Daily Market Outlook by Kate Curtis from Trader's Way

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Forex Major Currencies Outlook (July 4 – July 8)

RBA meeting, Nonfarm Payrolls, employment data from Canada and inflation data from China and Switzerland will highlight the week ahead of us. Reminder that Monday is holiday in the US, both bonds and stock markets will be closed so liquidity will be thin which may cause some volatile movements.​

USD

Durable goods for the month of May came in at 0.7% m/m vs 0.1% m/m as expected. Core capital goods rose by 0.5% m/m. Despite inflationary pressures rising we see that business investment is not slowing down. Conference Board consumer confidence for June plunged to 98.7 from downward revised 103.2 in May. The biggest drop was in the expectations category as people seem to brace themselves for the recession.

Headline PCE number in May came in unchanged at 6.3% y/y, with monthly reading increasing 0.6% m/m vs 0.2% m/m in April. Core PCE recorded second consecutive month of declines and came in at 4.7% y/y vs 4.9% y/y the previous month. On the monthly basis it rose 0.3% m/m compared to expectations of 0.4% m/m. Personal income came in at 0.5% for the third straight month while personal consumption increased 0.2%. However, real personal consumption continued to be in the negative territory. Additionally, contribution of personal consumption to Q1 GDP was downward revised adding the worries about the strength of consumer. Atlanta Fed now sees Q2 GDP at -1%.

ISM Manufacturing PMI for the month of June dropped to 53 from 56.1 in May. New orders slipped below the expansion level and are at 49.2 while new export orders still hold above 50. Backlog of orders also declined by substantial amount. Employment index continued to decline and is now deeper into contraction with 47.3. The report added fuel to the recession story and Atlanta Fed Q2 GDP projection slipped deeper into the recession at -2.1%. The 10y Treasury started the week with yield of around 3.15% and continued to decline through most of the week finishing it with yield below 3%. FedWatchTool now sees the probability of a 75bp rate hike in July at 74.8% with 25.2% of a 50bp rate hike.

This week we will have ISM Non-Manufacturing PMI, FOMC Minutes and Nonfarm Payrolls data. Headline number is expected to be around 300k with the unemployment rate staying at 3.6%.

Important news for USD:

Wednesday:

• ISM Non-Manufacturing PMI
• FOMC Minutes

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

ECB policymaker Martins Kazaks stated in an interview with Bloomberg TV that 25bp rate hike in July and 50bp rate hike in September represent the base case scenario. At the meeting in Sintra, Portugal ECB President Lagarde confirmed the July 25bp rate hike and added that they are data dependent. She continued saying that inflation is “undesirably high” and if the incoming inflation data do not improve ECB will move faster. They will use the flexibility of PEPP reinvestments to fight the fragmentation in the bond market. They will also accelerate the completion of the design of a new instrument intended to combat fragmentation risks.

Preliminary German CPI data for the month of June showed the first decline since January as headline number came in at 7.6% y/y vs 7.9% y/y in May. It was only a 0.1% m/m increase. We need to take into account that government measures, namely their energy relief package that was implemented on June 1. This will be a temporary relief and it will not derail ECB from their rate hike path as Spain’s preliminary reading printed above 10% for the first time since 1985. French reading showed inflation rising to 5.8% y/y from 5.2% y/y in May with a second consecutive month of 0.7% m/m increases. Ultimately, preliminary Eurozone CPI showed headline at 8.6% y/y vs 8.4% y/y as expected and up from 8.1% y/y in May and terrifying 0.8% m/m. The slight comfort can be found in core reading which eased to 3.7% y/y from 3.8% y/y the month before.

ECB source stated that anti-fragmentation policy will divide countries in three tiers: 1. Donors; 2. Recipients and 3. Neutral. In the Donor group we have: Germany, Netherlands and France while in Recipients group we have Italy, Spain, Portugal and Greece. All of the other EU countries are in the Neutral group.

GBP

Final Q1 GDP reading came in unchanged at 0.8% q/q. Personal consumption was unchanged at 0.6% q/q while business investment and government spending took a dive. The UK government is considering temporary cut to VAT from 20% to 17.5% in order to assist its citizens to cope with rising costs of living.

AUD

Official PMI data from China for the month of June saw all three readings return to expansion (above the 50 level). Manufacturing was at 50.2 vs 49.6 in May, although, expectations were for a bigger rise, to 50.5. Non-Manufacturing came in at 54.7, up from 47.8 in May and composite was at 54.1 up from 48.4 the previous month. Easing of lockdowns naturally brought increased economic activity and it is reflected in the data. The devil hides in the details and sub-indices show cracks in economic recovery. The employment and selling prices indices showed declines. Declines in selling prices will negatively impact profit margins of companies which in turn can lead to further drops in employment. Caixin manufacturing PMI came in at 51.7 vs 48.1 the previous month reaching the highest level since May of 2021 on the back of increased production.

This week we will have RBA meeting where a 50bp rate hike is expected. From China we will get Caixin services and composite PMI as well as latest CPI data.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision
• Caixin Services PMI (China)
• Caixin Composite PMI (China)

Saturday:

• CPI (China)

NZD

Business confidence in June continued to decline and came in at -62.6 vs -55.6 the previous month. Activity outlook also plunged to -9.1 from -4.7 in May. A deadly combination of supply side issues and inflation pressures is wrecking chaos on the economy. Inflation expectations are still above 6% and show no signs of a meaningful weakening. Consumer confidence also dropped as the situation with high inflation remains bleak.

CAD

Finance Minister Freeland stated that there is no guarantee that recession will be avoided but that country still has a path toward “soft landing”. She expressed her confidence in BOC’s ability to control the inflation.

This week we will have employment data.

Important news about CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

BOJ published Summary of Opinions from their June meeting in which they reiterated that it is appropriate to continue with monetary easing in order to support the economy. The continuation of monetary easing is necessary to achieve sustained wage growth and if it exceeds 2% it will in turn lead to sustainable inflation of 2%. Japan still has negative output gap and in order for it to be closed as well as improve inflation expectations the bank should strengthen its monetary stance.

Preliminary industrial production for the month of May plunged -7.2% m/m vs -0.3% m/m as expected. A drop of this magnitude has not been seen in two years. This has prompted the government to cut their outlook for industrial production stating that output is weakening and that is led by drops in motor vehicle production. Chinese lockdowns accentuated supply chain issues as Japanese car makers could not get auto parts in time.

Inflation report for the Tokyo area in the month of June showed headline number at 2.3% y/y vs 2.2% y/y as expected, Ex fresh food category came in at 2.1% y/y as expected and up from 1.9% y/y in May while ex fresh food, energy rose to 1% y/y from 0.9% y/y the previous month. BOJ Tankan survey showed that firms expect prices to rise 2.4% in 2023, 2% three years from now and 1.9% five years from now. Indices measuring large manufacturers and non-manufacturers output prices reached high levels not seen since the 1980.

CHF

SNB total sight deposits for the week ending June 24 came in at CHF748.5bn vs CHF751.8bn the previous week. The bank omitted reference to “highly valued” CHF so they are not intervening and are only monitoring market movements.

This week we will have inflation data.

Important news for CHF:

Monday:

• CPI

 

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Forex Major Currencies Outlook (July 11 – July 15)

RBNZ and BOC meetings, rate hikes will be delivered, inflation from the US and a slew of data from China including Q2 GDP will highlight the week ahead of us. Gas pipeline bringing Russian gas to Germany, NordStream 1, will be temporarily offline starting on Monday. Additionally, first earnings for Q2 will be published.​

USD

ISM Non-manufacturing PMI in June, unlike its manufacturing counterpart, surprised to the upside and came in at 55.3 vs 54.3 as expected. The employment sub index slipped into contraction with new orders also declining but staying well into expansion territory. Prices paid index returned to 80 and although it is still very elevated it indicates easing of price pressures. Both production and backlog of orders rose while inventories dropped.

The minutes of the June FOMC meeting showed that participants were wary of deterioration in inflation picture and that restrictive monetary policy is needed. Interest rate hike of 50-75bp will be the most appropriate at the July meeting. The participants saw downside risks to growth and danger that higher inflation could stay entrenched if public looses faith in their resolve to bring it down. USD has rallied after the minutes but then it reversed and continued on a downward trajectory as relief rally took over.

Nonfarm Payrolls came in at 372k vs 268k as expected. The unemployment rate was steady at 3.6% while participation rate slipped to 62.2% from 62.3% in May. Wages were at 0.3% m/m same as in May and 5.1% y/y vs 5.2% y/y the previous month. There are no signs of easing in the labour market which should keep Fed firmly at a pace for a 75bp rate hike in July. The yield on a 10y Treasury started the week at 2.89% and shortly crossed the 3% level during the week before firmly crossing it after NFP. FedWatchTool sees the probability of a 75bp rate hike at 97.7% post NFP and 2.3% chance of a full 100bp rate hike.

This week we will have inflation data for June expected to show another increase and consumption data for the same period.

Important news for USD:

Wednesday:

• CPI

Friday:

• Retail Sales

EUR

Final Eurozone services reading for the month of June was slightly revised up to 53 from 52.8 as preliminary reported and it nudged composite up to 52 from 51.9 as preliminary reported. S&P Global report notes that “The sharp deterioration in the rate of growth of eurozone business activity raises the risk of the region slipping into economic decline in the third quarter. The June PMI reading is indicative of quarterly GDP growth moderating to just 0.2%, with forward-looking indicators such as the survey’s new orders and business expectations gauges pointing to falling output in coming months.” Additionally, they not that there are signs of inflationary forces peaking in April. EURUSD dropped heavily on London open on Tuesday and broke lows for the year to reach levels not seen since 2003. The pair fell below 1.03 and below 1.02 the day after as fears of recession in the Eurozone as well as natural gas shortages grip markets attention.

