out to help out” scheme was introduced in August and it helped tremendously with rise in services reading. The scheme allows 50% reduction in food bill in restaurants from Monday through Wednesday.

AUD

RBA meeting minutes showed that board members currently do not see the need to change the course of monetary policy, but that they are ready to intervene if the need arises. Monetary policy will be held accommodative for as long as necessary. The economic downturn was not as severe as expected and board members are grateful that the government decided to extend various income support measures.

NZD

Talks about negative rates coming in from RBNZ in Q2 of 2021 are intensifying. RBNZ members have stated at their last meeting that they would like to see a weaker NZD. The markets are pricing negative rates for April 2021 but if the virus continues hurting the economy more the markets will move expectations for a rate cut closer to the start of 2021. GDT price auction came in at -1.7% and price index is now down more than 7% since the beginning of July. This drop in dairy prices, largest export for New Zealand, will hurt trade balance and in turn GDP.

This week we will have Q2 consumption data and July trade balance data.

Important news for NZD:

Monday:

• Retail Sales

Wednesday:

• Trade Balance

CAD

Inflation in July fell to 0.1% y/y vs 0.6% y/y as expected on the back of rising CAD and issues in travel sector. Core measures show median reading staying at 1.9% y/y for the third straight month while common and trimmed both slipped to 1.3% y/y and 1.7% y/y respectively. Retails sales for the month of June came in at 23.7% m/m vs 24.5% m/m as expected. The reading brought retail sales up 1.3% from pre-pandemic levels in February as more regions reopened. Sales were up in all sub sectors, with growth primarily led by motor vehicle and parts dealers, as well as clothing and clothing accessories stores. Statistics Canada is providing an advanced estimate of July sales of 0.7%.

This week we will have Q2 GDP data.

Important news for CAD:

Friday:

• GDP

JPY

Preliminary Q2 GDP reading showed the pain circulating through Japanese economy. It came at -7.8% q/q vs -7.5% q/q, even worse than very low expectations! Annualized decline was -27.8%. Private consumption fell -8.2% q/q while business spending fell -1.5% q/q. Business spending is the only bright spot in the reading, although it is negative, it came better than -4% as was expected. The reading now shows three consecutive quarters of negative GDP, indicating prolonged recession. Since Japan is net exporter the drop in the global demand due to virus outbreak wreaked havoc on the economy.

Trade balance in July came in at JPY11.6bn, beating expectations and turning back into surplus after three months of deficits. However, surplus was achieved with exports dropping -19.2% y/y while imports plunged -22.3% y/y. Report showed the first increase in exports to China this year. Core machinery orders for June came in at -7.6% m/m and -22.5% y/y. After brief positive reading the previous month machinery orders, proxy for CAPEX, return into negative which will raise concerns about business investment in Q3 as well as Q4.

National inflation for July improved slightly to 0.3% y/y but ex-fresh food and ex-fresh food, energy categories stayed at their previous levels of 0% y/y and 0.4% y/y respectively. Measures are miles away from BOJ’s 2% target level. Preliminary manufacturing PMI for the month of August improved to 46.6 but services dropped to 45 from 45.4 the previous month leaving composite at 44.9 level.

This week we will have Tokyo area inflation data for the month of August.

Important news for JPY:

Friday:

• CPI

CHF

Total sight deposits for the week ending August 14 came in at CHF698.6bn vs CHF695.8bn the previous week. We can expect the CHF700bn level to be reached within a week or two. Trade balance data in July improved to CHF3.38bn on the back of exports rising 2.3% m/m and imports rising 1.1% m/m. This is an encouraging sign for the start of Q3.

This week we will have Q2 GDP data.

Important news for CHF:

Thursday:

• GDP

 

[katetrades]

Forex Major Currencies Outlook (Aug 31 – Sep 4)

Employment data from US and Canada followed by PMI data from China and RBA rate decision will highlight the upcoming week as we start to wake up from the summer lull.

USD

Consumer confidence in August declined for the second straight month. It came in at 84.8, down from 91.7 the previous month. The $600/week scheme ended on July 31 and it led to the decline in consumer confidence. The numbers have fallen below values during the pandemic and represent almost a six-year low. Preliminary durable goods for the month of June smashed expectations coming in at 11.2% m/m vs 4.7% m/m as expected. Digging in deeper into the number we find out that the reading was skewed due to the rise in defensive aircraft parts of 77.1% which does not reflect economic expansion and muddies the headline reading. On the positive side, core capital goods came in at 2.4% m/m vs 1.8% m/m as expected with a revision higher to the previous month’s reading.

