Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (July 8 – July 12)

RBNZ meeting and inflation data from the US and China will highlight the week ahead of us that will also see Fed Chairman Powell testify on Tuesday.

USD

June ISM manufacturing PMI printed 48.5 vs 49.1 as expected and down from 48.7 in May. With the exception of March reading (50.3) manufacturing PMI has been in contraction every month since October of 2022. Production, new export orders and employment orders slipped back into contraction while new orders surged compared to May, but still in contraction. One positive is that prices paid component dropped to 52.1 from 57 the previous month indicating easing of inflationary pressures.

ISM services PMI plunged back into contraction in June with a 48.8 reading, down from 53.8 in May making it the lowest reading since May of 2020, the heart of pandemic. Business activity fell to 49.6 from 61.2 the previous month with new orders also dropping into contraction with a 47.3 print, down from 54.1 in May. Backlog of orders also plunged down into contraction while new export orders managed to barely stay in expansion, but still reported a huge drop compared to May reading. Employment continued to slip deeper into contraction. Prices paid declined as inflation pressures continue to subside.

Minutes from the June FOMC meeting showed that the economic forecast for the June meeting was similar to the projection at the previous meeting. “Participants noted that after a significant decline in inflation during the second half of 2023, the early part of this year had seen a lack of further progress toward the Committee's 2 percent objective.” Participants stated a few factors that will likely contribute to lower inflation ahead, such as. continued easing of demand–supply pressures in product and labour markets, lagged effects on wages and prices of past monetary policy tightening, lags in shelter prices to rental market developments and the prospect of additional supply-side improvements. Some participants highlighted reasons why inflation could remain above 2% for longer than expected, such as worsening geopolitical developments, heightened trade tensions, more persistent shelter price inflation, financial conditions that might be or could become insufficiently restrictive, or U.S. fiscal policy becoming more expansionary than expected. Most participants saw growth gradually slowing and concluded that policy stance is restrictive.

June employment report showed NFP increase by 206k vs 190k as expected but with a big revision to May reading (218k vs 272k as preliminary reported). The unemployment rate ticked higher to 4.1% as did the participation rate 62.6% from 62.5% the previous month. Wages came in line with expectations 0.3% m/m and 3.9% y/y, down from 0.4% m/m and 4.1% y/y in May. Government added 70k jobs while health care added 49k jobs.

The yield on a 10y Treasury started the week at 4.40%, rose to 4.49% and finished the week at around 4.28%. The yield on 2y Treasury started the week at 4.77% and reached the high of 4.8%. Spread between 2y and 10y Treasuries started the week at -36bp then tightened to -32bp as curve proceeded to steepen. The 2y10y is inverted for two years. FedWatchTool sees the probability of no change at July meeting at around 95% while probability of a rate cut is around 5%. Probability of a September rate cut sits at around 75% while November is at around 86%.

This week we will get June inflation data. Headline number is expected to decline further while core is seen remaining unchanged.

Important news for USD:

Thursday:​

• CPI​

EUR

Final manufacturing PMI for the month of June was revised slightly up to 45.8 from 45.6 as preliminary reported on the back of improvements in German, French and Italian readings. Once concern is that new orders continue to decline. Final services PMI were was revised up to 52.8 from 52.6 on the back of positive revision to French reading (49.6 vs 48.8) and another strong reading from Spain. The report shows that services recovery is broad-based among four major economies (Germany, France, Italy and Spain). Employment was higher in all four major economies while input prices and prices charged to consumers increased at slowest pace in three years. Tourism is seen as the biggest driver of services sector. Composite was revised slightly higher to 50.9 from 50.8 as preliminary reported.

Preliminary June inflation data showed headline number tick down to 2.5% y/y as expected from 2.6% y/y in May, but core reading remained unchanged at 2.9% y/y while a slide down to 2.8% y/y was expected. German reading saw inflation coming to 2.2% y/y from 2.4% y/y in May.

ECB Chief Economist Lane stated that June inflation data is along the lines of their projections and that services inflation remains essential. Later on he added that firms are reporting wage pressures coming down which should in turn help with disinflationary process. Minutes from the June meeting showed that some members were not for a rate cut. Additionally, they show that June cut was not a start of a rate cutting cycle. The cut seems to be made because ECB’s pre-commitment to it in previous months.

GBP

Final June manufacturing PMI was revised down to 50.9 from 51.4 as preliminary reported and it is now down from 51.2 in May. New orders and output continue to increase and are in expansion while new export orders declined further indicating weak foreign demand for UK manufacturing products. Input prices have jumped and are rising at the quickest pace since 2023 which is a cause for great concern regarding persistent underlying inflation pressures. Final services were revised up to 52.1 from 51.2 and now represent smaller decline from 52.9 in May. Similar picture is seen with composite as it was revised up to 52.3 from 51.7 and down from 53 the previous month. The report shows easing of input costs which in turn should bring services inflation down and BoE is looking for that in order to deliver its first rate cut. The Labour party has won majority, north of 400 seats in the Parliament, as expected and Keir Stammer will be the new Prime Minister.

AUD

Minutes from RBA June meeting showed that there was a stronger case for holding rates than for raising them but there is a need to be vigilant about upside risks to inflation as was suggested by the latest incoming data. They clarified that recent incoming data is not changing their projection for inflation coming back down to target by 2026. Material rise in inflation could require significantly higher rates. All in all, July 31 is the most important data as we will get Q2 CPI data then which will dictate RBA’s decision at the August meeting.

Official June PMI data from China showed manufacturing at 49.5, same as in May, for the second consecutive month of contraction. Services PMI declined to 50.5 from 51.1 the previous month and dragged with it composite to 50.5 from 51 in May. Caixin Manufacturing fared much better than official number as it printed 51.8, tick up from 51.7 the previous month. The reading is highest in three years, it has been increasing every month since the start of the year and it is indicating that SMEs are doing much better than large state-owned companies. Caixin services PMI dropped to 51.2 from 54 as new orders and new export orders slow down, but the latter faring much better. This drop in services led to a drop in composite to 52.8 from 54 in May.

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

Important news for AUD:

Wednesday:​

• CPI (China)​

Friday:​

• Trade Balance (China)​

NZD

Business confidence has plunged in Q2 to -44%, down from -25% in the previous quarter. The survey shows increasing pessimism among companies as high interest rates continue to push demand down. First dairy auction of July saw prices plummet by 6.9%. Anhydrous Milk Fat and Butter saw double digit price declines.

This week we will have RBNZ meeting. With inflation running high there will be no changes in rate or monetary policy. Recent data is not allowing RBNZ to take more dovish stance.​

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

Employment report for the month of June heavily missed expectations by showing a loss of 1.4k jobs vs 22.5 added jobs expected. The unemployment rate jumped to 6.4% from 6.2% in May while increase to 6.3% was expected. In additional to that, the participation rate ticked down to 65.3% from 65.4% the previous month. Wages have gone up to 5.6% y/y from 5.2% y/y in May.

JPY

Due to revision to construction data Q1 GDP has been revised down to -2.9% from -1.8% as previously reported. This is an awful GDP reading and it will be a big blow to rate hike chances. Final June manufacturing PMI was revised down to 50 with report showing increases in output and business confidence but higher cost pressures due to weak JPY which led manufacturers to increase their prices and thus contribute to inflation pressures amidst weaker demand for manufacturing products. Final services have been revised down to 49.4 making it first month in contraction since August of 2022. This has pushed composite into contraction at 49.7. Household spending in May provided us with another weak data print as it showed a decline of 1.8% y/y vs increase of 0.1% y/y as expected and down from 0.5% y/y in April.

CHF

SNB total sight deposits for the week ending June 28 came in at CHF452bn vs CHF451.8bn the previous week. It is a negligible move higher from the lows of a well-established channel. June inflation saw a headline print of 1.3% y/y vs 1.4% y/y as expected and in May. Core CPI printed 1.1% y/y, down from 1.2% y/y the previous month. SNB published projections at their June meeting showing they are expecting lower inflation in 2024.​

 

[katetrades]

Forex Major Currencies Outlook (July 15 – July 19)

ECB meeting will be the highlight of the week followed by inflation data from the UK, New Zealand and Canada, employment data from the UK and Australia as well as Q2 GDP from China.

USD

Fed Chairman Powell testified in front of the Senate and in the prepared statement said that inflation data was not encouraging in the Q1 but since then "The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent."He added that “...elevated inflation is not the only risk we face." Powell reiterated that more good data is needed to strengthen confidence in inflation coming down and that Fed remains data-dependent making decisions meeting-by-meeting. The likely direction is to loosen monetary policy and he did not want to give any information on the timing.