GBP

The UK final services reading for the month of June saw an improvement to 54.3 from 53.4 as preliminary reported and in May. Composite was lifted on the back of it to 537. from 53.1 as preliminary reported and in the previous month. S&P Global notes that inflation pressures may cause issues for services spending going forward and add that new orders were weakest since beginning of 2021. Input prices are still rising rapidly which will in turn raise cost-of-living.

There were disturbances in the political scene of the UK with current Chancellor of the Exchequer Rishi Sunak and former Chancellor and current Health Minister Sajad Javid resigning. Prime Minister Johnson will not leave his post adding that he will “keep going”. However, the pressures against him were too great and he has resigned as well. New ministers have been appointed. Nadhim Zahawi is appointed as Chancellor of the Exchequer while Steve Barclay is the new Health Minister.

AUD

RBA has delivered a 50bp rate hike as expected and lifted the cash rate to 1.35%. This is the first time that they have raised rate by 50bp in two consecutive meetings and if data supports it they could go for another 50bp rate hike in August. They are determined to bring back down inflation and take further steps to normalize monetary policy. The pace of future rate hikes will depend on incoming data and outlook for inflation and labor market. Inflation is seen peaking later in the year and then returning to the target range of 2-3% in 2023. Medium-term inflation expectations remain well anchored. One source of uncertainty is the behavior of household spending. Although savings rates remain high and households accumulated wealth during the pandemic it is still unclear how higher prices and higher rates will impact the consumer.

Caixin services for the month of June returned to expansion with 54.5 vs 47.3 after abysmal May reading of 41.4. The May reading showed us pain that economy felt due to lockdowns in China while June reading shows us a rebound caused by loosening of restrictions. Composite also returned to expansion with a reading of 53.

This week we will have employment data from Australia as well as trade balance, GDP, production and consumption data from China.

Important news for AUD:

Wednesday:

• Trade Balance (China)

Thursday:

• Employment Change
• Unemployment Rate

Friday:

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

NZD

The latest GDT auction printed -4.1% following other global commodity prices down. This is the seventh negative auction in the last eight and it was lead by butter prices which plunged 9%.

This week we will have RBNZ meeting at which the bank is expected to continue with 50bp rate hikes.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

BOC quarterly business outlook survey showed that almost 80% of businesses expect inflation to be above 3% on average for the period of two years. One quarter of businesses expect it to be above 2% for three years or more. Almost half of the businesses see supply issues persisting until the end of 2023 while expectations for average wage increases in the next 12 months are at 5.8%. Given the danger of inflation expectations getting unanchored we see BOC proceeding with 75bp rate hike next week.

Employment change for the month of June showed a decline of 43.2k vs 23.5k as expected. It was a big miss on the reading as majority of jobs that were lost were part-time jobs. The unemployment rate fell to a new record low of 4.9% from previous record low in May of 5.1%. Unfortunately, this was achieved with a sharp drop in the participation rate (64.9% from 65.3% the previous month). Ultimately, average wages jumped to 5.2% from 3.9% in May. It was a mixed report, however we do not see it will deter BOC from a 75bp rate hike next week.

This week we will have BOC meeting. Incoming data are suggesting very strong economy with rapidly growing inflation, therefore we see a 75bp rate hike.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Average cash earnings in May came in at 1% y/y vs 1.7% y/y in April and on a real terms, taking into account inflation, they fell -1.8% y/y. BOJ stated that rise in wages is necessary to keep inflation sustainable and with them moving in the wrong direction there will be no need for any changes in monetary policy in the near future. Sources are starting to pop up that BOJ will raise its inflation forecast at their next BOJ meeting, however there will be no tightening of monetary conditions, ultra low rate policy will persist in order to prop up the economy. Former Prime Minister Shinzo Abe was holding a speech in Nara as part of election campaign when he was shot in the back two times with a shotgun. Unfortunately he was not able to push through this fight and passed away.

CHF

SNB total sight deposits for the week ending July 1 came in at CHF748.5bn vs CHF748.4bn the previous week. Virtually unchanged as SNB takes a back seat and lets market dictate the way for Swissy. Inflation in Switzerland showed another unexpected jump as it printed 3.4% y/y vs 3.2% y/y as expected and it rose 0.5% m/m. Inflation is now at a 30-year high with transport, housing and energy prices contributing the most. Core inflation rose 1.7% y/y vs 1.5% y/y in May. SNB indicated their willingness to reign in inflation so this is a nudge for a rate hike in September.

 

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Forex Major Currencies Outlook (July 18 – July 22)

ECB and BOJ meeting, preliminary PMI data from the Eurozone and the UK as well as inflation data from the UK, Canada and New Zealand will be highlights of another packed week. We will also get US housing data and if they come "materially stronger than expected” it will increase chances of a 100bp rate hike in July.​

USD

Inflation in June printed an unwelcome surprise. It rose 9.1% y/y vs 8.8% y/y as expected and up from 8.6% y/y in May. This is a new 40-year high. Monthly reading came in at 1.3% m/m vs 1.1% m/m as expected and up from 1% m/m the previous month. Gasoline posted the biggest rise in prices. With oil prices dropping below $100 in the past few weeks we could see this reverse in July reading. Energy component of the CPI contributed 7.5%, nearly half of the all items increase. Fuel oil prices rose 98.5% y/y. The report shows that almost 75% of components that go into CPI basket saw price increases of more than 4% in the last 12 months. With inflation running scorching hot the markets were pricing almost 25% chance of a 100bp rate hike at July meeting after the CPI print. Advance retail sales for the month of June came in at 1% m/m vs 0.8% m/m. Control group came in at 0.8% m/m vs 0.3% m/m as expected. Ex autos and ex autos and gas also beat the expectations.

The yield on a 10y Treasury had a roller coaster ride. It started the week at around 3.09%, then fell below 3% only to jump over it again after the CPI print and come back below it shortly after. The spread between 2y and 10y Treasuries dropped to -27bp thus making the infamous yield curve inversion. After the CPI report FedWatchTool sees the probability of a 75bp rate hike at 16.7% with other 83.3% seeing a full 100bp rate hike. Once Fed Weller, biggest hawk in the Board of Governors, stated that he is leaning more toward 75bp rate hike in July, but if retail sales and housing data “materially stronger than expected” he will be up for a 100bp rate hike, the probability turned to 50:50. Markets concluded that results of retail sales were not “materially stronger than expected”, therefore the USD declined and probability of a 75bp rose to 64.4% with the remaining 35.6% expecting 100bp rate hike.

EUR

ZEW survey for the month of July showed atrocious numbers. Current situation fell to -45.8 from -27.6 in June, expectations were for a decline to -34.5. Economic sentiment slumped to -53.8 from -28 the previous month while it was expected to drop to -38.3. ZEW cites rising energy prices, ECB rate hikes, war in Ukraine and supply chain issues from further restrictions in China as detriment to the outlook.

Forward looking 5y5y swaps, widely used as a sign for inflation expectations, dropped below 2% for the first time since March of this year indicating that fears of slowing growth are gripping the markets. Political crisis in Italy, nothing out of ordinary for that region, led to yield on Italian government bonds rising. As a result of it, the spread between them and German government bonds widened causing additional worries about “fragmentation” in the European bond markets.

This week we will have preliminary July PMI numbers as well as ECB meeting. A 25bp rate hike was telegraphed last month and it will be first rate hike in more than a decade (last rate hike was in 2011).

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

Friday:

• S&P Global Manufacturing PMI (EU, Germany, France)
• S&P Global Services PMI (EU, Germany, France)
• S&P Global Composite PMI (EU, Germany, France)

GBP

BOE Governor Bailey stated that there are options other than a 25bp rate hike in August on the table. He reiterated their commitment to act forcefully if inflation shows signs of persistence. It is expected that inflation will come down sharply in 2023. At the moment of his speech markets were pricing a probability of a 50bp rate hike in August at almost 60%,

GDP data surprised in May as it came at 0.5% m/m vs flat as expected. Additionally, April’s reading was revised higher. Services expanded 0.4%, production 0.9% and construction activity grew by 1.5% m/m. If June reading comes in positive the UK could escape a quarter of negative growth. After the second round of votes for the leadership place in Conservative Party there are still 5 members in the running with former Chancellor of the Exchequer Rishi Sunak leading the way with 101 votes. His closest follower is Penny Mordaunt with 83 votes. All members will be going into the next round of voting.

This week we will have employment, inflation and preliminary July PMI numbers.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• S&P Global Manufacturing PMI
• S&P Global Services PMI
• S&P Global Composite PMI

AUD

Employment report for the month of June was a stellar one. The employment change came in at 88.4k vs 25k as expected. The unemployment rate dropped to 3.5% from 3.9% in May and is now at the lowest level in history. This was all accomplished along with participation rate ticking up to 66.8% from 66.7% the previous month, making the feat of falling unemployment rate even more impressive. Full-time employment was at 52.9k while part-time was at 25.5k. Now the pressure is on the RBA with 50bp rate hike in August being the base case while 75bp rate hike talks gather momentum.