Second reading of Q2 GDP saw it revised up to -31.7% q/q from -32.5% q/q as preliminary reported. Initial jobless claims topped the 1 million mark for the second week in a row (it came at 1006k). Another blow to the economy is that the number of continuing claims came in higher than expected at 14535k but still lower than 14758k from the previous week.

Fed Chairman Powel stated that "following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time." Employment issues will be prioritized over inflation. PCE inflation in July rose to 1% y/y with core rising as well to 1.3% y/y. Both personal spending and personal income beat expectations coming in at 1.9% and 0.4% respectively which is a good sign for Q3. However, caveat is that these numbers are July numbers, $600 per week checks were still available back then, so we may see a serious drop in August numbers.

This week we will have ISM PMI data and NFP numbers on Friday. Given that the Fed is prioritizing employment NFP reading will gain in importance. Estimates are for around 1.5 million on the headline number with the unemployment rate of around 10%.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

German Ifo business climate index jumped to 92.6 in August from 90.4 the previous month. Expectations and current situation assessment categories also showed an improvement coming in at 97.5 and 87.9 respectively. Optimism regarding the economy, not just expectations, but current situation as well, pushed EUR higher. Ifo economists now expect German GDP to grow by 7% in Q3 after Q2 GDP was revised higher to -9.7% q/q from -10.1% q/q as preliminary reported. Economic sentiment for the Euro area continued to rise, beating expectations which suggests double-digit Q3 GDP. Improvements were seen in both industrial and services sentiment.

This week we will have preliminary August inflation data and consumption data for July.

Important news for EUR:

Tuesday:

• CPI

Thursday:

• Retail Sales

GBP

The pound has enjoyed a very strong week despite the uncertainties around Brexit deal and Covid-19 back home. It has benefited from the weak dollar pushing GBPUSD to the 1.33 level and strengthening against the yen, crossing the 141 level.

AUD

Q2 Capex data came in at -5.9% q/q vs -8.2% q/q as expected. It is a beating but not something to be proud of especially when Q1 reading was -2.1% q/q. Westpac is predicting that AUDUSD will go as high as 0.75 by the end of 2020 citing increase in iron ore prices due to growing demand from China, current account surplus and stimulus coming from Australia.

This week we will have RBA interest rate decision, Q2 GDP and July consumption data from Australia as well as official and Caixin PMI numbers from China.

Important news for AUD:

Monday:

• Manufacturing PMI (China)
• Services PMI (China)
• Composite PMI (China)

Tuesday:

• RBA Interest Rate Decision
• Caixin Manufacturing PMI (China)

Wednesday:

• GDP
• Caixin Services PMI (China)
• Caixin Composite PMI (China)

Friday:

• Retail Sales

NZD

Retail sales in Q2 plunged -14.6 q/q and -14.2% y/y as a result of countrywide lockdown. Prime Minister Ardern announced that lockdown in Auckland will be extended to August 30 and finance minister added that lockdown takes away NZD500m from GDP per week. Trade balance data for July saw surplus dwindling to NZD282m from NZD475m the previous month on the back of fall in exports and rise in imports.

CAD

Q2 GDP data showed the record drop of -38.7% q/q vs -39.4% q/q as expected. GDP in June was up 6.5% m/m but the huge drop in April’s reading lead to the sharp quarterly decline.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

After a surprising jump in inflation the previous month CPI data for August continued their downward path. Headline number came in at 0.3% y/y vs 0.6% y/y as expected and as reported the previous month. Ex-fresh food category, which is a core reading, came in at -0.3% y/y vs 0.4% y/y the previous month and ex-fresh food, energy category, the so-called core-core, came in at -0.1% y/y vs 0.6% y/y the previous month.

Prime minister Abe will resign from his post due to health reasons. Economic policy called “Abenomics”, which consists of monetary and fiscal stimulus as well as economic reforms, will continue to be implemented regardless of the successor. Currently, finance minister Aso is the leading candidate.

This week we will have consumption, employment and capital spending data.

Important news for JPY:

Monday:

• Retail Sales

Tuesday:

• Unemployment Rate
• Capital Spending

CHF

Total sight deposits for the week ending August 21 reached the magic round number of CHF700bn, up from CHF689.9bn the previous week. With EURCHF being at the 1.075 level seems that SNB targeted USDCHF pair, buying dollars, in order to prop it up from the 0.90 level. Q2 GDP fell -8.2% q/q thus providing another reading showing the devastating impact of the virus on the economy.