CPI report for the month of June showed headline number drop to 3% y/y from 3.3% y/y in May while expectations were for a 3.1% y/y print. This is the lowest print since April of 2021. Monthly figure showed deflation as it printed -0.1%. Core inflation ticked down to 3.3% y/y from 3.4% y/y the previous month. “Super core”, services ex shelter, print also declined as it printed 4.65% vs 4.8% in May. Shelter came in at 0.2% m/m and 5.2% y/y, down from 5.4% y/y the previous month. This report will strengthen Fed’s confidence that inflation is sustainably on the way to their 2% target and markets are pricing in two rate cuts for 2024. Gold has risen over $2400 and stayed above it as the week ended.

The yield on a 10y Treasury started the week at 4.29%, rose to 4.32% and finished the week at around 4.18%. The yield on 2y Treasury started the week at 4.61% and reached the high of 4.64%. Spread between 2y and 10y Treasuries started the week at -33bp then tightened to -27bp as curve proceeded to steepen after CPI report. The 2y10y is inverted for two years. FedWatchTool sees the probability of no change at July meeting at around 93% while probability of a rate cut is around 7%. Probability of a September rate cut jumped to almost 93% after CPI report.

This week we will have consumption data.

Important news for USD:

Tuesday:​

• Retail Sales​

EUR

Member of the ECB executive board Fabio Panetta stated that if disinflationary process continues they are prepared to gradually reduce interest rates. Wage growth is expected to ease in time and he added that ECB is prepared to quickly act in both directions if situation demands it. Final German and Spanish June CPI were unchanged at 2.2% y/y and 3.4% y/y respectively while French reading was revised up to 2.2% y/y from 2.1% y/y as preliminary reported.

This week we will have ECB meeting. No change to the rate is expected as ECB will likely emphasize their data-dependent and meeting-by-meeting approach.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

BoE Chief Economist Huw Pill stated that incoming data regarding services inflation and wage growth point to an uncomfortable strength in inflation. He added that it is hard to argue against inflation proving to be persistent in the UK and added that it is more appropriate to speak of “when” rather than “if” in regards to rate cuts. He added that uncertainty around wages is likely to stay. Markets, rightfully, took these comments as hawkish and propelled GBP higher.

May GDP rose by 0.4% m/m vs 0.2% m/m as expected and up from being flat in April. Services rose 0.3% m/m and were the biggest contributor to the reading. Production and construction also expanded printing 0.2% m/m and 1.9% m/m respectively. This reading will push rate cuts further into the future.

This week we will have inflation and employment data.

Important news for GBP:

Wednesday:​

• CPI​

Thursday:​

• Payrolls Change​
• Unemployment Rate​

AUD

Chinese CPI data for the month of June showed headline number come in at 0.2% y/y vs 0.4% y/y as expected and tick down from 0.3% y/y in May. Food prices, particularly non-pork food prices were the main reason for weak inflation print. Core CPI was unchanged with 0.6% y/y. PPI has continued to climb with -0.8% y/y vs -1.4% y/y the previous month, but it is still in deflation. Trade balance data for the month of June saw widening of surplus to $99.05bn as exports rose 8.6% y/y while imports declined 2.3% y/y causing concerns about weak domestic demand.

This week we will have employment data from Australia as well as Q2 GDP and economic activity data from China.

Important news for AUD:

Monday:​

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

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

RBNZ has left the cash rate unchanged at 5.5% as was widely expected but the tone of the statement was less hawkish/more dovish than expected. The statement showed that high interest rates managed to significantly reduce consumer price inflation and that “Committee [is] expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year.” Additionally, the “The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.” Markets saw RBNZ moving rate cuts closer, two cuts are getting priced in by the end of the year, so they reacted to it by selling NZD.

This week we will have inflation data.

Important news for NZD:

Friday:​

• CPI​

CAD

May building permits plunged 12.2% after being up 23.4% in April. In addition Canadian home sales dropped 9.4% y/y in June. CAD had a rough week. It managed only to hold its own against the USD while it made new yearly lows against GBP.​

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Nominal wages in May rose 1.9% y/y after 1.6% y/y increase in April making it the highest reading since June of 2023. Real wages, adjusted for inflation, came in negative at -1.4% y/y. This is the 26 consecutive month of declining real wages. Without increases in real wages there cannot be sustainable inflation according to BoJ, as falling wages have negative impact on consumption, therefore they will have a hard time normalizing monetary policy further.

BoJ has introduced new tactic when it comes to intervention. They have used a weak US CPI print as a moment to buy JPY and push USDJPY pair down around 400 pips. The fundamental picture is still not good for JPY so we can expect any dips to be bought but staying or going long USDJPY during US news event seems to be very dangerous.

CHF

SNB total sight deposits for the week ending July 5 came in at CHF453.4bn vs CHF452bn the previous week. Sight deposits have bounced back from lows and posted a second consecutive week of increases.​

 

[katetrades]

Forex Major Currencies Outlook (July 22 – July 26)

BoC meeting, Q2 GDP from the US and PCE coupled with preliminary July PMI data from Eurozone and the UK will highlight the week ahead of us.

USD

Retail sales for the month of June came in flat vs -0.3% m/m as expected. Consumption declined compared to 0.3% m/m reading posted last month but at a smaller pace than expected. Control group, it excludes volatile components and is used for GDP calculation, rose by 0.9% m/m vs 0.4% m/m increase in May. This was the largest increase in over a year. Gasoline stations sales recorded the biggest drop followed by motor vehicles and parts while nonstore retailers, online, saw biggest increase in sales. Ex autos rose 0.4% m/m vs flat as expected and ex autos and gas rose by 0.8% m/m vs 0.3% m/m as expected. The report showed consumers going strong as all readings beat expectations on top of positive revisions to previous month’s numbers.

After assassination attempt on former President and current presidential candidate Donald Trump the so-called “Trump trade” could be observe in the previous week. It showed possibility of how markets would react if Trump becomes the new president. We could see a huge jump in Rusell 2000 index as funds have gone out of technology sector and rotated into the smaller companies comprising Rusell 2000 index as Trump presidency is seen to deliver lower rates and tax cuts which would in turn prop up domestic companies. Lower rates would be negative for USD and we saw it weakening with safe havens gaining (JPY, CHF and Gold). Additionally, AUD and NZD had a bad week as their proximity to China is seen as detriment to them as Trump would be very hawkish on China, increasing tariffs. Trump also seems to be pro crypto which will help BTC price and he is also against CBDC The biggest IT outage occurred on Friday when issue with Microsoft systems occurred. They stated that the issue was caused by a recent CrowdStrike update. Media outlets, bank applications, airports, trading desks all had disruptions in their business with some US states reporting that even 911 service was down. Gold has reached new all time high during the week only to give it all back and finish the week lower from where it started.

The yield on a 10y Treasury started the week at 4.19%, rose to 4.24% and finished the week at around 4.25%. The yield on 2y Treasury started the week at 4.46% and reached the high of 4.48%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -24bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of no change at July meeting at around 95% while probability of a rate cut is around 5%. Probability of a September rate cut is seen at around 98%.

This week we will get preliminary Q2 GDP reading as well as Fed’s preferred inflation measure PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

ECB has left key rates unchanged as was widely expected. The statement shows determination to bring inflation down to the 2% target and to keep policy restrictive for as long as necessary to reach its goal. Members accessed that monetary policy is keeping financial conditions restrictive and have acknowledged that “domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.” They refused to pre-commit to a rate cut path and will stay data-dependent making their decisions meeting-by-meeting.

At the press conference ECB President Lagarde stated that growth in the second quarter will likely be lower than the one in the first quarter as risks to growth are tilted to the downside. She reiterated that they are not pre-commited to rate cuts and that they are data-dependent. Additionally, she confirmed that today’s decision on rates was unanimous adding that wages are still rising but wage growth is expected to decline next year. Inflation is seen fluctuating around current levels and is expected to go down to target in H2 of 2025.

This week we will get preliminary July PMI data.

Important news for EUR:

Wednesday:​

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

GBP

June inflation numbers saw both headline and core CPI remain unchanged at 2% y/y and 3.5% y/y respectively. Additionally, services inflation stayed unchanged at a very high level of 5.7% y/y. August is still seen as the time for a rate cut, but this report will not raise chances of it happening. The jobs report showed June payrolls change increase by 16k. May ILO unemployment rate remained at 4.4% while wages declined with both bonus and ex bonus categories printing 5.7% 3m/y.

This week we will get preliminary July PMI data.

Important news for GBP:

Wednesday:​

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

AUD

June employment report showed a very strong labour market as economy added 50.2k jobs vs 20k as expected. The unemployment rate ticked to 4.1% but it was done on the back of improvement in the participation rate which ticked up to 66.9%. A great majority of jobs added were full-time (43.3k) which is a great sign for the economy as those are better paid jobs. Part-time jobs rose by 6.9k.