Inflation data from China for the month of June saw CPI continue to rise and coming in at 2.5% y/y vs 2.1% y/y in May while PPI continued to decline coming in at 6.1% y/y vs 6.4% y/y the previous month. PPI has been on the decline since November of 2021 and it is at levels not seen since March of 2021. With CPI inflation low compared to the rest of the world China will have easier job introducing monetary easing to stimulate the economy. In CNY terms exports in H1 have risen by 13.2% y/y while imports rose 4.8% y/y. Trade balance data for June showed trade surplus widening to $97.94bn from $78.76bn in May with exports rising 17.9% while imports rose meekly 1%. Imports were impacted by the restrictions and they should bounce back in the next couple of months.

Q2 GDP data saw economy plunge -2.6% q/q vs -1.5% q/q as expected. Lockdowns and restrictions have impaired economic activity much more than expected. Yearly figures managed to print a positive number, but it was a measly 0.4% y/y vs 1% y/y as expected. June data show a much welcomed relief after restrictions were lifted. Industrial production rose 3.9% y/y vs 0.7% y/y in May while retail sales showed first growth in three months and came in at 3.1% y/y vs -6.7% y/y the previous month.

NZD

RBNZ has delivered a much expected 50bp rate hike thus raising the Official Cash Rate to 2.5%. The accompanying announcement saw that Committee is comfortable with rate hike path outlined in the May Monetary Policy Statement. They will continue increasing OCR in order to bring inflation down to the targeted range of 1-3% while supporting maximum employment. Currently core CPI is around 4%. Members have acknowledged near-term upside risks to inflation as well as medium-term downside risks to economic activity. The statement ends with “Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.” which indicates that they are prepared to raise above neutral rate.

This week we will have inflation data for Q2.

Important news for NZD:

Monday:

• CPI

CAD

BOC decided to surprise the markets and raise rates by full 100bp. Expectations were for a 75bp rate hike. The hike brought rate to 2.5%, matching it with New Zealand’s. The accompanying statement showed that rate BOC decided to front-load the path to higher interest rates which are to come at the following meetings. The statement shows that CPI will likely to remain around 8% in the next few months and that more than half of the components that make up the CPI are now rising by more than 5%. Inflation is expected to come down to 3% by the end of 2023 and return to bank’s 2% target by the end of 2024. The Canadian economy is characterized as overheated and in excess demand and labor market conditions are tight. New projections for GDP are downgraded and are expected to be at 3.5% in 2022, 1.75% in 2023 and 2.5% in 2024. During the press conference BOC Governor Macklem stated that front-loading of rates is necessary in order to avoid need for even higher rates in the future. Additionally, front-loading should help in achieving “soft landing”, reaching of which he finds doable. When asked about the terminal rate he said that it will all depend on the economy. The biggest problem is the housing market. Housing prices are notoriously sensitive to interest rate hikes. With the market already being in the bubble cracks will soon start to appear and if BOC pushes on with aggressive hiking we could see a bubble bursting with an innumerable consequences for the economy.

This week we will have inflation data

Important news for CAD:

Wednesday:

• CPI

JPY

Core machinery orders for the month of May fell -5.6% m/m while rising 7.4% y/y. The biggest drops were seen in petroleum and coal products followed by transportation & postal activities. Finance and insurance also saw big declines as was the case with business-oriented machinery. There are talks that companies are delaying investments due to surging energy and raw material prices. Prime Minister Kishida gave orders to bring back online nine nuclear power plants in order to help economy and citizens with surging energy prices. Nuclear plants should be online by the winter in Japan. Covid cases are again on the rise and government is considering introducing extraordinary measures.

This week we will have a BOJ meeting. No changes to the monetary policy are expected.

Important news for JPY:

Thursday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending July 8 came in at CHF745bn vs CHF748.4bn the previous week. Deposits continue to decline as SNB is satisfied with current Swissy strength and lets market do its job.

 

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Forex Major Currencies Outlook (July 25 – July 29)

Fed meeting will be front and centre followed by inflation from the US, the EU and Australia.​

USD

Housing starts in June came in at 1559m vs 1580m as expected. Building permits came in at 1685m vs 1695m as expected. Both numbers missed the expectations, however May housing starts were revised up to 1591m which paints the report in brighter light. Member of the Fed’s Board of Governors Weller stated that if housing data comes “materially stronger than expected” then he would lean toward a 100bp rate hike. After this report we can safely assume that 75bp rate hike is the way to go next week. Atlanta Fed GDPNow forecast for Q2 has slipped to -1.6% after the report.

The yield on a 10y Treasury started the week at 2.92% and hovered around the 3% level before ending the week below it. Spread between 2y and 10y Treasuries went as low as -23bp during the week. The main reason for inversion is Fed’s aggressive hiking stance which pushes yields on 2y Treasuries up while markets see growth issues in the future, buy 10y Treasuries and push yields on them down. FedWatchTool sees the probability of a 75bp rate hike at 72.7% while probability of a 100bp rate hike is at 27.3%.

This week we will have a Fed meeting, second reading of Q2 GDP as well as PCE inflation data. Markets are seeing a 75bp rate hike.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision

Thursday:

• GDP

Friday:

• PCE

EUR

We had a leak on Tuesday morning that ECB is considering a 50bp at July meeting. The leak was similar to the one that occurred before Fed July meeting. Markets have propelled EUR and it quickly gained over 100 pips against the dollar. The when it was time to announce the rate there was a delay and finally ECB delivered a 50bp rate hike taking its rate out of the negative territory and putting it at 0%. The rate hike represents frontloading and further normalization of interest rates will be appropriate. A new instrument called Transmission Protection Instrument (TPI) has been introduced. It’s main purpose is to secure the effective transmission of monetary policy. It will be mainly used to tackle fragmentation risks. EURUSD rallied on the news and rose almost to the 1.03 level.

At the press conference ECB President Lagarde stated that inflation is expected to remain undesirably high for some time with price pressures spreading across increasing number of sectors. She added that weak EUR is adding fuel to the inflation fire. Wages are showing signs of gradual pick up. All members of Governing Council voted for a 50bp rate hike and prior guidance on September rate hikes no longer applies as members will now be data dependent. ECB will accelerate rate hikes, but will not go higher than previously expected, there will be no changes to the final level. The EUR tanked heavily on this statement and fell to the levels seen before the rate hike announcement.

Preliminary July Consumer confidence in Eurzone dropped to -27 from -23.6 the previous month. Italian Prime Minister and former ECB President Mario Draghi has resigned. Italian politics is in a mess. Spread between Italian 10y bonds and German 10y bonds widened to over 200bp. New elections most likely to be called on September 25. As things stand at the moment centre-right parties have the clearest path to victory. There was a resumption of gas flow through the Nord Stream 1 pipeline at 40% of pipeline’s capacity. Additional maintenance is scheduled for July 26 and that one should see the flow of gas drop to 20% of pipeline’s capacity.

Preliminary PMI data for the month of July started to show cracks appearing in the Eurozone. Manufacturing fell into contraction territory for Eurozone (49.6) as a whole as well as for Germany (49.2) and France (49.6). Services managed to stay afloat with 50.6 for the Eurozone and healthy 52.1 for France while Germany plunged to 49.2. Composite for the Eurozone and Germany fell below the 50 level (49.4 and 48 respectively) while France managed to remain in expansion territory. High energy prices and uncertainty surrounding gas coupled with ongoing supply chain issues and tighter monetary policy led to drops in new orders and output and pushes Eurozone toward recession. A small consolation is the drop in inflation pressures as seen in input and selling prices. With a bleak outlook for the months ahead window for ECB to raise rates is narrowing fast which may help to explain why they went for a 50bp rate hike.

This week we will have a second reading of Q2 GDP and preliminary CPI data for July.

Important news for EUR:

Friday:

• GDP
• CPI

GBP

The employment report for June showed claimant count change come in at -20k while employment change for the past 3 months to May rose 296k. The unemployment rate for May remained unchanged 3.8% while average weekly earnings ex bonus ticked up to 4.3% from 4.2% the previous month. The labor market remains tight and BOE is now fully focused on inflation levels.

CPI data for the month of June showed yet another increase with headline number coming in at 9.4% y/y vs 9.3% y/y as expected and up from 9.1% y/y the previous month. This represents a ninth consecutive month of rising inflation and with 0.8% m/m reading inflation will undoubtedly reach BOE’s double digit projection. Energy and food had biggest price increases with petroleum surging almost 10% m/m. Core reading declined for the second straight month and came in at 5.8% y/y as expected, down from 5.9% y/y in May, Nevertheless, this report should cement a 50bp rate hike at August meeting.

Voting for the new Prime Minister entered its final stage. There are two candidates remaining Rishi Sunak who won 137 votes and Liz Truss who won 113 votes. Head-to-head poll puts Truss as a new Prime Minister but candidates now have seven weeks to convince party members to vote for them. Truss voted for Brexit while Sunak voted to remain in the EU which could pose a problem for him in the upcoming vote.

Preliminary July PMI data fared much better than its European counterparts. All three readings beat expectations, however they all came in lower than in June. Manufacturing is at 52.2, services at 53.3 while composite is at 52.8. Digging deeper into the data signs of future slowdown are becoming more and more evident with new orders and output growth slowing down. Inflation pressures are cooling of which is a huge positive for the country where rising cost-of-living are dangerously affecting consumers and businesses.