This week we will have consumption and inflation data.

Important news for CHF:

Monday:

• Retail Sales

Wednesday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Sep 7 – Sep 11)

ECB and BOC meeting along with continuation of Brexit talks will highlight the upcoming week.

USD

ISM manufacturing PMI for the month of August set new highs coming in at 56 vs 54.8 as expected. The reading is the highest in almost two years and it was led by huge jump in new orders (67.6, which is the highest since 2004) and production 63.3. New export orders returned to expansion territory, however employment sub index puts a dent into the report as it rose only to 46.4 from 44.3 the previous month. ISM non-manufacturing PMI came in at 56.9 vs 57 as expected, a decline from 58.1 in July but still at the very healthy level. Business activity and new orders declined from previous month, although they are still very high, 62.4 and 56.8 respectively. The biggest concern with the report is the employment sub index which is below 50 level for the sixth consecutive month.

NFP headline number for August came in at 1371k vs 1350k as expected. The main reading from the report is the unemployment rate which fell to 8.4% from 10.2% the previous month. This is a staggering drop in the unemployment rate considering that participation rate rose to 61.7% from 61.4% the previous month. The underemployment rate, referring to a situation in which individuals are forced to work in low paying or low skill jobs, also continued to decline coming in at 14.2%. The drop in the unemployment rate may persuade Republicans that new stimulus is not needed which can further undermine already fragile consumer. Number of private jobs was 1027k meaning that temporary government jobs made a significant contribution to the headline number. Out of those government jobs 238k are scheduled to be laid off at the end of the September.

Initial jobless claims for the week ending August 29 dropped below 1 million mark coming in at 881k. Continuing claims for the week ending August 22 fell to 13 254k from 14 492k previously. There were 2 million more workers collecting unemployment benefits in August than in July. This suggests that fewer businesses are reopening than expected and more importantly those that are reopening are doing so at reduced capacity using smaller labour forces than before the pandemic.

This week we will have inflation data.

Important news for USD:

Friday:

• CPI

EUR

Final manufacturing PMI for August came in at 51.7 as preliminary reported but there were revisions between countries. German dropped to 52.2 while French improved to 49.8, so close to the 50 level. Markit notes that readings so far point to sharp rebound in production in Q3. Final services reading improved to 50.5 from 50.1 as preliminary reported on upward revision to German services which pushed composite to 51.9 from 51.6 preliminary. Markit notes that recovery started to wane mid-Q3 and it is attributed to resurgence in Covid-19 cases.

Preliminary inflation data for August see the headline number show deflation coming in at -0.2% y/y vs 0.2% y/y as expected. Core CPI came in at 0.4% y/y vs 0.8% y/y as expected. Both readings heavily missed expectations and although the drop can be attributed to pandemic conditions if the drop persists for some time it will cause concern at the ECB. The fall in inflation can also be attributed to the late start of the sales season.

EURUSD briefly crossed the 1.20 level after it was pulled down on comments from ECB chief economist Philip Lane. He stated that while ECB does not target the exchange rate, the euro-dollar exchange rate matters which was interpreted as ECB expressing concern regarding EUR strength. EUR strength led to deflation as reported in preliminary August inflation report.

This week we will have final Q2 GDP reading as well as ECB meeting. No change in the rate is expected but further comments on EUR strength will be monitored. Additionally, investors will look for any change in inflation targets, that is, will ECB allow inflation to go over 2% level as Fed announced.

Important news for EUR:

Tuesday:

• GDP

Thursday:

• ECB Interest Rate Decision
• ECB Monetary Policy Press Conference

GBP

Final manufacturing PMI for August was slightly revised to 55.2 from 55.3 as preliminary reported but still a very healthy reading, best level since February 2018, with output rising at fastest pace in six years led by an upturn in domestic demand. Services had a bigger downgrade. They came in at 58.8 vs 60.1 as preliminary reported which pushed composite to 59.3 vs 60.3 as preliminary reported. Markit notes that economy is enjoying “mini boom” due to the reopening and that numbers are skewed due to furlough scheme that will be in place until October and “Eat out to help out” scheme.

This week we will have July GDP figures.