Q2 GDP missed expectations as it came in at 0.7% q/q and 4.7% y/y vs 1.1% q/q and 5.1% y/y and down from 1.5% q/q and 5.3% y/y in the Q1. Weak consumption and property sector were great drags and if China plans to reach its growth target of 5% they will need to step up with stimulus. Industrial production for the month of June came in at 5.3% y/y, down from 5.6% y/y in May, but higher than 5% y/y expected. On the other hand, retail sales rose 2% y/y, a huge drop from 3.7% y/y the previous month and a big miss from 3.3% y/y expected. PBoC has left 1-year MLF rate unchanged at 2.5% as was expected.

NZD

CPI data for the Q2 saw inflation at 0.4% q/q and 3.3% y/y, lower than 0.5% q/q and 3.4% y/y as expected and down from 0.6% q/q and 4% y/y in the Q1. Additionally, RBNZ’s sectoral model, their preferred inflation measure, showed a decline to 3.6% y/y from 4.2% y/y in the previous quarter. RBNZ has stated at their last meeting that inflation will fall within their 1-3% range in the second part of the year and this report vindicates them. One concern is that non-tradable inflation, a good measure of domestic demand, is still high at 0.9% q/q and 5.4% y/y, although down from 5.8% y/y in the previous quarter. Analysts are moving rate cuts back into 2024 after the report. Second auction in July saw dairy prices increase by 0.4% after falling for previous two.

CAD

June inflation report saw another decline for headline CPI as it printed 2.7% y/y from 2.9% y/y in May while a print of 2.8% y/y was expected. Monthly figure printed deflationary -0.1%. Core measures saw trim unchanged at 2.9% y/y while common and trim measures declined to 2.6% y/y and 2.3% y/y from 2.7% y/y and 2.4% y/y respectively. BoC has stated that core inflation is most watched metric and with it coming down it cements the case for a rate cut next week.

This week we will have BoC meeting. After a further drop in core inflation we see BoC continuing with rate cuts and delivering another 25bp rate cut at next week’s meeting.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

National inflation data for the month of June showed headline CPI come in unchanged at 2.8% y/y vs 2.9% y/y as expected, but increases were seen in core components with ex fresh food printing 2.6% y/y vs 2.5% y/y in May and ex fresh food, energy printing 2.2% y/y vs 2.1% y/y the previous month. BoJ data hinted that they have intervened on Friday July 12 with JPY2.14tn. This was a much less efficient intervention than one done after the US CPI report on Thursday.

CHF

SNB total sight deposits for the week ending July 12 came in at CHF458.9bn vs CHF453.4bn the previous week. This is the third consecutive week of increases in deposits as they are moving up from the bottom of the range.​

 

[katetrades]

Forex Major Currencies Outlook (July 29 – Aug 2)

Summer is in full swing but this week is not a time to rest as we will get Fed, BoE and BoJ meetings, Treasury Quarterly Refunding Announcement, employment data from the US, GDP data from the Eurozone, inflation data from the Eurozone, Australia and Switzerland and a slew of earnings data.

USD

Advanced reading showed Q2 GDP increase by 2.8% vs 2% as expected and double the 1.4% seen in the first quarter. Personal consumption rose 2.3% and contributed with 1.57pp to the final reading while it did only 0.98pp in the previous quarter. There was a big jump in gross private domestic investment which printed 8.4% vs 4.4% in Q1. Mainly it was through investment in equipment. Net trade was a bigger drag on the reading than in Q1 while government spending contributed with 0.53pp vs 0.31pp in the first quarter. GDP deflator fell to 2.3% from 3.1% in Q1, it fell more than 2.6% as expected.

Headline PCE number ticked down to 2.5% y/y in June from 2.6% y/y in May and 0.1% m/m as expected (0.0788% m/m). Core PCE remained unchanged at 2.6% y/y with a monthly reading of 0.2% m/m (0.188% m/m). Personal income came in at 0.2% m/m vs 0.4% m/m as expected and lower from 0.4% m/m in May. Personal spending also came in at 0.2% m/m, lower than 0.4% m/m the previous month.

The yield on a 10y Treasury started the week at 4.24%, rose to 4.29% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.52% and reached the high of 4.53%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -16bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of no change at July meeting at around 95% while probability of a rate cut is around 5%. Probability of a September rate cut is fully priced in while there is almost 12% change for a 50bp cut.

This week we will have Treasury Quarterly Refunding Announcement on Monday and Wednesday, ISM manufacturing PMI, FOMC meeting and NFP data. Fed is expected to keep funds rate unchanged while laying ground for the September cut. Headline NFP is expected to be around 190k with the unemployment rate staying at 4.1%,

Important news for USD:

Wednesday:​

• Fed interest Rate Decision​

Thursday:​

• ISM Manufacturing PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

Preliminary July PMI data from the Eurozone showed misses across the board. Manufacturing slid to 45.6 from 45.8 in June while 46.1 was expected. Services dropped to 51.9 from 52.8 the previous month while a 53 reading was expected. Composite barely managed to hang on in expansion with a 50.1 reading, down from 50.9 in June while improvement to 51.1 was expected. The divide between two sectors increases further as manufacturing plunges deeper into contraction while services continue to increase although at a slower pace. Input prices increased in both sectors while output prices showed only a small decline indicating that price pressures are still a cause of concern. German readings saw declines across the board with overall activity, measured as composite PMI, fell into contraction with a 48.7 print. On the other hand, French services returned into expansion with a 50.7 print and composite got closer to the 50 level with a 49.5 print. French recovery is boosted by the incoming Olympic Games. Although data is not encouraging and points to a weak start to second part of the year there are signs that Q3 growth should be positive. ECB vice president De Guindos stated that September is more convenient month for taking decisions alluding to the fact that new projections are published that month. He emphasized the importance of wage growth.

This week we will get first Q2 GDP and preliminary July inflation readings.

Important news for EUR:

Tuesday:​

• GDP​

Wednesday:​

• CPI​

GBP

Preliminary PMI for the month of July showed improvements across the board. Manufacturing rose to 51.8 from 50.9 in June (51.1 was expected). Services printed 52.5, up from 52.1 the previous month which pushed composite to 52.7 from 52.3 in June. The data show much more encouraging start of H2 “… with output, order books and employment all growing at faster rates amid rebounding business confidence, while price pressures moderated."

This week we will have BoE meeting. Markets are split on their decision for cut or pause while we are leaning more towards a cut.

Important news for GBP:

Thursday:​

• BoE Interest Rate Decision​

AUD

PBoC has started cutting rates. First they reduced 7-day repo rate by 10bp to 1.70%. This bank seems to want for this rate to be the main rate. Next, there was a decision to lower collateral on MLF loans. Ultimately, 1-year and 5-year LPR rates were also cut by 10bp, they are now at 3.35% and 3.85% respectively. Later in the week PBoC continued with easing measures and cut 1-year MLF rate by 20bp to 2.3%. This has caught market by surprise because PBoC left 1-year MLF unchanged at the start of the month. Additionally, the cut was 20bp, while cuts to other rates were 10bp and collateral needed for these loans will be reduced. These moves will bring more liquidity into the market, reduce the funding costs and are intended to give push to growth.

This week we will get all important Q2 inflation reading from Australia as well as official PMI data from China.

Important news for AUD:

Wednesday:​

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

NZD

Consumer confidence for the month of July has improved to 87.9 from 83.2 in June. The reading above 100 indicates optimism among consumers while reading below indicates pessimism so consumer is getting less pessimistic. NZD has had a terrible week, due to rotation out of high yielding currencies, as it lost ground against all of the majors with biggest losses seen in the NZDJPY.

CAD

BoC proceeded with its rate cutting cycle and gave us second 25bp rate cut in a row. The rate is now at 4.5%. The accompanying statement acknowledges weakness in household spending and slack in the labour market. GDP is seen increasing in H2 of 2024 through 2025 with new projections showing 2024 GDP at 1.2%, 2025 at 2.1% and 2026 at 2.4%. Broad inflation pressures are easing and “The Bank’s preferred measures of core inflation are expected to slow to about 2½% in the second half of 2024 and ease gradually through 2025. The Bank expects CPI inflation to come down below core inflation in the second half of this year, largely because of base year effects on gasoline prices. As those effects wear off, CPI inflation may edge up again before settling around the 2% target next year“. Shelter and “some other services” are holding inflation up and “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook“.

Governor Macklem stated in an opening statement that decision was influenced by three main considerations. “First, monetary policy is working to ease broad price pressures. Second, with the economy in excess supply and slack in the labour market, the economy has more room to grow without creating inflationary pressures. Third, as inflation gets closer to the 2% target, the risk that inflation comes in higher than expected has to be increasingly balanced against the risk that the economy and inflation could be weaker than expected”. He emphasized that focus should be turned towards growth and downplayed concerns regarding widening of rates compared to the USA. He added that if inflation continues to ease as expected further rate cuts could be expected but policy remains data dependent and decisions will be made meeting-by-meeting.