AUD

Meeting minutes from July showed that further steps are necessary to normalize monetary conditions as well as the size and timing of future rate hikes will depend on incoming data and board’s view on inflation and labor as well as risks to the outlook. There was a consideration of both 25bp and a 50bp rate increases and board members opted for the latter one as it sends a stronger message. Members stated that current cash rate is well below the lower range of estimates for the nominal neutral rate. Inflation expectations are well anchored for the long-term while current inflation is expected to peak at around year-end. Governor Lowe stated in his speech that additional rate hikes are necessary to rein in inflation, which will go to 6% or 7%. Neutral rate is currently considered to be at around 2.5% and rate hikes will reach it at some point.

This week we will have Q2 inflation data.

Important news for AUD:

Wednesday:

• CPI

NZD

Inflation data for Q2 came in at 1.7% q/q vs 1.5% q/q as expected and 7.3% y/y vs 7.1% y/y as expected. Yearly figure represents the highest reading in last 32 years. RBNZ’s core inflation measure came in at 4.8% y/y up from upwardly revised 4.6% y/y in Q1. The bank targets core inflation in 1-3% range so the reading means rate hikes will continue unobstructed. GDT auction saw prices drop by 5%. This is the third consecutive drop in dairy prices and eighth of the last nine auctions saw falling prices.

CAD

June inflation data surprised to the downside as it came in at 8.1% y/y vs 8.4% y/y as expected but still higher than 7.7% y/y in May and highest in last almost 40 years. Gasoline prices started to come down in June and the real drop will be seen in July so there is a possibility of a lower reading July. This will in turn prompt BOC to slow down the pace of rate hikes. Core readings saw median unchanged at 4.9% y/y while common jumped to 4.6% y/y from 3.9% in May. Trim ticked up to 5.5% from 5.4% the previous month. When speaking in an interview Governor Macklem stated that inflation will most likely remain above 7% for the entire year of 2022. He added that BOC is deliberately front-loading rate hikes in order to get ahead of inflationary pressures.

JPY

Another BOJ meting and again no change to the rate or monetary policy as expected. The upper limit on 10y JGB is left at 0.25% and the bank offered to buy them every business day in order to maintain that level. Rates are expected to remain at “present or lower” levels for some time and the bank will not refrain for further monetary easing if need arises. New projections see CPI at 2.3% for 2022 vs 1.9% as seen in April, 2023 will print 1.4% and 2024 1.3%. BOJ quarterly report showed that corporate profits to remain high as a whole thanks in part to weak yen. Wage pressures and inflation expectations are both seen rising. Governor Kuroda reiterated bank’s willingness to ease if necessary adding that central banks target stability and not exchange rates.

National inflation data for the month of June saw headline number tick down to 2.4% y/y from 2.5% y/y in May, but both ex energy component and ex energy, fresh food ticked up and came in at 2.2% y/y and 1% y/y respectively. Core readings are at levels not seen since 2016. Preliminary July PMI data showed manufacturing declining for the fourth straight month and coming in at 52.2 vs 52.7 in June. Services broke a nice run of four consecutive rising months and plunged to 51.2 from 54 the previous month. All of this dragged composite down to 50.6 from 53 the previous month. A small consolation is that all numbers are above the 50 level.

CHF

SNB total sight deposits for the week ending July 15 came in at CHF745.4bn vs CHF745bn the previous week. SNB is standing on the sidelines and lets market dictate Swissy strength as they see fit.

 

[katetrades]

Forex Major Currencies Outlook (Aug 1 – Aug 5)

BOE and RBA meetings, both expected to deliver a 50 bp rate hike, NFP and employment data from Canada and New Zealand coupled with inflation data from Switzerland and PMI data from China will highlight yet another jam packed trading week.​

USD

Fed stayed true to their word and delivered a 75bp rate hike bringing the rate to a range of 2.25-2.5%. The statement showed that "the Committee is highly attentive to inflation risks" that recent indicators of spending and production have been weakening and that labor market is tight. The decision today was unanimous and further rate hikes are appropriate. At the press conference Chairman Powell stated that pace of further rate hikes will depend on the incoming data. Essentially, they are brushing aside forward guidance, same as the ECB did, for data dependence and meeting-by-meeting approach. The markets assessed this statement as less aggressive rate hike path from the Fed and USD suffered. He added that they are at neutral level now as the June dot plot showed and admitted that some signs of slowdown start to appear in the economic data. Additionally, he acknowledged that they have front-loaded rate hikes and that their full effects are yet to be seen.

Advanced reading of Q2 GDP came in at -0.9% annualized vs 0.5% as expected. Combined with Q1 which came in at -1.6% annualized it makes two consecutive quarters of negative GDP which constitutes a technical recession. GDP deflator came in at 8.9% vs 7.9%, a full percentage point higher than expected and it took away from the GDP reading due to strong inflation. Looking deeper into the contribution by the categories we see that business investment was a huge drag, taking away -2.73pp from the GDP while net exports managed to add 1.43pp to the reading.

PCE inflation data jumped in July to 6.8% y/y from 6.3% y/y the previous month. Core inflation ticked up to 4.8% y/y from 4.7% y/y in June thus breaking the streak of three consecutive months of declining core inflation. Personal spending jumped to 1.1% while personal income ticked up to 0.6%. With Fed now being data dependent with attention being paid to inflation reading we may see markets to start pricing in bigger rate hikes at September meeting. New home sales for the month of June continued to decline and came in at 590k vs 642k the previous month. Rising mortgage rates are dissuading home buyers and it is something that home builders already warned about.

The yield on a 10y Treasury started the week at 2.8% and generally moved lower throughout the week. Spread between 2y and 10y Treasuries went as low as -25bp during the week. FedWatchTool sees the probability of a 50bp rate hike at 64% while probability of a 75bp rate hike is at 36%.

This week we will have ISM manufacturing and non-manufacturing data as well as jobs data on Friday. Headline NFP number is expected to come at around 300k while the unemployment rate will stay unchanged at 3.6%.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Friday:

• NFP
• Unemployment Rate

EUR

A member of the ECB Governing Council, Robert Holzmann, stated over the weekend that ECB may be forced to tolerate a mild recession. Ifo reading for July printed declines across all three measures as companies get increasingly pessimistic about the future. Ifo economist commented that reading indicates that if the situation continues developing as it is currently full on recession cannot be ruled out. The energy question is the biggest concern for the economy as Germany needs to fill up to 90% of its current gas reserves. Reserves are currently almost 2/3 full but the prospect of reaching 90% till the Winter starts seems bleak. Nord Stream 1 gas flow was lowered to 20% of its capacity on Wednesday. Gazprom, pipeline’s operator, stated difficulties in acquiring turbine parts and legal difficulties imposed due to sanctions as the main reason for reduction in gas flow.

Preliminary inflation data for the month of July saw a new record high of 8.9% y/y vs 8.6% y/y in June. Even more troublesome for the ECB is that core inflation rose 4% y/y vs 3.8% y/y as expected and up from 3.7% y/y the previous month. First reading of Q2 GDP surprised to the upside with 0.7% q/q vs 0.2% q/q as expected. French, Italian and Spanish readings were above expectations while Germany lagged and came in flat in Q2. Incoming data in July does not bode well for the Q3 GDP and combined with the looming gas crunch threat we could see first negative reading of the year.

GBP

The pound had a volatile week. It had gained more than 250 pips against the USD and then almost gave back all of it after the PCE report only to finish the week strong. GBPJPY rose almost 350 pips until the Fed meeting and then gave it all back toward the end of the week and lost additional 150 pips.

This week we will have a BOE meeting. A 50bp rate hike is expected, which is a very rare case in BOE’s history. With recession risks looming over the UK’s economy the window of rate hike opportunity is closing for the bank, They may feel forced to do as much as they can and opt for a 50bp rate hike.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Q2 inflation data saw headline number rise 1.8% q/q as expected, down from 2.1% q/q in Q1 and 6.1% y/y vs 6.2% y/y as expected, a very rare miss in inflation and 5.1% y/y in the previous quarter. Core inflation measure, trimmed mean, came in at 1.5% q/q as expected and up from 1.4% in Q1 and 4.9% y/y, a big up from 3.7% y/y. RBA targets yearly core inflation in range of 2-3% and with it currently running at almost 5% they will have to go for a 50bp next week.

This week we will have RBA meeting where a third 50bp rate hike in a row is expected. We will also get Caixin PMI data from China.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision

Wednesday:

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

NZD

RBNZ Governor Adrian Orr stated that they are reviewing recent monetary policy conduct. The goal of the review is to assess the impact on inflation and employment according to the targets they set and decisions they made in the process. Business confidence in July improved to -56.7 from -62.6 in June but it is still at a painfully low level.

This week we will have Q2 employment data.

Important news for NZD:

Wednesday:

• Employment Change
• Unemployment Rate

CAD

GDP for May came in flat, down from 0.3% m/m in April. Preliminary projection for June GDP is at 0.1% m/m. The transportation and warehousing sector were positive contributors while the manufacturing sector contracted.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

Minutes from the BOJ June meeting showed members willingness to shelter economy from the rising commodity prices and moves in the currency markets. Members agreed that BOJ must keep easy policy to achieve their price goal in sustained, stable fashion coupled with rising wages. A few members stated that in the light of recent events it will be necessary to ramp up bond purchases in order to achieve monetary guidance, essentially to defend the upper yield target. Japanese government has raised their view on the overall economy stating that “the economy is picking up gently”. The outlook for private consumption, employment as well as imports were raised.

July inflation data for the Tokyo area saw increases in all three readings. Headline inflation rise to 2.5% y/y vs 2.3% y/y in June, ex fresh food rose to 2.3% y/y from 2.1% y/y while ex fresh food, energy rose to 1.2%, crossing the 1% level for the first time in more than three years. Industrial production improved in June 8.9% m/m, a record monthly increase in series’ history, while retail sales continued to stumble and came in at -1.4% m/m.