Important news for GBP:

Friday:

• GDP

AUD

RBA has left the cash rate unchanged at 0.25% as was widely expected. They will maintain their 0.25% target for 3-year bond yields until progress is made in employment and inflation. They will increase the size of term funding facility and make the facility available for longer. Board members have acknowledged Aussie strength in the recent months but it was attributed to the falling USD and it does not warrant any intervention.

Q2 GDP data posted historically bad numbers coming in at -7% q/q and -6.3% y/y. Both readings came worse than expected and after negative readings from Q1 it affirms that Australia is in technical recession, measured as two consecutive quarters of negative GDP, for the first time in almost 30 years. Household consumption dropped -12.1% q/q. Government consumption was the only positive with 2.9% q/q. Retail sales in July came in at 3.2% m/m. Another positive reading, but trouble will be seen in August reading due to the increased harshness of lockdown measures in Melbourne.

Official PMI data from China for the month of August show small decline in manufacturing (51 vs 51.1 the previous month) and nice increase in the non-manufacturing (55.2 vs 54.2 the previous month) which led to composite rising to 54.5 from 54.1 the previous month. Caixin manufacturing PMI came in at 53.1 thus marking fourth consecutive month in expansion territory. The reading is highest since 2011, new export orders recorded their first growth this year as overseas demand increased while employment moved closest to 50 level this year. Caixin services slipped to 54 but composite improved on the back of manufacturing reading to 55.1.

This week we will have trade balance and inflation data from China.

Important news for AUD:

Monday:

• Trade Balance (China)

Wednesday:

• CPI (China)

NZD

ANZ business confidence, closely followed metric by RBNZ, came in at -41.8 thus returning to the value from May. ANZ stated that survey is recessionary and that the retail sector, which drove the rebound in recent months, is losing rapidly losing steam. GDT price index posted a fourth consecutive decline coming in at -1% indicating that we can expect weaker contribution from net exports to Q3 GDP.

CAD

The employment change in August came in at 245.8k. The report is full of great signs starting with the unemployment rate dropping to 10.2% from 10.9% the previous month while participation rate rose to 64.6% from 64.3% the previous month. Full-time employment came in at 205.8k while part-time employment came in at 40k. The fact that great majority of employment gains are in full-time employment is a great sign for the economy. Employment is now within 1.1 million from the pre-pandemic levels.

This week we will have BOC interest rate decision which may show some changes in the existing stimulus program since data continues to show positive signs.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Preliminary industrial production data for July came in at 8% m/m and -16.1% y/y. Both readings came better than expected and better than previous month prompting government to lift their assessment. Retail sales went into the other direction coming in at -3.3% m/m vs -2.5% m/m as expected and -2.8% y/y vs -1.7% y/y as expected. Q2 Capex data completely disappointed coming in at -11.3% y/y vs –4% y/y as expected. Company profits plunged astonishing -46.6% y/y. The big drop in global demand caused by virus outbreak hurt Japanese exporters much worse than it was expected.

Yoshihide Suga will stand for LDP leadership election and deputy prime minister Aso, which was at first seen as the main contender, stated he will support him. The winner of LDP leadership race will be the next prime minister since the party has the majority in the House of Representatives. The leadership vote will be held on September 14.

This week we will have final Q2 GDP reading, spending and earnings data as well as core machinery orders data.

Important news for JPY:

Tuesday:

• GDP
• Household Spending
• Labor Cash Earnings

Thursday:

• Core Machinery Orders

CHF

Retail sales for July showed a strong rebound coming in at 4.1% y/y. Positive revision to previous month’s reading from 1.1% y/y to 3.3% y/y made the reading shine even brighter. SNB total sight deposits for the week ending August 28 came in at CHF701.6bn vs CHF700bn the previous week. SNB’s intervention aim was most likely to lift USDCHF from the 0.90 level. CPI for August came in line with expectations, headline at -0.9% y/y and core at -0.4% y/y. Headline number is in deflation since February and core since March.

This week we will have employment data.

Important news for CHF:

Wednesday:

• Unemployment Rate

 

[TradersWay]

Forex Major Currencies Outlook (Sep 14 – Sep 18)

Fed, BOE and BOJ rate decisions accompanied by consumption data from the US and China will be the key economic events while election of Japan’s new prime minister and continuation of Brexit negotiations will dominate the political landscape.

USD
Headline CPI in August came in at 1.3% y/y vs 1.2% y/y as expected and up from 1% y/y in July. Core reading came in at 1.7% y/y vs 1.6% y/y the previous month. Rise in energy prices is most responsible for the increase in inflation. Initial jobless claims for the week ending September 5 came in at 884k for a second week of claims below 1 million while continuing claims rose to 13385k.