JPY

Preliminary PMI data for the month of July saw manufacturing slide into contraction with a 49.2 print vs 50 in June. Expectations were for it to move further up in expansion with a 50.5 print but drops in output and new orders pushed the reading into contraction. Additionally, there was an increase in input costs indicating further inflation pressures. Services rebounded back into expansion with a 53.9 print after surprising drop below 50 in June (49.4). Services output and new orders showed growth and unlike manufacturing input prices declined but output prices increased indicating stronger inflation pressures. July inflation for the Tokyo area saw headline number at 2.1% y/y vs 2.2% y/y in June. Ex fresh food, energy component also declined as it printed 1.5% y/y vs 1.6% y/y as expected and down from 1.8% y/y the previous month. Ex fresh food component ticked up to 2.2% y/y from 2.1% y/y in June. JPY had a monster week as unwinding of a carry trade helped it gain massive strength.

This week we will have BoJ meeting. Markets are pricing in around 65% chance of a 15bp rate hike and BoJ is seen embarking on QT by lowering JGB purchases.

Important news for JPY:

Wednesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending July 19 came in at CHF461.3bn vs CHF458.9bn the previous week. Sight deposits continue to increase, rising for four consecutive weeks, indicating that 450bn is the bottom of the range.

This week we will get inflation data.

Important news for CHF:

Friday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Aug 5 – Aug 9)

After a very eventful week this week will be more calm but will still have RBA meeting, employment data from New Zealand and Canada as well as ISM services PMI and trade balance and inflation data from China.

USD

US Treasury plans to issue $740bn bonds in the Q3 provided that TGA has a quarter end balance of $850bn. It was estimated that they will borrow $856bn. Q2 Employment Cost Index saw increase of 0.9% vs 1% as expected. Lower wages and overall employment costs will help ease Fed’s worries about wage-price induced inflation spiralling out of control.

Fed has left interest rates unchanged in a 5.25 – 5.50% range as was widely expected. The statement showed that economic activity continues to expand at a solid pace, job are moderating and the unemployment rate has moved up but it remains low. Inflation has eased over the past year but remains somewhat elevated. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. They have added that they are attentive to their employment goals. They repeated that they do not expect to cut until they have gained greater confidence that inflation is moving closer to 2%. The Committee is prepared to adjust monetary policy so it is in line with its goals and the statement concludes with "The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Powell clarified during the press conference that there was no decision made on September meeting and emphasized that Fed is data-dependent and not data point-dependent, meaning that they are looking at a broader picture. He hinted that if economy moves in line with their projections September will see a rate cut. Powell clarified that they are seeing declines in broader inflation, not just in goods but in both housing and non-housing services which is a very encouraging sign. He emphasized several times that they want to sere more confirmation in data before cutting rates. Additionally, he stated that there are plausible scenarios ranging from “zero to several cuts this year”.

ISM Manufacturing PMI for July 46.8, down from 48.5 in June while markets expected an increase to 48.8. This makes it 20 out of last 21 reports in contraction. Details of the report are ugly. Production, new orders and employment all fell further deeper into contraction. Prices paid index increased and moved further into expansion indicating that inflation pressures are not slowing down yet. Weak domestic demand and uncertainty regarding outlook of the economy are main concerns manufacturers state in report.

July NFP report was weak. Headline number printed 114k vs 175k as expected with a 27k negative revision to June reading. The unemployment rate jumped to 4.3% from 4.1% the previous month but when it is not rounded it printed 4.252%. The increase in the unemployment rate has triggered Sahm rule, which states that recession occurs when three-month moving average of the national unemployment rate rises by 0.50% or more relative to its low during the previous 12 months. Participation rate managed to tick up to 62.7% and thus to give some comfort regarding the increase in the unemployment rate. U6 unemployment rate jumped to 7.8% from 7.4% in June. Weakness was seen in wages that rose 0.2% m/m and 3.6% y/y vs 0.3% m/m and 3.7% y/y as expected and down from 0.3% m/m and 3.9% y/y the previous month. Additionally, hours worked ticked down to 34.2 hours. Healthcare continued to add the biggest number of jobs while government added 17k jobs. This reading gives boost to the chances of a September rate cut.

The yield on a 10y Treasury started the week at 4.20%, rose to 4.20%, then dropped below 4% after the FOMC meeting and finished the week at around 3.80%. The yield on 2y Treasury started the week at 4.39% and reached the high of 4.42% only to decline post FOMC meeting and drop below 4% after the NFP. Spread between 2y and 10y Treasuries started the week at -19bp then tightened to -9bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 41% while probability of a 50bp rate cut is around 59%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have ISM Services PMI.

Important news for USD:

Monday:​

• ISM Services PMI​

EUR

Preliminary Q2 GDP printed 0.3% q/q unchanged from the first quarter while a 0.2% q/q reading was expected. French Q2 GDP printed 0.3% q/q vs 0.2% q/q as expected while Q1 GDP was revised up to show a growth of 0.3% q/q. Household consumption was flat while government consumption rose by 0.3%. Fixed investment also rose by 0.1% and net trade also positively contributed to the reading. Spain Q2 GDP printed 0.8% q/q vs 0.5% q/q as expected, Italian Q2 GDP came in at 0.2% q/q as expected while Germany disappointed with a contraction of -0.1% q/q vs 0.1% q/q as expected and down from 0.2% q/q in the first quarter.

Preliminary July CPI came in at 2.6% y/y vs 2.5% y/y as expected and in June while core CPI stayed unchanged for the third straight month at 2.9% y/y. Expectations were for it to slip to 2.8% y/y. Both German and French July CPI readings ticked up to 2.3% y/y from 2.2% y/y in June.​

GBP

BoE has cut interest rate by 25bp to 5%. It was a very close call with a 5-4 vote (Pill, Mann, Haskel and Greene dissented) and the decision has been described as “finely balanced”. The statement contains hawkish tones as “It is now appropriate to reduce slightly the degree of policy restrictiveness”. Inflation is expected to increase towards 2.75% in the H2 of 2024 due to base effects connected with energy prices. Inflation and inflation expectations are expected to continue decline caused by lower wage pressures but they warn that “inflationary persistence has not yet conclusively dissipated, and there remained some upside risks to the outlook”. The statement shows that bank continues to monitor the risks of inflationary persistence and remains in meeting-by-meeting stance. GDP for 2024 was revised up to 1.25% from 0.5% previously.

BoE Governor Bailey reiterated as the press conference that this was a “finely balanced” decision adding that there may be one step up in services inflation in August but after that it will come down during the remainder of the year. Services inflation remains closely watched data point. He also reiterated that decisions regarding monetary policy will be made meeting-by-meeting and he would not give any comments regrading the future path of rates. He cautioned everyone against a view of successive rate cuts at next meetings which was echoed by the Chief Economist Huw Pill.

AUD

Q2 inflation data showed headline number unchanged at 1% q/q with 3.8% y/y vs 3.6% y/y in Q1. Core number showed some easing of inflation as it printed 0.8% q/q vs 1% q/q as expected and in previous quarter as well as 3.9% y/y vs 4% y/y as expected and in Q1. Headline moving in the wrong direction while core slipping towards the target will create uncertainty regarding next week’s RBA meeting.

Official PMI data from China for the month of July saw manufacturing tick down to 49.4 from 49.5 in June as production, new orders and new export orders indexes continued to decline. Services barely managed to stay in expansion with a 50.2 print, down from 50.5 the previous month with new orders and new export orders still in contraction for fifteen and seven months respectively. Composite also printed 50.2, down from 50.5 in June. Official PMI data have been declining for the fourth consecutive month. Caixin manufacturing PMI surprised to the downside and slipped into contraction for the first time in nine months with a 49.8 reading. Expectations were for a 51.5 reading and June figure was 51.8. The report showed a marginal increase in output followed by decline in new orders while input costs increased but export prices decreased.

This week we will have RBA meeting as well as trade balance and inflation data from China. After Q2 inflation slipped down no change to rate is expected.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

Wednesday:​

• Trade Balance (China)​

Friday:​

• CPI (China)​

NZD

Business confidence made a big jump in July as it printed 27.1 vs 6.1 in June. This is the first monthly increase after five consecutive monthly decreases. There were big improvements in export intentions and residential construction and decent improvements in wage expectations, capacity utilization and profit expectations. There was also a drop in inflation expectations. On the other hand, drops in activity and employment compared to a year ago are of concern.

This week we will have employment data.​

Important news for NZD:

Wednesday:​

• Employment Change​
• Unemployment Rate​

CAD

May GDP came in at 0.2% m/m vs 0.1% m/m as expected. June reading is seen at 0.1% m/m which will make for a positive GDP reading in all three months of Q2. Manufacturing sector lead the gains with 1% followed by public sector. Drops were seen in retail and wholesale trade.