CHF

SNB total sight deposits for the week ending July 25 came in at CHF746.6bn vs CHF745.4bn the previous week. Yet another negligent change in the reading as SNB feels comfortable with current Swissy valuation.

This week we will have inflation data.

Important news for CHF:

Wednesday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Aug 8 – Aug 12)

Inflation data from the US and China and GDP data from the UK will highlight the slow summer week.​

USD

ISM manufacturing for the month of July came in at 52.8 vs 52 as expected. The most watched component, as indicator of inflation pressures, prices paid, fell to 60 from 78.5 in June while expectations were for a modest decline to 75. Production index is holding at healthy 53.5 level but it is down from 54.9 the previous month and it looks increasingly likely that it will continue to decline. New orders component dropped to 48, a second consecutive month of contraction. Employment climbed back to 49.9, basically back to expansion territory after 47.3 reading in June. Additionally, new export orders rose to 52.6 from 50.7 the previous month indicating improving foreign demand for US goods.

ISM Non-Manufacturing index in July surprised to the upside after poor S&P Global services reading and came in at 56.7 vs 53.5 as expected and up from 55.3 in June. Business activity increased sharply to 59.9 from 56.1 the previous month with new orders also posting 59.9, up from 55.6 the previous month. Prices paid plunged to 72.3 from 80.1 and declines were seen also in inventories and supply deliveries, all good declines. Employment rose to 49.1 from 47.4 and is on the way to return into expansion.

San Francisco Fed president Mary Daly, a well known dove, said that Fed has a long way to go in fight with inflation. She added that Fed is looking at incoming data to decide whether to slow down with rate hikes or whether to continue with current pace. When a famous dove gets out with a hawkish stance markets pay special attention and USD gained strength on the back of her comments. Later on, during the week, Daly added that if inflation continues to rise strongly a 75bp rate hike may be appropriate in September.

US printed another stellar job report. July NFP printed a staggering 528k, more than double 250k as expected. The unemployment rate slipped to 3.5% from 3.6%, however participation rate also slipped to 62.1% from 62.2% the previous month. Average hourly earnings rose 0.5% m/m and 5.2% y/y which will keep the inflation elevated. There is no hints in report regarding much-talked-about recession. Chances of a 75bp rate hike in September jumped significantly post report.

The yield on a 10y Treasury started the week at 2.68%, ran above 2.7% level on the back of Daly’s comments and then hovered around 2.8% after the NFP. Spread between 2y and 10y Treasuries went as low as -43bp after the NFP. FedWatchTool sees the probability of a 50bp rate hike at 35.5% while probability of a 75bp rate hike is at 64.5%.

This week we will have inflation data for July. We may see some slowdown due to the falling oil prices.

Important news for USD:

Wednesday:

• CPI

EUR

Final manufacturing PMI in July improved to 49.8 from 49.6 as previously reported on the back of small improvement in German reading as well as number from Netherlands which came at healthy 54.5, but still represents a twenty-month low. The number indicates that manufacturing is barely in the contraction territory, however details paint a much bleaker image. New orders are falling almost uncontrollably with production following the suit. With declines in new orders and new export orders inventories are surging to unprecedented levels which in turn will lead to even lower production. One bright spot is that supply chains are showing signs of improvement which in turn leads to drops in input prices, except for energy prices which are still highly elevated. Services reading was upwardly revised to 51.2 from 50.6 as preliminary reported on the back of revisions in German and French readings as well as beat in Spanish reading. Composite basically returned back to expansion by printing 49.9. The report notes quickly fading reopening rebound as surging energy prices increase cost-of-living.

GBP

BOE delivered a 50bp rate hike as it was widely expected lifting the rate to 1.75%. The vote for a rate hike was 8-1 with Tenreyro voting for a 25bp rate hike increase instead. Inflation is expected to continue rising and is now seen reaching whopping 13% in Q4, staying elevated during 2023 and then dropping to 2% in two years. Risks to these projections are extremely large at the present. Statement shows “The United Kingdom is now projected to enter recession from the fourth quarter of this year.” Recession is expected to last for five quarters and delete 2% from real GDP growth in that period. Statement adds that they are not on a pre-set path regarding policy thus echoing RBA from earlier in the week. BOE will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response. BOE will start with active QT program by selling £10bn of gilts acquired during pandemic every quarter for the next 12 months. Latest polls show Foreign Minister Liz Truss gaining ground over Rishi Sunak in the race for Conservative Party leader and thus a new Prime Minister of the UK.

This week we will have a preliminary Q2 GDP reading expected to show a modest increase.

Important news for GBP:

Friday:

• GDP

AUD

RBA has delivered a 50bp rate hike as expected and lifted cash rate to 1.85%. Bank’s projections see inflation peaking at around 7.75% near the end of the year before falling back to targeted band of 2-3%. It is, however, still expected that inflation will be a little over 4% in 2023 and around 3 % over 2024. Labor market is tight and consumer proves resilient, although, the behavior of household spending remains the main uncertainty. GDP growth is expected to be 3.25% over 2022 and 1.75% in 2023 and 2024. In the final paragraph it says “The Board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labor market.” This indicates that they are moving away from clear forward guidance, like Fed and ECB did, and switch to data dependent stance which will allow them more flexibility in the future. Australia posted a record high trade surplus in the month of June of AUD17.67bn. Statement on Monetary Policy showed that all of the bank’s projections are based on rates reaching 3% by the end of the year and declining a little by the end of 2024. Additionally, wage price index is seen at 3% by the end of 2022, 3.6% by the end of 2023 and 3.9% by the end of 2024.

Official PMI data from China for the month of July saw manufacturing slump back into contraction territory at 49 from 50.2 in June. Insufficient demand was stated as one of the main culprits as both new orders and new export orders fell below the 50 level. Non-Manufacturing reading fared much better and came in at 53.8, a healthy number nowhere near contraction. Composite dropped to 52.5 from 54.1 the previous month. Caixin manufacturing reading also slipped form June but unlike the official reading it held in expansion territory (50.4, down from 51.7 in June). The report shows slow increases in new orders and input as well as big drops in employment and input costs. Caixin services continued its upward trajectory and came in at 55.5 vs 54.5 the previous month. It was, however, not enough to offset negative impact of manufacturing reading on composite which came in at 54 vs 55.3 in June. The report states that both supply and demand improved, although supply at a higher rate, with employment staying weak and business costs continuing to rise.

This week we will have inflation data from China.

Important news for AUD:

Wednesday:

• CPI (China)

NZD

Employment data for the Q2 started to show some slowdowns in a tight labor market. Employment change came in flat q/q, while Q1 employment change was revised down to also print flat. Thus, the last time employment increased was in Q4 of 2021. The unemployment rate ticked up to 3.3% from 3.2% in Q1 while participation rate ticked down to 70.8% from 70.9% in the previous quarter. Wages continued to improve coming in at 3.4%.

CAD

Unlike their southern neighbors Canada posted a weak July jobs report. Employment change came in at -30.6k vs 20k as expected and thus printed second consecutive month of falling jobs. The unemployment rate was unchanged at record low 4.9%, but participation rate declined to 64.7% from 64.9% in June. Full-time employment dropped -13.1k while part-time employment fell -17.5k. Wage growth remained at healthy 5.2% y/y.

JPY

Final manufacturing PMI reading slipped to 52.1 from 52.2 as preliminary reported. Details of the report show new orders component declining along with backlog of orders. Inventories are building while producers still remain rather optimistic about outlook for output in the next 12 months. After a reopening surge in past couple of months services PMI plunged back to 50.3 from 54 the previous month dragging with it composite which printed 50.2.

CHF

July inflation data saw headline number unchanged at 3.4% y/y while core inflation ticked up to 2% y/y from 1.9% y/y in June. More inflation data is needed but if it shows that inflation is plateauing in Q3 SNB may decide to continue with current monetary policy and not raise interest rate.

 

[katetrades]

Forex Major Currencies Outlook (Aug 15 – Aug 19)

RBNZ rate hike, inflation data from the UK and Canada, employment data from the UK and Australia, consumption data from the US and China and preliminary Q2 GDP data from Japan will all mark data heavy week in front of us.​

USD

July CPI came in at 8.5% y/y vs 8.7% y/y as expected and down from 9.1% y/y in June. Monthly reading was flat thus giving Fed the first data point needed to consider slowing down their hike path. We still consider that it is too early for major changes in policy as this is the first time that inflation did not increase y/y since August of last year. Core CPI was unchanged at 5.9% y/y while markets were expecting a 6.1% y/y print. A huge drop in gasoline and energy prices was the main culprit for lower than expected reading, followed by apparel, airfares and education. On the other hand, food prices increased. Investors were quick to sell USD and dollar lost over 100 pips against majority of the majors in a short time period after the news was released. Chances of a 75bp rate hike in September have dropped massively after the report. Be mindful that we will still have August NFP and August CPI reading before September 21 Fed meeting. San Francisco Fed President Mary Daly said that a 50bp rate hike is her base case for the September meeting, however she did not rule out a 75 bp hike, claiming that she was open to it. According to her, the Fed funds rate should be at 3.4% by the year-end.