This week we will have consumption and housing data. Highlight of the week will be the Fed interest rate decision accompanied with economic projections and press conference. After introduction of AIT (Average Inflation Targeting) in Jackson Hole and putting emphasis on employment data investors will look for additional clarification.

Important news for USD:

Wednesday:

• Retail Sales
• Fed Interest Rate Decision
• FOMC Press Conference

Thursday:

• Building Permits
• Housing Starts

EUR
ECB left key policy rates unchanged as was widely expected. PEPP program will continue in the amount of €1.35 trillion with purchases being flexible until the end of the program at the end of June 2021. ECB president Lagarde stated that they will be monitoring the FX rate but that they will not overreact to Euro gains as it is not in their mandate. Rebound in the economy is in line with expectations. Inflation has been dampened by energy prices as well as drop in German VAT. They expect inflation to remain negative until the end of the year before picking up at the start of 2021. Final Q2 GDP reading came in at -11.8% q/q vs -12.1% q/q as reported in the second reading.

This week we will have industrial production data, ZEW survey data and final August inflation data.

Important news for EUR:
Monday:

• Industrial Production

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)

Thursday:

• CPI

GBP
Prime minister Johnson announced October 15 as the deadline date for the EU deal. If the deal is not reached by that date UK will leave on “no deal” and “move on”. Johnson added that the date is chosen so it can be ratified by the year-end. UK will be ready to trade with the EU on WTO trade terms if no deal is reached. October 15 is two weeks earlier than the EU’s self-imposed date of the end of October. Internal market bill, the newly proposed bill which overrides the Withdrawal Agreement and the Northern Ireland protocol, will be debated in the Parliament on September 14. GDP for July came in at 6.6% m/m indicating a rebound at the start of Q3 due to the reopening. Industrial output and construction were stronger than expected, but services were a bit weaker than expected.

This week we will have employment, inflation and consumption data along with BOE rate decision. No change in rate is expected with talks about increase of QE in November being eyed. Continuation of Brexit talks will have a bigger impact on pound as we are entering within a month from the deadline imposed by British government.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Thursday:

• BOE Interest Rate Decision

Friday:

• Retail Sales

AUD
Trade balance data for China in August showed surplus of CNY416.6bn vs CNY386bn as expected. Exports were up 11.6% y/y while imports were down -0.5% y/y. Trade surplus with US on YTD basis, from January to August, is at CNY1.32 trillion. In the dollar terms trade balance came in at $58.93bn with exports rising 9.5% y/y and imports falling -2.1% y/y. Export growth was mainly concentrated in integrated circuits, auto-data processors and textiles, smartphones and household appliances. Exports smashed expectations while imports missing widely raise a concern regarding domestic demand within China. One caveat may be that the biggest drop in imports was in energies and the other that the decline in imports appears to be a function of falling prices. Inflation in August came in at 2.4% y/y as expected easing from 2.7% y/y due to the drop in the food prices.

This week we will have employment data from Australia as well as consumption and industrial production data from China.

Important news for AUD:

Tuesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD
September preliminary readings of ANZ business confidence and activity outlook showed significant improvements. The former came in at -26 vs -41.8 in August while the latter came in at -9.9 vs -17.5 the previous month. ANZ stated that many activity indicators are at their highest levels since February, but are still well down compared to pre-pandemic.

This week we will have Q2 GDP reading.

Important news for NZD:

Thursday:

• GDP

CAD
BOC has left the overnight rate unchanged at 0.25% as we expected. They have also left their QE program unchanged at CAD5bn per week and reiterated that they “will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved". In their assessment the rebound in the US has been stronger than expected, while economic performance among emerging markets has been more mixed.

This week we will have inflation and consumption data.

Important news for CAD:
Wednesday:

• CPI

Friday:

• Retail Sales

JPY
Final Q2 GDP reading came in at -7.9% q/q vs -7.8% q/q as preliminary reported. Private consumption was at -7.9% q/q vs -8.2% q/q as preliminary reported but business consumption dropped to -4.7% q/q from -1.5% q/q as preliminary reported. Labour cash earnings in July came in at -1.3% y/y for the fifth consecutive month of declines while household spending plunged -7.6% y/y. Spending has been falling every month since the sales tax hike in October of last year. Core machinery orders for July, a good proxy for capex 6 to 9 months in the future, rebounded to 6.3% m/m from -7.6% m/m in June.