This week we will have employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

BoJ has delivered a 15bp rate cut thus raising the rate to 0.25%. There were plenty of leaks through Japanese media so the move was not unexpected. The decision to increase rate was not unanimous as two members dissented. On the other hand, the decision to reduce scheduled monthly buying of bonds was a unanimous one. The plan is for bond purchases to be tapered by JPY3tn by Q1 of 2026 which would mean reduced bond buying of around JPY400bn per quarter. Members expect underlying inflation pressures to increase gradually. The statements shows that: “Real interest rates are expected to remain significantly negative after the change in the policy interest rate, and accommodative financial conditions will continue to firmly support economic activity”. Provided that economic activity and prices continue to develop as projected BoJ is prepared to further hike rates.

New projections see lower growth in Fiscal Year (FY) 2024 0.6% vs 0.8% as seem in April while CPI ex fresh food was lowered to 2.5% for FY 2024 from 2.8% as previously seen but raised to 2.1% for FY 2025 from 1.9% as projected in April. There were no changes for FY 2026 for either GDP or core CPI.

BoJ Governor Ueda sounded more hawkish at the press conference stating that upside risks to inflation require attention and added that he does not see 0.50% policy rate as a ceiling. Economic indicators to be watched include wages, inflation, service prices and GDP output gap. Ueda added that 0.25% policy rate is still extremely low as with high inflation real rates are deeply negative. Wage increases are becoming more widespread and are supporting private consumption.

According to information published by Ministry of Finance they have spent $36.8bn on BoJ intervention during the month of July. BoJ Quarterly Outlook saw comments that inflation is expected to increase gradually and that wages could rise more than expected which would put upward pressures on inflation and make it deviate fro their baseline scenario. JPY has strengthened massively on the back of carry unwinding trade where investors were selling their high carry investments and buying back JPY.

CHF

SNB total sight deposits for the week ending July 26 came in at CHF458.2bn vs CHF461.3bn the previous week. Deposits are still within a well-established range, though at the bottom of it. Inflation data for the month of July saw headline at 1.3% y/y and core at 1.1% y/y, same as in June. Overall risk off mood in the markets has given CHF a huge boost.​

 

[katetrades]

Forex Major Currencies Outlook (Aug 12 – Aug 16)

RBNZ meeting, inflation data from the US and the UK, retail sales from the US and China, preliminary Q2 GDP from the UK and Japan as well as employment data from the UK and Australia will highlight the news dense week ahead of us.

USD

ISM services for the month of July printed 51.4 vs 51 as expected and thus rebounded back into expansion after surprising 48.8 reading in June. Business activity, employment and new order indexes all rebounded back into expansion as well with new export orders surging to 58.5 from 51.7 the previous month. Supplier deliveries component eased indicating improving conditions. Prices paid index increased again showing that inflation pressures remain persistent. VIX spiked during the week and is still holding above the 20 level. RRP has declined below $300bn during the week indicating that liquidity is getting more scarce but it rebounded and finished the week above the $300bn threshold and the mood in the markets improved with it.

The yield on a 10y Treasury started the week at 3.79%, rose to 4% and finished the week at around 3.94%. The yield on 2y Treasury started the week at 3.89% and reached the high of 4.05%. Spread between 2y and 10y Treasuries started the week at -8bp then managed to disinvert for a very brief period of time and ultimately finishing the week at -11p as curve proceeded to flatten again. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 45% while probability of a 50bp rate cut is around 55%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will get inflation and retail sales data.

Important news for USD:

Wednesday:​

• CPI​

Thursday:​

• Retail Sales​

EUR

Final services reading for the month of June was unchanged at 51.9 while composite was revised slightly higher (50.2 from 50.1). German readings were revised up while French readings were revised down but still represent improvement from June due to Olympic Games. Economy is slowing down and barely managing to stay in expansion while prices continue to increase, although at a slowest pace in the last 38 months.

GBP

Final July services PMI were revised up to 52.5 from 52.4 as preliminary reported with composite also revised up to 52.8 vs 52.7. Demand for services from the UK remains strong with business confidence rebounding strongly. The report shows that business activity rose somewhat but new business index had a big jump. Price pressures are easing but are still at elevated levels.

This week we will get employment and inflation data as well as preliminary Q2 GDP reading.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Wednesday:​

• CPI​

Thursday:​

• GDP​

AUD

RBA has left the rates unchanged at 4.35% as was widely expected. The statement shows concerns regarding high inflation and dissatisfaction with it coming down slower than expected. Inflation remains too high and it will take some time before the inflation falls back into the targeted range. “Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out“. Restrictive policy is needed until RBA is confident enough that inflation is moving towards the target range. Economic activity has been weak and economic outlook is uncertain.

RBA Governor Bullock stated in the press conference that progress on bringing inflation down has been slow and that there are still risks that moving inflation into target range will take too long. She added that rate cut is not in the cards in the short term and added that markets are pricing rate cuts too soon, that it is not what Board is thinking. Inflation developments remain front and center for RBA decision makers. Speaking later during the week Governor Bullock delivered more hawkish remarks saying that they will not hesitate to hike cash rate if needed and that inflation is not expected to be back in the 2-3% range until the end of 2025.

Caixin services PMI for the month of July increased to 52.1 from 51.2 in June and indicated growing divide between services and manufacturing sector. Composite was dragged down to 51.2 from 52.8 due to weakening manufacturing sector. Trade balance data saw smaller surplus in July for the first time since March as the print reported $84.65bn vs $99.05bn in June. Exports were up by 7%, lower than in June due to a drop in auto exports, while imports were up by 7.2% due to stronger copper and auto parts imports. July inflation data saw CPI rise 0.5% y/y vs 0.3% y/y and up from 0.2% y/y in June on the back of rising food prices (1.2% m/m). PPI was unchanged at -0.8% y/y.

This week we will have employment data from Australia and industrial production and retail sales from China.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​
• Industrial Production (China)​
• Retail Sales (China)​

NZD

Employment report for the second quarter saw employment change up 0.4% q/q after a 0.2% q/q drop in the first quarter. The unemployment rate rose to 4.6% vs 4.7% as expected and at the same time participation rate rose to 71.7% from 71.5% in Q1. Additionally, wages rose 3.6% y/y after rising 3.8% y/y in the first quarter. Wages coming down and labor market hanging better than RBNZ expected should decrease a chance of rate cut and NZD strengthened as a result. Later on during the week RBNZ inflation expectations saw 2-year at 2.03% for Q3, down from 2.33% seen in Q2 while 1-year was at 2.4% for Q3, also down from 2.73% in Q2.

This week we will have RBNZ meeting. No change in policy is expected.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

BoC minutes showed negative view on household spending due to need for people to refinance their mortgages at higher rates which will in turn lower their disposable income. Downsides risks on inflation are now as prominent as upside risks. Wage growth is seen high at around 4% but it is expected to moderate in the future and further rate cuts are likely if inflation continues to decline as projected.

July employment report saw a loss of 2.8k jobs vs increase of 22.5k as expected. June report saw a loss of 1.4k jobs so this is a second consecutive month of job losses. The unemployment rate remained at 6.4% while participation rate plunged to 65% from 65.3% the previous month. Wages have dropped to 5.2% y/y from 5.6% y/y in June which will be welcomed by the BoC as another input that inflation is coming down. Composition of jobs saw 61.6k added full-time jobs and dropped 64.4k part-time jobs. Markets are fully pricing rate cut at the September meeting with some participants seeing even a 50bp rate cut.

JPY

Final July services reading was revised down to 53.7 from 53.9 as preliminary reported still showing a big jump back into expansion after a surprising 49.4 reading in June. The report shows strong domestic demand and increases in new business volumes and employment levels. Firms have been successful in passing out costs to consumers. Composite has printed 52.5, up from 49.7 the previous month. Household spending continued to decline in July with a -1.4% y/y reading but nominal wages rose astonishing 4.5% y/y which helped push real wages into positive territory for the first time in 27 months with a 1.1% y/y increase.

Nikkei has lost 12.4% on Monday for a largest daily decline since Black Monday crash of 1987. On Tuesday, Nikkei managed to rebound 10.2% from the lows created on Monday. On Wednesday BoJ Deputy Governor Uchida stated that they will not continue with rate hikes when markets are unstable and thus brought down JPY as investors sold it heavily. BoJ Summary of Opinions showed hawkish message from July 31 meeting as they see underlying price pressures increasing gradually and the likelihood of achieving inflation target in the second half of fiscal 2025 has increased. Several members see potential to raise “significantly low” policy rate as real rate is at a 25-year low. Additionally, members see neutral rate of “at least around 1%” as medium-term goal.

This week we will get preliminary Q2 GDP reading.