The yield on a 10y Treasury started the week at 2.8% and fell toward 2.7% post CPI report and then surged to 2.9% toward the end of the week. Spread between 2y and 10y Treasuries went as low as -47bp. FedWatchTool saw the probability of a 50bp rate hike at 33.5% and probability of a 75bp rate hike at 66.5% reverse after the CPI report so now there is a 53.5% chance of a 50bp rate hike and 46.5% chance of a 75bp rate hike in September.

This week we will have consumption data as well as FOMC minutes from the July meeting.

Important news for USD:

Wednesday:

• Retail Sales
• FOMC Minutes

EUR

Final readings of July inflation showed no changes to German and French CPI readings. They came in at very high 7.5% y/y and 6.1% y/y respectively. Natural gas prices have spike at the end of the week to over €200 as concerns about its availability over the winter mounted. Germany will be looking to fire up coal power plants going into the winter. With EU imposing ban on import of Russian coal they will be turning to the US and Australia for coal imports. Industrial production for June, a very late data, came in at 0.7% m/m vs 0.2% m/m as expected. May reading was revised to 2.1% m/m from 0.8% m/m and these readings helped lift Q2 GDP. However, with both backlog of orders and new orders dropping we see dark times ahead for European industry.

GBP

Preliminary Q2 GDP reading saw economy contract by -0.1% q/q vs -0.2% q/q as expected with services falling 0.4% q/q. Household consumption was down -0.2% while positive contribution from net trade, exports up 2.4% q/q and imports down -1.5% q/q, managed to keep GDP from falling deeper. Yearly figure printed 2.9% y/y, better than 2.8% y/y as expected, but still down from 8.7% y/y in Q1. June GDP came in at -0.6% m/m vs -1.3% m/m as expected with all categories posting declines, even construction output fell -1.4% m/m which is a first negative reading in eight months.

This week we will have employment and inflation data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

AUD

Trade balance from China for the month of July continued to improve. Surplus widened to $101.26bn with exports rising 18% y/y. Imports have improved from June reading (2.3% y/y vs 1% y/y), however it was at a slower pace than 3.7% y/y as expected. Questions about the health of domestic demand are mounting and pose problems for all other exporting countries. When looking at the composition of imports we can see that imports from Russia rose 49.3% y/y to $10bn as geopolitical tensions bring two countries closer. Exports to Russia grew 22.2% y/y to $6.77bn.

Inflation in China in July rose but not as fast as expected. The number came in at 2.7% y/y vs 2.9% y/y as expected, up from 2.5% y/y in June. PPI, on the other hand, posted a 4.2% y/y reading vs 6.1% y/y the previous month. It was a staggering -1.3% m/m drop and it represents ninth consecutive month of falls in PPI. China’s PPI prices are influencing export prices of its products and consequently input prices for other major economies that import Chinese products. A drop in PPI will help ease inflation pressures around the globe.

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

Important news for AUD:

Monday:

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

Thursday:

• Employment Change
• Unemployment Rate

NZD

RBNZ published its Survey of expectations and it showed inflation expectations at 4.86% for one year out and 3.07% for 2 year out. Survey sees Official Cash Rate at 3% for Q3. GDP growth is seen at 1.49% in 2022 and 1.89% in 2023. Long-term inflation expectations remain anchored close to the midpoint of the RBNZ’s target band range of 1–3%. We should see a 50bp rate hike next week.

This week we will have RBNZ meeting. Almost all forecasts are for a 50bp rate hike which will lift the rate to 3%. We may see bank turning a bit dovish in the statement as they back up from front-loading of rates and move to more data dependent approach.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

Loonie has had a great week against the USD, falling even before the CPI reading and then continuing lower post-report for the total gain of over 200 pips. Oil prices have rebounded from $88 to $95 and then settled below $93 at the end of the week. The recovery in oil prices helped CAD gain against the USD and GBP.

This week we will have inflation data.

Important news for CAD:

Tuesday:

• CPI

JPY

PPI data for the month of July came in at 0.4% m/m as expected and 8.6% y/y vs 8.4% y/y as expected. The reading was 9.2% y/y the previous month so some easing of the price pressures is seen but the number is still very elevated when looking at the historic data. Additionally, there is a very lose connection between PPI and CPI data in Japan.

This week we will have a preliminary Q2 GDP reading.

Important news for JPY:

Monday:

• GDP

CHF

SNB total sight deposits for the week ending August 5 came in at CHF749.6bn vs CHF747.1bn the previous week. Seasonally adjusted unemployment rate in July remained unchanged at 2.2% for the sixth consecutive month.

 

[katetrades]

Forex Major Currencies Outlook (Aug 22 – Aug 26)

Preliminary PMI data for August from EU and the UK coupled with PCE data from the US and Jackson Hole symposium will be the highlights of the week as fund managers start to return back to work after a summer holiday which should lead to better liquidity conditions in the market.​

USD

Housing data for the month of July gave us widely expected data. Housing starts dropped to 1446m from 1599m in June, which is almost a 10% decline, while building permits dropped to 1674m from 1696m the previous month. Higher mortgage rates coupled with lower disposable income due to increasing prices are dissuading potential house buyers and weighing in on housing. NAHB data pointed to a slump in the sentiment of homebuilders. Another drop was seen in existing home sales that plunged from 5.11m in June to 4.81 in July.

Consumption data for July saw retail sales come in flat vs 0.8% m/m in June. Control group came in at 0.8% m/m and posted a second consecutive monthly increase. Ex autos category came in at 0.4% m/m. Consumers continue spending, the question is how much of it is being paid by credit cards, thus increasing private debt burden.

FOMC minutes from July meeting showed that members see inflation to be very high and their need to act to bring it down as well as to re-anchor inflation expectations back to 2%. There was a new moment in the minutes showing that “many” participants fear that they may tighten conditions too much. There was a sentence “it likely would become appropriate at some point to slow the pace of policy rate increases” indicating that Fed is open to reduce the pace of rate hikes and potentially even reverse it if data calls for it.

The yield on a 10y Treasury started the week at 2.84% and rose to almost 3% by the end of the week. Spread between 2y and 10y Treasuries fell to -43bp, then rebounded toward -31bp for a more flat curve but still inverted. FedWatchTool saw the probability of a 50bp rate hike in September at 51.5% and probability of a 75bp rate hike at 48.5%.

This week we will have second reading of Q2 GDP coupled with PCE data. Jackson Hole symposium begins on Thursday August 25 and goes on till Saturday. Fed often uses it as a way to communicate with markets between two FOMC meetings.

Important news for USD:

Thursday:

• GDP
• Jackson Hole

Friday:son Hole
EUR

German ZEW survey for the month of August showed current conditions continue to declined but slightly less than expected (-47.6 vs -48). Expectations component also continued its downward trajectory and came in at -55.3. Expectation for rising energy costs that will lead to lower consumption and economic growth are weighing down heavily on the reading. EU expectations came in at -54.9 vs -57 as expected, but down from July reading of -51.1. Second reading of Q2 GDP was slightly downgraded to 0.6% q/q from 0.7% q/q as preliminary reported and 3.9% y/y vs 4% y/y as seen in the first reading.

Member of ECB Governing Council Isabel Schnabel stated that "a recession would not be enough to control inflation". This could indicate that ECB is getting ready to raise additional 50bp in September in their fight to reign in inflation. German July PPI data came in at astonishing 5.3% m/m vs 0.6% m/m as expected. An enormous overshoot of the estimate and this adds to the concerns about inflation continuing to rise in the months to come.

This week we will have preliminary August PMI readings which should point toward further deterioration in economic conditions.

Important news for EUR:

Tuesday:

• S&P Global Manufacturing (EU, Germany, France)
• S&P Global Services (EU, Germany, France)
• S&P Global Composite (EU, Germany, France)

GBP

July employment reports saw further decline in the claimant count change, it is seventeenth in a row, which came in at -10.5k vs -26.8k the previous month. Employment change for the 3m period till June came in at 160k vs 296k the previous month. ILO unemployment rate for June was unchanged at 3.8%. Wages ex-bonus continued to increase and came in at 4.7% 3m/m while including bonus declined, but still printed a very healthy 5.1% 3m/m. One of the worrying factors is that job vacancies declined for the first time since August of 2020.

Headline inflation for July came in at 10.1% y/y vs 9.8% y/y as expected and up from 9.4% y/y in June. The UK has breached double digit inflation print sooner than expected. Needless to say that this is a new 40-year high for inflation print and with BOE expecting a 13% reading in October this new high will not stand for long. This will only increase cost-of-living crisis and bring more pain to consumers and in turn to the economy as a whole. Core reading came in at 6.2% y/y vs 5.9% y/y as expected and up from 5.8% y/y the previous month indicating that inflation pressures continue to ramp up across the broader set of goods and services.

This week we will have preliminary August PMI readings.

Important news for GBP:

Tuesday:

• S&P Global Manufacturing
• S&P Global Services
• S&P Global Composite

AUD

RBA minutes showed members talking about high inflationary pressures with inflation expected to peak at the end of 2022 and come down to their target of 2-3% by the end of 2024. Labour market is very strong with lowest unemployment level in 50 years. The bank will not be on pre-set rate hike path. “The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market, including the risks to the outlook.” Wage price index for the Q2 came in at 0.7% q/q vs 0.8% q/q as expected and 2.6% y/y vs 2.7% y/y as expected. RBA is paying close attention to the wage data and wants it to be above 3% in order to have a sustained inflation. When taking into account inflation for Q2 real wages have dropped -3.5% y/y.