This week we will have industrial production, trade and inflation data along with BOJ rate decision. According to reports BOJ is expected to offer more positive tone on the economy indicating that Japan is recovering from the fallout caused by the pandemic.

Important news for JPY:

Monday:

• Industrial Production

Wednesday:

• Trade Balance

Thursday:

• BOJ Interest Rate Decision

Friday:

• CPI

CHF
SNB total sight deposits for the week ending September 4 came in at CHF702.9bn vs CHF701.6bn the previous week. SNB keeps the steady fight against the unwanted Swissy strength. Seasonally adjusted unemployment rate in August came in at 3.4%.

 

[katetrades]

Forex Major Currencies Outlook (Oct 5 – Oct 10)

RBA rate decision followed by FOMC minutes and Canadian employment data will highlight the week from an economic standpoint with markets facing an impact from Brexit and virus-related news.

USD

Final Q2 GDP came in at -31.4% vs -31.7% as reported in the second reading. This is by far the worst quarter on record with private consumption plunging around 35% and business investment free-falling around 45%. Initial jobless claims continued to decline in the week ending September 26 coming in at 837k vs 850k as expected, down from 873k the previous week. Continuing claims slipped to 11767k from 12000k previously. Inflation, as measured by PCE, came in at 1.4% y/y vs 1.1% y/y the previous month with core PCE rising to 1.6% y/y from 1.4% y/y the previous month. Personal income dropped -2.7% due to the end of the weekly unemployment benefits which in turn dragged personal spending to 1% from 1.5% the previous month.

NFP for September came in at 661k vs 875k as expected with previous month’s reading being revised up to 1489k. The unemployment and underemployment rates dropped to 7.9% and 12.8% respectively, however the participation rate also dropped to 61.4% from 61.7% the previous month thus taking away the shine from the reading. A drop in the unemployment rate could cause further divergence in the fiscal stimulus package as Republicans can argue that the amount should be lower due to the economy doing well.

First presidential debate underwhelmed and started as an insult match. As it went on it turned from ugly into chaotic. President Trump refused to say that he will accept the election results increasing the fears of a contested election, an election of which the legality or validity of the result is challenged by the losing candidate and a constitutional crisis. President Trump announced on Twitter that he tested positive on COVID-19 which sent US equities down. He is 74 years old and overweight which puts him in a high-risk group. He is in quarantine which will side-line him for two weeks from the election campaign in the final month before the elections.

This week we will have ISM Non-Manufacturing PMI, trade balance data as well as minutes from the latest FOMC meeting.

Important news for USD:

Monday:

• ISM Non-Manufacturing PMI

Tuesday:

• Trade Balance

Wednesday:

• FOMC Minutes

EUR

Economic confidence in September came in at 91.1, up from 87.5 reported the previous month. Services and industrial sentiment also showed an improvement indicating the growing optimism surrounding the recovery in the euro area. Consumer confidence improved to -13.9 from -14.7 the previous month, but the reading is still rather weak.

Preliminary September inflation data showed CPI falling further into deflation coming in at -0.3% y/y vs -0.2% y/y the previous month. Core CPI added salt to the wound by dropping to 0.2% y/y vs 0.4% y/y the previous month. Headline inflation fell to the its lowest level since 2015 while core inflation is at the record lows. Although the factors that lead to the drop are mostly transitory, -- German VAT reduction, a drop in energy prices and late mandatory sales period, -- there is a concern about the drop in services inflation caused by social distancing measures. If the deflation persists beyond transitory effects the ECB will be spurred into action to fight the deflationary pressures.

This week we will have consumption data for the last month of Q3.

Important news for EUR:

Monday:

• Retail Sales

GBP

Final Q2 GDP reading improved to -19.8% q/q vs -20.4% q/q as preliminary reported on upwardly revised business investment. However, this still remains the worst quarter reading on record with both private and government consumption being downwardly revised. Additionally, Q2 is long behind us and markets will react only to Q3 related news.

This week we will have GDP data for the last month of Q3 as well as continuation of Brexit negotiations.