Important news for JPY:

Thursday:​

• GDP​

CHF

SNB total sight deposits for the week ending August 2 came in at CHF453.9bn vs CHF458.2bn the previous week. Sight deposits still within a well-established range. Markets were in full on risk off mode at the beginning of the week with CHF strengthening significantly due to safe haven flows.​

 

[katetrades]

Forex Major Currencies Outlook (Aug 19 – Aug 23)

Powell’s speech at Jackson Hole will be the biggest event of the week ahead of us followed by FOMC minutes, preliminary PMI data from the Eurozone and the UK as well as inflation data from Canada.

USD

July inflation report saw headline number tick down to 2.9% y/y from 3% y/y in June. Expectations were for inflation to remain at 3%. Core number ticked down to 3.2% y/y as expected from 3.3% y/y the previous month. Both readings saw monthly increase of 0.2%. The biggest contributor to decline in inflation were used cars and trucks which saw prices decline by 2.3% m/m followed by airplane fares which saw prices decline by 1.6% m/m. Services less energy rose 0.3% m/m and 4.9% y/y while shelter saw 0.4% m/m increase, up from 0.2% m/m in June and 5.1% y/y increase compared to July of 2024. Disinflationary process continues, that is the story markets are going with and if there is no big deterioration in the labor market Fed is poised to deliver a 25bp rate cut in September.

Retail sales for the month of July rose by 1% m/m vs 0.3% m/m after being flat in June. The biggest increase was seen in motor vehicle and parts dealers which rose by 3.6% m/m followed by electronics and appliance stores with a 1.6% m/m increase. Control group, used for GDP calculation, grew by 0.3% m/m vs 0.1% m/m as expected. Retail sales ex autos and ex autos and gas both showed a growth of 0.4% m/m, coming in higher than expected. Another strong retail sales report reminding us never to underestimate US consumers and adding more credibility to the growing economy.

The yield on a 10y Treasury started the week at 3.94%, rose to 3.97% and finished the week at around 3.89%. The yield on 2y Treasury started the week at 4.06% and reached the high of 4.09%. Spread between 2y and 10y Treasuries started the week at -12bp and finished the week at -17bp as curve proceeded to flatten again. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 70% while probability of a 50bp rate cut is around 30%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have FOMC minutes and Powell’s speech at Jackson Hole that will emphasize inflation coming down, talk about labor market and shed more light on the way Fed will proceed further with rate cuts.

Important news for USD:

Wednesday:​

• FOMC Meeting Minutes​

Friday:​

• Powell Speech at Jackson Hole Economic Symposium​

EUR

August German ZEW survey report results were disappointing. Current conditions plunged to -77.3 from -68.9 in July while a drop to -75 was expected. Expectations component dropped to 19.2 from 41.8 the previous month, much deeper fall than 32 as was expected. Investors have a bleak outlook towards German economy. Second estimate of Q2 GDP was unchanged at 0.3% q/q.

This week we will have preliminary August PMI data.

Important news for EUR:

Thursday:​

• Manufacturing PMI (Eurozone, Germany, France)​
• Services PMI (Eurozone, Germany, France)​
• Composite PMI (Eurozone, Germany, France)​

GBP

Employment report saw ILO unemployment rate shockingly drop in June to 4.2% from 4.4% in May while increase to 4.5% was expected. Questions about validity of data are being raised. Employment change came in at 97.3k 3m/y with July payrolls change showing that the economy added 24k jobs. Wages continued to drop, average at 4.5% 3m/y and ex-bonus at 5.4% 3m/y, which will be warmly welcomed by the BoE. There was a big jump in claimant counts to 135k which just adds to the mixed results of this report.

July inflation data saw headline CPI increase to 2.2% y/y from 2% y/y in June, but smaller increase than 2.3% y/y print as expected. Core CPI was very satisfactory as it fell to 3.3% y/y from 3.5% y/y the previous month while a 3.4% y/y reading was expected. Services inflation showed a big decline as it came in at 5.2% y/y, down from 5.7% y/y in June. Both headline and core came in lower than expected and investors are now giving higher probability to a September cut.

Preliminary Q2 GDP reading came in line with expectations at 0.6% q/q, slightly lower than 0.7% q/q seen in the first quarter with 0.9% y/y compared to 0.3% y/y in the Q1. Services rose by 0.8% while production and construction both declined by 0.1%. Gross capital formation was the biggest contributor to the reading followed by government consumption and household consumption while net trade deducted from the GDP as exports grew by 0.8% while import rose by 7.7%.

This week we will have preliminary August PMI data.

Important news for GBP:

Thursday:​

• Manufacturing PMI​
• Services PMI​
• Composite PMI​

AUD

July employment report showed that the economy added 58.2k jobs vs 20k as expected. This is the second consecutive month of 50k+ jobs added as last month we had 52.2k jobs added. The unemployment rate ticked up to 4.2% due to jump in participation rate to 67.1%. All of the jobs were full-time jobs (60.5k) which just adds to the stellar report. Q2 wage price index show increase of 0.8% q/q, same as in Q1, while increase of 0.9% q/q was expected.

July industrial production from China slipped to 5.1% y/y from 5.3% y/y as seen in June as external demand is weakening which is resulting in less production for imports. Retail sales rose 2.7% y/y slightly beating expectations of 2.6% y/y but strongly rebounding from 2% y/y in June. Although a nice rebound details are not showing strong consumer as spending for cars, jewellery and gold, cosmetics and apparel were all down. National Bureau of Statistics came in with expectations for consumption to increase, CPI to remain relatively stable and PPI to show smaller declines.

NZD

RBNZ has cut Official Cash Rate (OCR) by 25bp to 5.25% as Committee members agreed that some easing of restraints is in order. The statement showed that inflation is moving down in a stable manner and it is seen coming down to targeted range of 1 to 3%. Services inflation remains elevated but it is expected to come down with the rest of inflation components. New rate projections see at least one more 25bp rate cut by the end of the year as December 2024 rate is seen at 4.92% vs 5.65% previously. Rate for September of 2025 is now seen at 4.1% vs 5.4% previously. Members emphasized concerns around growth as as economy is contracting faster than anticipated.

RBNZ Governor Orr expressed his confidence that inflation is back in its targeted band and that it is appropriate to start bringing rates down. He added that members considered a range of of moves, meaning even bigger cuts and that consensus was for a 25bp cut. Incoming data indicates that economy is weakening. Dovish message from the RBNZ confirmed by Orr’s press conference will weigh down on NZD.

This week we will have Q2 retail sales data​

Important news for NZD:

Friday:​

• Retail Sales​

CAD

July building permits showed another huge drop as they fell by 13.9% m/m while expectations were for a 6.6% m/m increase. This makes it a second consecutive month of double digit drops in permits. June wholesale trade showed another decline as it printed -0.6% m/m as expected for a slightly smaller decline than 0.8% m/m in May. Manufacturing sales fell by 2.1% m/m after 0.2% m/m increase in May.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Preliminary Q2 GDP reading saw bigger than expected rebound. GDP rose by 0.8% q/q and 3.1% y/y while 0.5% q/q and 2.1% y/y increases were expected. Personal consumption rose by 1% q/q, doubling market’s expectation of a 0.5% q/q increase, making it the first positive print since Q1 of 2023. Business investment rose 0.9% q/q as expected while net external demand deducted 0.1pp from the GDP as exports rose by 1.4% while imports rose by 1.7%.

CHF

SNB total sight deposits for the week ending August 9 came in at CHF463.1bn vs CHF453.9bn the previous week. Sight deposits bounced of the bottom of a range and are still within a well-established range.​

 

[katetrades]

Forex Major Currencies Outlook (Aug 26 – Aug 30)

This week we will have inflation data from the US and Eurozone as well as Q2 GDP from the US and Canada with official PMI data from China on Saturday.

USD

Minutes from the last FOMC meeting saw “several” members wanting to deliver rate cut at the current meeting (July) while a “vast majority” of members see September rate cut as appropriate. Members want more evidence that inflation is sustainably falling to their 2% target. NFP revision for the Q1 saw 818k less jobs.

Fed Chair Powell delivered a dovish message at the Jackson Hole meeting. He stated that "The time has come for policy to adjust. The direction of travel is clear". Powell mentioned that upside risks to inflation declined and shifted focus to the labor market, the second part of their dual mandate. Rate cuts are coming but whether it will be a 25bp or a 50bp cut will depend on the incoming data, particularly on August NFP number that will be published on September 6. If we get a weak headline number and another tick up in the unemployment data we could see a 50bp rate cut. Powell has channeled its inner Draghi by saying that they will do whatever it takes to protect the labor market.