July employment report was not a pleasant one. Employment change dropped -40.9k and expectations were for a 25k increase. All of the jobs lost were full-time jobs as they dropped -86.9k for the month. Part-time jobs were left to salvage the deal with 46k jobs added. On the positive side the unemployment rate ticked down to 3.4% for a 48-year low. We need to be mindful that it was achieved due to a big drop in participation rate (66.4% from 66.8% the previous month). Labor market remains incredibly tight but this report may be a warning sign of its potential loosening in the future and will surely draw attention of RBA when deciding how to proceed with tightening of monetary conditions.

July data has continued to stumble and raise concerns about China’s recovery. Industrial production slipped to 3.8% y/y while expectations were for a 4.6 y/y increase. Retail sales came in even weaker at 2.7% y/y vs 5% y/y as expected and down from 3.1% y/y in June. The unemployment rate has slipped to 5.4% from 5.5% the previous month, however the unemployment rate for people age 16-24 surged to record high 19.9%. PBOC has cut 1-Year MLF rate to 2.75% from 2.85% previously. Central bank is trying to stimulate the economy through monetary stimulus by lowering the rate for banks to borrow from PBOC. Demand for loans in China is drying up so PBOC decided to intervene.

NZD

RBNZ delivered yet another 50bp rate hike and raised OCR to 3%. Bank’s new projections do not show any signs of slowing down. They now see OCR at 3.69% in December of 2022 compared to 3.41% shown in the previous projection. OCR is expected to peak at 4.1% in September of next year and then gradually decline after December of 2023 to 3.65% in September of 2025. The statement showed need to continue tightening monetary conditions since core inflation is too high and “labour resources remain scarce”. Many indicators show “broad-based domestic pricing pressures”. Governor Orr stated in a press conference that lower growth is a reality but he does not forecast a recession. He added that they are in a strong position to get on top of inflation and that 50bp rate hikes have been sufficient. Additionally, he stated that RBNZ’s intention is for OCR to be clearly above neutral level.

CAD

Headline inflation in July came in at 7.6% y/y as expected and presented a first lower inflation reading since June of 2021. Previous month’s inflation was at 8.1% y/y. A drop in gasoline prices is the main reason for the drop in headline reading. Core readings continued to tick higher with median coming in at 5% y/y, up from 4.9% y/y in June and common at 5.5% y/y vs 5.3% y/y the previous month. With inflation spreading broadly across the CPI components we can see BOC remaining on a rate hike path and delivering additional 75bp rate hike.

JPY

Preliminary Q2 GDP reading saw economy expand by 0.5% q/q and 2.2% annualized. Q1 GDP was revised up to show stagnation instead of a contraction. Personal consumption, accounting for almost 60% of the GDP, rose by 1.1%. Business investment rebounded strongly 1.4%. Net demand was not a contributor, although exports rose by 0.9% while imports rose by 0.7% due to higher commodity prices. Core machinery orders for the month of June came in at 0.9% m/m and 6.5% y/y. Improvement in the monthly reading and coupled with a fact that core machinery orders for Q2 came in at 8.1% q/q we may expect the trend of growing investment to continue in Q3 and add to the GDP reading.

National inflation readings for July saw inflation shoot higher across all measures. Headline number came in at 2.6% y/y vs 2.4% y/y in June. Ex fresh food came in at 2.4% y/y vs 2.2% y/y the previous month. Ex fresh food, energy, which is the closest to the US core CPI reading, rose to 1.2% y/y from 1% y/y in June. Small increases to keep Japan on track with other economies around the globe. Central banks of other developed countries would be ecstatic if inflation in their countries was this low. BOJ will acknowledge the increase, but will stay firmly on its easing path.

CHF

SNB total sight deposits for the week ending August 12 came in at CHF751.3bn vs CHF749.6bn the previous week. Sight deposits have been increasing steadily since first week of July, intensifying in the last 2 weeks perhaps signalling that SNB wants to reign in declines in EURCHF and bring it back to more appropriate levels.

 

[katetrades]

Forex Major Currencies Outlook (Aug 29 – Sep 2)

NFP, preliminary CPI from Europe and official PMI data from China will highlight the week as we enter in the last month of Q3.​

USD

New home sales for July continued to plunge. They came in at 511k from downwardly revised 585k in June. The number was at 642k in May. The fall in July is -12.6% m/m. Rising mortgage rates are keeping new home buyers at bay. President Biden announced a plan to forgive a $10 000 in student loans for all borrowers earning less than $125 000. The announcement was made in a tweet stating “In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023." First estimates see that this plan will raise US debt by $400-600bn and will be without a doubt inflationary.

Second estimate of Q2 GDP came in at -0.6% vs -0.9% annualized in preliminary reading. Personal consumption improved to 1.5% from 1.1% in preliminary reading and it was the biggest contributor to the reading. PCE data for July saw a drop in headline inflation to 6.3% y/y from 6.8% y/y in June with index falling -0.1% m/m. Core inflation also came in weaker than expected at 4.6% y/y vs 4.7% y/y and down from 4.8% y/y the previous month. Personal consumption rose 0.1% compared to a drop of 1% increase as seen in June. A drop in CPI will lower the chances of a 75bp rate hike in September, but Powell’s speech could turn that around.

Prior to the Powell speech in Jackson Hole several Fed members expressed their hawkish stances. Kansas City Fed President Ester George stated that the Fed funds rate could go well over 4% but that will depend on the incoming data. Chairman Powell stated that drop in July inflation is a welcoming sign but that it is not enough for Fed to be confident that inflation is going down and that September hike will depend on totality of data. Basically, Powell is saying to the markets that Fed will not stop until they see inflation coming down.

The yield on a 10y Treasury started the week at almost 3%, crossed it on Monday and went as high as 3.12%. Spread between 2y and 10y Treasuries started to flatten but deepened near the end of the week toward -31bp. FedWatchTool saw the probability of a 50bp rate hike in September at 29.5% and probability of a 75bp rate hike at 70.5%.

This week we will have ISM Manufacturing PMI and NFP data. Headline NFP number is expected to come at around 300k while the unemployment rate should remain at 3.5%. If headline number comes north of 300k it will increase chances of a 75bp rate hike in September.

Important news for USD:

Thursday:

• ISM Manufacturing PMI

Friday:

• NFP
• Unemployment Rate

EUR

Preliminary PMI data for August painted a bleak picture of the EU’s economic conditions. Manufacturing managed to beat expectations but still ticked down on the month (49.7 vs 49.8 in July) which is the lowest reading since June of 2020. It was helped by surprising increase in German reading which also remained in contraction territory, below the 50 level. Services managed to stay ain expansion territory but barely with 50.2. Again, this is the lowest reading since March of 2021. Composite plunged deeper into contraction, coming at 49.2 vs 49.9 in July. All of the data point to contraction in Q3 GDP. S&P Global notes slower demand, slower output, slower new export orders and increase in inventories which should keep new orders low for the foreseeable future. One positive is that input prices continue to decline indicating that inflation pressures will ease as we get closer to the year-end.

Russia will close down NordStream pipeline for three days (August 31 – September 2) for maintenance. After maintenance is carried out the flow of gas will be returned to the current 20% of capacity. This is putting additional concerns regarding energy supply over the winter as natural gas prices spiked over 14% on the day and helped push EURUSD below parity. AGSI data shows that the European Union storage are 77.74% full as of August 22. European benchmark Dutch TTF gas futures has reached €315/MWh while French and German year-ahead power prices rose to new record highs of €9000/MWh and €725/MWh respectively.

German Ifo survey showed a second consecutive month of declines across the readings. Declines were small and readings beat the expectations, however trend to the downside remains unchanged. Ifo economist Klaus Wohlrabe stated that Q3 GDP in Germany will see a contraction of -0.5% q/q. He added that sentiment is still really poor due to high inflation and that recession cannot be ruled out. Ifo report shows that almost 50% of companies plan to raise prices in the next three months. GfK consumer sentiment in Germany fell to the lowest level since 2005 (-36.5, down from -31.8 the previous month). Increases in cost-of-living due to surging energy prices are crushing consumer’s spirits.

This week we will have preliminary August CPI which is expected to continue increasing.

Important news for EUR:

Wednesday:

• CPI

GBP

Flash PMI data from UK for the month of August was a mixed bag. Starting with the manufacturing which completely collapsed and came in at 46 vs 52.1 in July, lowest since May of 2020. Services held much better beating expectations and slightly ticking down from the previous month’s reading (52.5 vs 52.6). Composite was affected by the manufacturing reading but still held above the 50 level (50.9 vs 52.1 the previous month). S&P Global notes waning demand, weaker growth outlook, shortages of stuff and inputs as harsh headwinds for the economy. There was a relief in input prices but the report states “However, the tightening of financial conditions via interest rate hikes, the cost of living crisis, labor shortages and strained supply chains are all likely to dampen economic performance further and keep costs elevated in the months ahead.”

AUD

Chinese banks have decided to go with additional rate cuts to their prime rates. LPR (Loan Prime Rate) for 1-year has been cut to 3.65% from 3.7% previously while 5-year rate was lowered to 4.3% from 4.45% previously. Generally, 1-year is used as basis for all new and outstanding loans while 5-year is used for mortgage rates. Last Friday Chinese government announced a stimulus package for property developers of unfinished homes. It should amount to $29bn or CNY200bn. Analysts at ING see the total value of unfinished homes at CNY675bn so the package should only be a start as it barely covers 1/3 of liabilities. China Premier Li Keqiang announced stimulus totaling 1 trillion CNY ($146bn) to bolster the economy. The stimulus will be focused on infrastructure projects.

This week we will have official PMI data from China as well as Caixin Manufacturing PMI.