Important news for GBP:

Friday:

• GDP

AUD

Industrial profits in China for August came in at 19.1% y/y for a fourth consecutive month of rising profits thanks to the massive government stimulus, pent-up demand and exports. Equipment manufacturing sector as well as mining sector showed the biggest rise in profits. Official manufacturing PMI in September came in at 51.5 beating the expectations of 51.3 and rising from 51 as reported the previous month. Non-Manufacturing PMI jumped to 55.9 vs 54.7 as expected which pushed composite PMI to 55.1. Caixin manufacturing PMI ticked down to 53.0 from 53.1 the previous month with Caixin noting "The sharp rise in overseas demand has complemented the domestic market" and adding their worries about the job market.

This week we will have trade balance data and RBA interest rate decision. No changes to policy in October are expected but Reuters poll shows that 25 out of 36 economists see a cash rate cut to 0.1% at some time in Q4, most likely on November 3. We will have Caixin services and composite PMIs from China.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision
• Trade Balance

Friday:

• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

ANZ business survey for September showed business confidence improving to -28.5 from -41 the previous month. Activity outlook improved as well coming in at -5.5 vs -17.5 the previous month. ANZ noted that agriculture and construction are the most optimistic sectors while services and retail are the least optimistic.

CAD

GDP for the month of July came in at 3% m/m vs 2.9% m/m as expected for the third consecutive month of rising GDP. Astonishingly all 20 of the industrial sectors posted increases with manufacturing being at 5.9% and accommodation and food services at 20.1%. Projections for August GDP are at 1% m/m indicating rebound in Q3 GDP, however GDP is still 6% lower than in February.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

Headline inflation for Tokyo area in September came in at 0.2% y/y vs 0.1% y/y as expected. CPI excluding fresh food came in at -0.2% y/y vs -0.3% y/y the previous month while CPI excluding food, energy came in flat vs -0.1% y/y the previous month. BOJ target is for 2% inflation so the small beatings are not nearly enough. Preliminary industrial production for August came in at 1.7% m/m vs 1.4% m/m as expected and -13.3% y/y vs -13.4% y/y as expected. Retail sales followed industrial production and came in with a beat of 4.6% m/m vs 2% m/m as expected thus returning to the growth path after a stumble in July. The unemployment rate ticked up to 3% as expected thus crossing the 3% mark for the first time since May 2017.

This week we will have spending and earnings data.

Important news for JPY:

Friday:

• Household Spending
• Labor Cash Earnings

CHF

Total sight deposits for the week ending September 28 came in at CHF704.5bn vs CHF703.9bn the previous week. After a surprising drop in total sight deposits two weeks ago they continue with their upward trajectory. Both headline inflation and core inflation in September ticked up to -0.8% y/y and -0.3% y/y respectively. Retail sales in August came in at 2.5% y/y vs 3.6% y/y the previous month due to the drop in non-food (ex-fuel) category indicating slight slowdown in domestic demand.

SNB quarterly intervention data report showed that they spent CHF90bn on currency interventions in H1 thus spending more in H1 of 2020 than in previous three years combined and amounting to slightly over 50% of Swiss GDP. US Treasury labels countries as currency manipulators if they meet three criteria and now Switzerland has met them all. Those are: Bilateral Trade, goods trade surplus higher than $20bn and Switzerland is at $47bn, Current Account Surplus, greater than 2% of GDP and Switzerland is at 8.6% of GDP and Persistent One-Sided Intervention in Foreign Markets, greater than 2% of GDP and for at least 6 out of 12 months and Switzerland is at over 50% of GDP with at least 8 months. With inflation deeply negative SNB is forced to continue intervening in the markets to fight off Swissy’s strength.

This week we will have employment data.

Important news for CHF:

Thursday:

• Unemployment Rate

 

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Forex Major Currencies Outlook (Oct 12 – Oct 16)

Consumption data from the US along with Brexit deadline imposed by the UK government on October 15 and EU Leaders Summit will highlight the coming week. Monday is a holiday in the US which will cause lower liquidity in the markets.

USD

ISM Services PMI in September came in at 57.8 vs 56.2 as was expected and up from 56.9 the previous month. Diving deeper into the numbers we see that new orders jumped to 61.5 from 56.8 the previous month while employment index returned to expansion with 51.8 from 47.9 the previous month. Business activity also improved coming in at very strong 63 level. Trade balance in August set a new record deficit. It came in at -$67.1bn vs -$66.2bn as expected. Exports rose 2.2% while imports rose 3.2% indicating good domestic demand. The deficit with China decreased to -$26.4bn while total goods deficit increased by $3bn and came in at -$83.86bn.