The yield on a 10y Treasury started the week at 3.89%, rose to 3.91% and finished the week at around 3.81%. The yield on 2y Treasury started the week at 4.06%, reached the high of 4.09% then fell below 4% during the week. Spread between 2y and 10y Treasuries started the week at -17bp and finished the week at -9bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 64% while probability of a 50bp rate cut is around 36%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have a second estimate of Q2 GDP and Fed’s preferred inflation metric PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

Preliminary PMI data for the month of August saw divide between sectors intensify further. Manufacturing declined to 45.6 from 45.8 in July as both German and French readings came in much weaker than expected at 42.1. Services printed 53.3, up from 51.9 the previous month, helped by Paris Olympics which catapulted French services to 55. Composite managed to improve to 51.2 from 50.2 in July with French reading returning to expansion with a 52.7 print while German reading fell deeper into contraction with a 48.5 reading. The report notes that although there was increase in prices in manufacturing sector, input costs in the services sector rose at a slowest pace in over three years. This data point should be welcomed by the ECB. Another data point that will make ECB happy is negotiated wage growth which eased to 3.55% in Q2 after a surge of 4.74% in Q1. Inflation pressures from the demand side will subside. Both final headline and core CPI numbers for the month of July were unchanged at 2.6% y/y and 2.9% y/y respectively.

This week we will have preliminary August CPI which is expected to increase on the back of base effects.

Important news for EUR:

Friday:​

• CPI​

GBP

Preliminary August PMI data showed manufacturing improve to 52.5 from 52.1 in July while services rose to 53.3 from 52.5 the previous month and thus lifted composite to 53.4 from 52.8 in July. The report highlights improvements in job creation and lower inflation as inflation pressures in services sector moderated and input prices fell to the lowest levels seen in over three-and-a-half years.

AUD

RBA meeting minutes had many hawkish moments in them. First, we saw members discuss rate hike at their August meeting but decided to keep cash rate on hold as it would bring better risk balance. Second, members expressed that cash rats will have to stay steady for an “extended period”. Lastly, they have agreed that it is unlikely that we will see rate cuts in the short term. Members now see increasing risks that inflation will not return to target in a reasonable time frame and they are prepared to further hike rates if inflation risks “materially” increase.

PBoC has decided to leave 1-year and 5-year LPRs unchanged at 3.35% and 3.85% respectively as was widely expected. 1-year LPR is used as a benchmark for most new and outstanding loans while 5-year LPR is used as a benchmark for mortgages. As a reminder, both rates were cut by 10bp last month in an attempt to loosen financial conditions and boost economic activity.

NZD

Second dairy auction for the month of August saw a jump in prices by 5.5% led by increase of 7.2% for whole milk prices. This is a third consecutive auction of rising dairy prices. Retail sales for the Q2 fell by more than expected with headline number printing -1.2% q/q and -3.6% y/y vs 0.4% q/q and -2.4% y/y in the Q1. Core retail sales dropped by 1% q/q after increasing by 0.4% q/q in the previous quarter.

CAD

July CPI data showed inflation continuing to decline. Headline CPI printed 2.5% y/y as expected, down from 2.7% y/y in June. All three core measures also showed declines with median printing 2.4% y/y down from 2.6% y/y, common at 2.3% y/y, down from 2.4% y/y and trim at 2.7% y/y down from 2.9% y/y the previous month. The inflation report showed that price drops were broad based and with BoC firmly on a rate cutting path this just cements another rate cut in September.

This week we will have Q2 GDP data.

Important news for CAD:

Friday:​

• GDP​

JPY

Preliminary August PMI saw improvements across all three metrics. Manufacturing came in at 49.5 vs 49.1 in July while services printed 54 after a 53.7 reading the previous month. This helped push composite to 53 from 52.5 in July. Digging into the details of report we saw strong output and new orders for the economy while new export orders showed stronger decline indicating weak domestic demand for Japanese products. Employment index showed weaker growth for the services sector but there was stronger growth in manufacturing sector. On the inflation front output prices showed weaker inflation with inflation dropping to the lowest level since November of last year while input prices showed stronger inflation.

CPI for the month of July for the country of Japan as a whole saw headline print unchanged at 2.8% y/y for the third straight month. Ex fresh food component ticked up to 2.7% y/y as expected while ex fresh food, energy component declined to 1.9% y/y from 2.2% y/y in June. This is the first time that category is below 2% in over twenty months. BoJ Governor Ueda spoke in front of the parliament and stated that fears regarding US economy were the main reason for drops in the market. He added that decision on the July rate hike was appropriate given the economic circumstances but the future path of monetary policy remains uncertain. Ueda mentioned that real rates will remain negative and that will help support the economy.

CHF

SNB total sight deposits for the week ending August 16 came in at CHF464.9bn vs CHF463.1bn the previous week. Another week of increases but not out of the ordinary as deposits remain within well-established range, moving further from the bottom of the range.​

 

[katetrades]

Forex Major Currencies Outlook (Sep 2 – Sep 6)

BoC meeting, rate cut fully priced in, NFP and employment data from Canada, ISM PMIs as well as Q2 GDP data from Australia and Switzerland will highlight the shortened week ahead of us. Be mindful that Labor day is on Monday, liquidity will be lower which could lead to increased volatility.

USD

Second reading of Q2 GDP saw it improve to 3% annualized from 2.8% annualized as preliminary reported. Consumer spending and private investment were the main culprits to the upward revision as they printed 2.9% and 7.5% respectively. PCE data for the month of July saw both headline and core numbers unchanged at 2.5% y/y and 2.6% y/y respectively while markets expected ticks up to 2.6% y/y and 2.7% y/y respectively. On a monthly basis headline number rose by 0.2%, 0.161% when calculated to the third decimal, which is in line with annual inflation printing 2%. Personal spending was up 0.5% m/m while income rose by 0.3% m/m.

The yield on a 10y Treasury started the week at 3.80%, rose to 3.87% and finished the week at around 3.91%. The yield on 2y Treasury started the week at 3.92%, reached the high of 3.96%. Spread between 2y and 10y Treasuries started the week at -11bp and finished the week flat as curve proceeded to disinvert. The 2y10y was inverted for over 788 days. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 68% while probability of a 50bp rate cut is around 32%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have ISM data and NFP on Friday. With Fed fully shifting their attention to the labor market this report will be closely watched and may provide increased volatility. Headline number is seen coming at around 100k with the unemployment rate remaining at 4.3%.

Important news for USD:

Tuesday:​

• ISM Manufacturing PMI​

Thursday:​

• ISM Services PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

Final Q2 GDP reading for Germany saw it contract by printing -0.1% q/q, down from 0.2% q/q increase in Q1 due to weak private consumption and a big drop in construction activity. Investments and net exports were also a drag on GDP while government consumption contributed positively. The economy grew by 0.3% y/y. Final French Q2 GDP reading was revised lower and showed a 0.2% q/q growth, down from 0.3% q/q in the first quarter and 1% y/y vs 1.5% y/y in Q1. Household consumption improved but there were bigger drops in government consumption and investment, especially in construction.

Preliminary CPI for the month of August dropped to 2.2% y/y from 2.6% y/y in July. Core inflation ticked down to 2.8% y/y from 2.9% y/y the previous month. German French CPI readings dropped to 1.9% y/y with German monthly reading printing -0.1%. Spanish CPI plunged to 2.2% y/y from 2.8% y/y the previous month. A combination of lower growth and lower inflation is perfect mix for a September rate cut that is now fully priced in.

GBP

With no important news concerning UK economy pound has continued to strengthen on the back of recent positive data, namely PMIs. Additionally, BoE is seen pausing at their September meeting which pushed GBP even higher, causing Cable make new highs for the year.

AUD

CPI data for the month of July saw headline print decline to 3.5% y/y from 3.8% y/y in June. A smaller than expected decline caused some buying in AUD but when we look at the core measures we get a much brighter picture of inflation. Trimmed mean fell to 3.8% y/y from 4.1% while CPI ex volatile items and travel fell to 3.7% from 4% the previous month. Reminder that inflation is still above the targeted range of 2-3% and that monthly readings do not encapsulate full inflation basket, as quarterly CPI print does, but the trend down is clear and RBA will take joy in today’s data.

This week we will get Q2 GDP data.

Important news for AUD:

Wednesday:​

• GDP​

NZD

ANZ business survey for the month of August showed business outlook jumping and reaching 50.6 vs 27.1 in July. The 50.6 print represents a 10-year high! Own activity outlook jumped to 37.1 from 16.3 with big jumps seen in investment intentions and residential construction. Pricing intentions continued to increase which casts a small shadow on the report. Ease of credit component jumped to a 9-year high as a result of expected rate cuts with inflation expectations falling below 3% for the first time in three years.

CAD

Q2 GDP came in at 0.5% q/q, up from 0.4% q/q in Q1 and 2.1% y/y, also up from 1.8% y/y in the previous quarter. June GDP came in flat vs 0.1% m/m as expected. Services were up 0.1% as expected but manufacturing collapsed and dropped -1.5% vs 1% as expected. Advanced reading for July also sees flat GDP which will not bode well for Q3 GDP.