Important news for AUD:

Wednesday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Thursday:

• Caixin Manufacturing PMI (China)

NZD

RBNZ Deputy Governor Hawkesby stated that OCR will go to around 4.25% before bank changes its view to a more balanced one. He added that monetary conditions need to be comfortably above neutral. RBNZ member Richardson stated in an interview that they will focus on bringing the core inflation down and added that “domestic inflation is a lot more persistent than the imported inflation." Consumption struggled in Q2 as retail sales dropped -2.3% q/q and -3.7% y/y. This reading will be acknowledged by the RBNZ but they are more focused on inflation so this will not dissuade them from continuing with rate hikes. In an interview with Bloomberg television RBNZ Governor Orr stated that there will be at least two more rate hikes and that he does not see technical recession.

CAD

Oil was leading CAD this week and USDCAD followed. The pair went up at the start of the week only to turn lower once oil started to gain. EURCAD and GBPCAD had only one way: down. Both pairs fell around 150 pips. Canada has large supplies of Natural Gas but due to a lack of pipelines they are not able to fully profit from the surging prices.

This week we will have a Q2 GDP reading.

Important news for CAD:

Wednesday:

• GDP

JPY

Preliminary August PMI data showed deterioration across the readings. Manufacturing dropped to 51 from 52.1 in July thus making it the lowest reading since January of 2021. Services reading fell into contraction as it printed 49.2 vs 50.3 the previous month. Composite reading was dragged down into contraction as well by services and it came in at 48.9, down from 50.2 in July. Tokyo area inflation data for the month of August printed a new, almost 8-year high, at 2.9% y/y, up from 2.5% y/y in July. Ex fresh food came in at 2.6% y/y vs 2.3% y/y in July while ex fresh food, energy component rose to 1.4% y/y from 1.2% y/y the previous month. BOJ reiterated that easing policy is necessary to support the economy of Japan. Additionally, they are characterizing inflation as transitory so this reading, although it may be a welcomed one, will not change their policy stance.

CHF

SNB total sight deposits for the week ending August 19 came in at CHF752.8bn vs CHF751.3bn the previous week. A continuation of sight deposit increases stretching into the seventh consecutive week. Increases are small but when calculated together it may indicate that SNB is willing to restrict Swissy’s strength.

Important news for CHF:

Thursday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Sep 5 – Sep 9)

ECB, RBA and BOC are all expected to raise interest rates this week, Additionally, we will have inflation data from China, GDP data from Australia and employment data from Canada. New UK Prime Minister will be elected. Be mindful that Monday is Labour day holiday in the US so liquidity may be thinner than usual.​

USD

ISM manufacturing PMI in August printed 52.8, same as in July. Prices paid component fell by more than expected and is now moving closer towards the contraction territory indicating that price pressures are slowing down. New orders and employment both returned into expansion with employment index reaching a five-month high of 54.2. There was a drop in production index, however backlog of orders rose which gives another positive to the reading. Additionally, there was a drop in inventories which could lead to further new orders increases in the coming months.

NFP number for August came in at 315k vs 300k as expected. The unemployment rate increased to 3.7% from 3.5% in July because participation rate increased to 62.4% from 62.1% the previous month. Increase in participation rate indicates that more Americans are returning to the workforce. Average hourly wages rose 0.3% m/m and 5.2% y/y. The report will give green light to Fed to continue with 75bp rate hikes.

The yield on a 10y Treasury started the week at 3.12% and went as high as 3.25%. The yield on a 2y Treasury reached 3.52% during the week, that is the highest since 2007. Spread between 2y and 10y Treasuries continued to widen and started the week at -36bp. Fed sped up Quantitative Tightening from September with $95bn running off their balance sheet per month. This will be achieved by not re-investing Treasuries ($60bn) and mortgage-backed securities (MBS $35bn) as they mature. FedWatchTool saw the probability of a 50bp rate hike in September at 27.5% and probability of a 75bp rate hike at 72.5%.

This week we will have ISM Non-Manufacturing PMI report for the month of August.

Important news for USD:

Tuesday:

• ISM Non-Manufacturing PMI

EUR

Over the weekend we had four esteemed members of ECB state that fight against inflation is a primary concern. They have stated their concerns regarding impact of weak EUR and indicated (Isabel Schnabel) that they will need to raise interest rates even in a recession in order to reign in rampant inflation and prevent inflation expectations from being unanchored. Her message was clear, price stability more important than growth. Hints about 75bp rate hike from more hawkish governors and front-loading of rates kept EUR supported during the week. ECB Chief Economist Phillip Lane took more measured approach and opted for a steady pace of rate hikes. It could mean that he is for a 50bp rate hike next week.

AGSI data shows that the European Union storage are 80.35% full as of August 31. EU set goal of filling 80% of gas storages before November 1. Due to target being reached over 2 months before the deadline European benchmark Dutch TTF gas futures has declined as low as €220/MWh while French and German year-ahead power prices rose to new record highs of €1250/MWh and €1025/MWh respectively only to also fall almost 50% from the highs for the German €545/MWh.

Preliminary August inflation data showed headline number rise to 9.1% y/y from 8.9% y/y in July with 9% y/y being the expected reading. 9 out of 19 countries have inflation in double digits! The main culprit is energy which rose more than 38% y/y with food, alcohol & tobacco prices rising more than 10% y/y. Digging into the monthly data we can see that energy actually declined for the second straight month, however processed foods and goods saw increases. French reading posted fist decline in inflation reading (5.8% y/y vs 6.1% y/y previously) since July of 2021. Caps on energy prices that are in place until the year-end helped to lower the inflation. Spain also posted a decline in inflation, but it is still above 10% y/y. Germany saw inflation increase to 7.9% y/y from 7.5% y/y in July. Italy saw increase in prices as well (8.4% y/y) making it a new 37-year high reading. Core reading rose from 4% y/y in July to 4.3% y/y in August.

This week we will have ECB meeting where a 50bp rate hike is pencilled in with increasing possibility of hawks getting their own and bringing a 75bp rate hike.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

GBP

UK regulator (Ofgem) stated over the weekend that the cap on gas and electricity will be lifted by 80% to £3,549 on October 1. This will have tremendous effect on consumers, as it will lead to increase in cost-of-living and decrease their discretionary spending. Additionally, it will almost certainly lead to inflation overshooting BOE’s target of 13% with Goldman Sachs talking about it going over 20% in Q1 of 2023!

AUD

Chinese official PMI data for the month of August saw manufacturing improve to 49.4 from 49 in July, but still remain below the expansion level of 50. Output and new orders continued to decline. Services declined on month to 52.6 from 53.8 the previous month which dragged composite with it to 51.7 from 52.5 in July. Caixin manufacturing also slipped into contraction territory coming in at 49.5 from 50.4 the previous month.

This week we will have RBA meeting and Q2 GDP reading from Australia as well as trade balance, Caixin PMI and inflation data from China. Expectations are for RBA to deliver another 50bp rate hike.

Important news for AUD:

Monday:

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

Tuesday:

• RBA Interest Rate Decision

Wednesday:

• GDP
• Trade Balance (China)

Friday:

• CPI (China)

NZD

ANZ business confidence for the month of August came in at -47.8 vs -56.7 the previous month. The number is still near historic lows but this marks second consecutive month of improvements. ANZ notes that most activity indicators improved but that inflation pressures remain intense. Inflation expectations were basically unchanged and there was a small improvement in pricing intentions.

CAD

Q2 GDP number saw increase of 3.3% vs 4.4% as expected. This was the fourth consecutive quarterly increase in real GDP. Increased inventories, non-residential construction, machinery and equipment investment, and household spending on services and semi-durable goods contributed to the positive reading. On the other side, declines in housing investment, household spending on durable goods and by net trade deducted from the reading. CAD has suffered at the beginning of the week due to falls in oil prices.

This week we will have a BOC meeting and employment data. Economists expect another 75bp rate increase. This will take rate to 3.25% which is above neutral estimate of 3%. Also, a 75bp rate hike is fully priced in by the market so it will not have immediate impact on CAD. However, if BOC signals that they will keep on pushing in order to bring inflation down, markets may price in another 75bp rate hike at the next meeting which would lead to CAD strength.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

Friday:

• Employment Change
• Unemployment Rate

JPY

BOJ Governor Kuroda continued to propagate inflation in Japan as transitory stating that all of inflation is a result of high commodity prices. This, according to him, does not warrant change in central bank’s stance and they will continue with monetary easing policy. July unemployment rate came in unchanged for the third straight month at 2.6% while jobs to applicants ration improved to 1.29 from 1.27 the previous month. Preliminary July industrial production and retail sales both improved giving a boost to the Japanese economy, JPY and presenting signs for stronger than expected Q3 GDP.

CHF

SNB President Jordan spoke at Jackson Hole symposium and stated that “Structural factors such as the transition to a greener economy, rising sovereign debt worldwide, the demographic transition and ultimately also the fact that globalization appears to have peaked - at least temporarily - could lead to persistently higher inflationary pressure in the coming years”. He added that higher prices are passed more quickly and that companies may be able to increase prices more easily due to decline in global economic integration.

SNB total sight deposits for the week ending August 26 were almost unchanged at CHF752.8bn. Inflation in August ticked up to 3.5% y/y from 3.4% y/y in July. Core inflation remained steady at 2%. Given that SNB does not want inflation to run rampant as in other parts of the world we can see them continuing to hike at their September meeting.

This week we will have Q2 GDP reading.

Important news for CHF:

Monday:

• GDP