Fed Chairman Powell stated in his speech that economy has performed well but it is weakening. He stated that Fed has lowered borrowing costs and ensured that credit is ample thus stabilising financial markets. Government was commended for its massive fiscal stimulus, however more of it is needed to ensure that recovery continues. Powell added that doing little on this front will be worse than doing too much. President Trump suddenly announced the end of stimulus talks with Democrats stating that he will unveil massive stimulus after the election victory. After seeing US markets close lower due to his announcement, he tweeted his support for small businesses and sending stimulus checks to all Americans ($1200).

This week we will have inflation and consumption data.

Important news for USD:

Tuesday:

• CPI

Friday:

• Retail Sales

EUR

Final services PMI reading for September came in at 48, down from 50.5 in August. Composite came in at 50.4, down from 51.9 in August. The rise in virus cases impeded the economic recovery raising questions about the Q4 data. If PMIs continue to falter in combination with already falling inflation will prompt additional stimulus. Retail sales in August came in at 4.4% m/m vs 2.5% m/m due to strong online purchases and clothing sales. Consumption has rebounded after a drop in July adding more support to the rebound in Q3.

This week we will have ZEW survey as well as EU Summit on Thursday and Friday.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)

Thursday and Friday:

• EU Leaders Summit

GBP

Final services PMI reading for September came in at 56.1 vs 55.1 as preliminary reported. Composite came in at 56.5 vs 55.7 as preliminary reported. Markit noted the resilience of UK’s service sector stating however that risks in the coming months are skewed to the downside. Worries concerning Brexit are on the rise which could negatively impact the economic recovery in Q4.

GDP in August came in at 2.1% m/m vs 4.6% m/m as expected. GDP in August is down 9.3% from the same month a year ago. Although all 3 months in Q3 had positive readings they kept sliding from month to month indicating that Q3 rebound may not be as strong as hoped for. Given the risk surrounding Brexit as well as the expiring furlough programme the worries about Q4 are mounting.

This week we will have employment data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

AUD

At their October meeting RBA left both cash rate and the targeted yield on 3 year bonds at 0.25% as was widely expected. They have reiterated that they will not increase cash rate until progress has been made towards full employment and they are confident that inflation will be sustainably within 2-3% band. Decline in growth was not as bad as expected and the unemployment rate is likely to peak at a lower rate than it was expected earlier. They see tackling the unemployment rate as an important national priority and “will maintain highly accommodative policy settings as long as is required”. Government unveiled the budget for the fiscal year ending in 2021 and it shows a deficit of 11% of GDP as well as net debt rising to 36.1% of GDP.

This week we will have employment data from Australia as well as trade balance and inflation data from China.

Important news for AUD:

Tuesday:

• Trade Balance (China)

Thursday:

• Employment Change
• Unemployment Rate
• CPI (China)

NZD

RBNZ officials stated that they are actively working on negative interest rates and funding-for-lending programme. The news was brought by Reuters citing an unnamed RBNZ official and it pushed NZD down. There are still speculations about the validity of the news, however kiwi is suffering from negative rates talk.

This week we will have Q3 inflation data.

Important news for NZD:

Thursday:

• CPI

CAD

Employment report for September showed employment change coming in at 378.2k vs 150k as expected. The unemployment rate fell to 9% from 10.2% in August while participation rate climbed to 64.8% from 64.6% in August. Final point of this very strong employment report is that great majority of employment (334k) was full-time employment. BOC Governor Macklem stated that “we are not actively discussing negative interest rates at this point but it’s in our toolkit and never say never”. Later on during his statement he subtly downplayed the probability of negative rates which lead to CAD gaining strength.

JPY

Final services PMI reading for September came in at 46.9 vs 45 the previous month and pushed composite to 46.6 vs 45.2 the previous month. This is the eighth straight month of services reading below 50 with January showing measly 50.1. Markit stated that with restrictions on travel imposed in the country tourism is preventing any meaningful recovery in the services sector. Household consumption in August improved a bit to -6.9% y/y from -7.6% y/y in July. Labour cash earnings continued to decline coming in at -1.3% y/y, for a fifth straight month of declines. Japan’s economy is in a vicious downward cycle, no wages, no consumption, no inflation.

CHF

Total sight deposits for the week ending October 2 came in at CHF705.1bn vs CHF704.5bn the previous week indicating that SNB is still performing interventions in the market to curb Swissy’s strength. The seasonally adjusted unemployment rate in September moved in the right direction by slipping to 3.3% from 3.4% the previous month.