This week we will have BoC meeting and employment data. Another 25bp rate cut is expected with inflation continuing to decline and growth is missing.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

August inflation data for the Tokyo area saw headline number rise to 2.6% y/y from 2.2% y/y in July. Ex fresh food component rose to 2.4% y/y from 2.2% y/y the previous month with ex fresh food, energy component ticking up to 1.6% y/y from 1.5% y/y in July. The unemployment rate surprised to the upside in July and jumped to 2.7% from 2.5% in June. Inflation heading north from the 2% target will keep BoJ on policy normalization path in Q4.

CHF

SNB total sight deposits for the week ending August 23 slipped to CHF463.6bn from CHF464.9bn the previous week. One more miniscule change as deposits remain in well-established range.

This week we will get Q2 GDP and inflation data.

Important news for CHF:

Tuesday:​

• GDP​
• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Sep 9 – Sep 13)

ECB meeting where are rate cut is fully prices in, inflation from the US and China, final Q2 GDP reading from Japan as well as industrial production and consumption data from China will highlight the week ahead of us. First presidential debate between Harris and Trump will be held on Tuesday.

USD

ISM manufacturing PMI for the month of August printed 47.2 after 46.8 in July and thus made first improvement after four consecutive declines. Expectations were for a bigger rebound, to 47.5 and manufacturing remains in contraction for the fifth straight month. New orders fell to lowest since May of 2023 and production continued to decline with both falling deeper into contraction. Prices paid increased but are still below the six month trend indicating that inflation is coming down.

August ISM services PMI printed 51.5, a tick up from 51.4 in July, higher than 51.1 as expected. New orders improved and moved further into expansion while there were small drops in business activity and employment components, they are all in expansion. Prices paid component ticked up.

August NFP report showed economy added 142k jobs vs 160k jobs as expected. Previous month’s reading was revised down to 89k. The unemployment rate ticked down to 4.2% while participation rate remained stable at 62.7%. Wages came in strong as they rose by 0.4% m/m and 3.8% y/y. Weekly hours ticked up to 34.3. Private payrolls increased by 118k vs 139k as expected. The markets were split 50/50 whether Fed will deliver a 25bp rate cut or a 50bp rate cut but started leaning more toward the 25bp as more details were scrutinized.

The yield on a 10y Treasury started the week at 3.91%, rose to 3.94% and finished the week at around 3.72%. The yield on 2y Treasury started the week at 3.92%, reached the high of 3.95%. Spread between 2y and 10y Treasuries started the week at -1bp and finished the week at 6bp as curve proceeded to disinvert and moved into positive territory. The 2y10y wss inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 67% while probability of a 50bp rate cut is around 33%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.

This week we will have inflation data.

Important news for USD:

Wednesday:​

• CPI​

EUR

Final manufacturing PMI for the month of August was revised up to 45.8 from 45.6 as preliminary reported and was unchanged compared to the July reading. New orders are slowing down further and business conditions are continuing to deteriorate. The report shows that both input and output prices increased which will keep inflation pressures elevated and it will not be welcomed by the ECB. Services PMI was revised down to 52.9 from 53.3 due to miss in Italian reading and downward revision to German reading. Olympic games were responsible for strong French reading and that propelled overall reading higher than in July. Composite was also revised down, 51 vs 51.2 as preliminary reported, but still stronger than 50.2 the previous month. Final Q2 GDP number was revised down to 0.2% q/q from 0.3% q/q shown in first and second readings and this will further vindicate next week’s rate cut.

This week we will have ECB meeting. Rate cut is fully priced in but future rate cut path is not clear. We will get new economic projections that will determine the path of rate cuts in the future. If inflation and growth are seen to be lower than in June projection we can expect further rate cuts in December.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

August final manufacturing PMI was unchanged at 52.5 which is a new 26-month high. Unlike in the Eurozone, UK manufacturing sector is experiencing strong growth in employment, output and new orders. The report also mentions that domestic market is the driver of strength while foreign demand is struggling. Services PMI was revised higher to 53.7 from 53.3 as preliminary reported with new business growing at a stronger pace. The rate of input cost pressures has continued to decline and that is something that will keep BoE happy. Composite was also revised up and printed 53.8 vs 53.4 as preliminary reported.

AUD

Q2 GDP print saw growth of 0.2% q/q same us upwardly revised Q1 print, lower than 0.3% q/q as expected and 1.5% y/y vs 1.3% y/y in the previous quarter. Household consumption was weak and decreased by 0.2% as there was a big drop in discretionary spending. Government consumption rose by 1.4% Net exports contributed positively to the reading but terms of trade fell by 3%. Household saving to income ratio remained at 0.6%. Growth is chugging along spurred by government spending, consumer is hurting due to high prices. RBA is still primarily focused on bringing inflation down and they plan to keep rates unchanged, but if growth and consumer start to suffer more we could see them changing their tune and going for the rate cuts.

RBA Governor Bullock stated that it is premature to think about rate cuts as they are in no position to cut rates in the near-term as they need to see further results on inflation. She reiterated bank’s commitment to bringing inflation down to target adding that there is uncertainty around outlook with risks on both sides. She also added that labor market remains strong but it is expected to ease gradually and characterized slightly higher AUD as positive for fighting inflation.

August Caixin manufacturing PMI returned to expansion with a 50.4 reading after it surprisingly dropped into contraction last month with a 49.8 reading. Over the weekend official manufacturing PMI slipped further into contraction with a 49.1 reading. Caixin report showed that new orders continued to grow while new export orders recorded first decline in almost a year. There was a decline in both input and output prices with lower prices for raw materials and sales pressures keeping them subdued.

This week we will get inflation, industrial production and consumption data from China.

Important news for AUD:

Monday:​

• CPI (China)​

Saturday:​

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

NZD

First dairy auction of September saw GDT index drop by 0.4%. This breaks a streak of three consecutive auctions with rising dairy prices. The main culprit was a drop in whole milk powder prices.

CAD

BoC has delivered another 25bp rate cut as was widely expected and brought overnight rate to 4.25%. The accompanying statement notices that the economy grew in Q2 as projected but that growth waned in June and July. Labor market continues to slow down. Inflation continues to come down and is nicely within bank’s targeted range. Shelter and some other services are keeping inflation high while excess supply in the economy puts downward pressure on prices. The statement shows that “Governing Council is carefully assessing these opposing forces on inflation.” and concludes with “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.”

Employment report for August showed employment increase by 22.1k vs 25k as expected. Past two reports saw job losses so this is a positive sign. Unfortunately, positive signs stop there. The unemployment rate jumped to 6.6% from 6.4% making it the highest in seven years. Participation rate ticked up to 65.1% but not enough to soften the blow of jump in the unemployment rate. Wages have risen by 4.9% y/y compared to 5.2% y/y in July. The report shows that all of the jobs added were part-time (65.7k) while full-time jobs recorded a big decline (-43.6k). BoC will remain firmly on a rate cutting path after this report.

JPY

Final manufacturing PMI for the month of August was revised up to 49.8 from 49.5 as preliminary reported thus getting closer to the expansion territory. The report shows that output returned into expansion. New orders recorded softer fall while new export orders declined at a much faster pace indicating slower demand from abroad. Employment improved along with input prices which reached a new 16-month high due to increase in prices of raw materials and weak JPY. Services were revised down to 53.7 making them unchanged from July. New orders and employment continued to grow but at a slower pace. Composite was lifted to 52.9 from 52.9 the previous month.

CAPEX data for the second quarter increased by 7.4% y/y compared to 6.8% y/y increase in the first quarter, but markets were expecting a 9.9% y/y increase. Nevertheless, an improvement in CAPEX is bringing optimism that Japan economic growth will be driven by domestic demand. The improvement should be visible in next week’s final Q2 GDP print. July wages rose by 3.6% y/y, lower than 4.5% y/y increase seen in June but when adjusted for inflation real wages rose by 0.4% y/y for the second consecutive month of real wage increases. Governor Ueda stated that positive real wages and spending are necessary for inflation to be sustainable at 2% so this data point can guide BoJ towards policy normalization. Household spending grew by 0.1% y/y improvement over -1.4% y/y reading the previous month, but smaller than expected 1.2% y/y growth.

This week we will have final Q2 GDP reading.

Important news for JPY:

Monday:​

• GDP​

CHF

SNB total sight deposits for the week ending August 30 came in at CHF456.7bn vs CHF463.6bn the previous week. Deposits have been in the range from 450 to 467 since mid-May. August CPI report saw headline number dropping to 1.1% y/y from 1.3% y/y in July while a 1.2% y/y print was expected. Core reading remained unchanged at 1.1% y/y. Q2 GDP data saw improvement as it printed 0.7% q/q vs 0.5q/q in Q1 and 1.8% y/y vs 0.6% y/y in the previous quarter. SNB has ample room to cut and a 25bp rate cut is expected at their September meeting.​