Daily Market Outlook by Kate Curtis from Trader's Way

Forex Major Currencies Outlook (May 25 – May 29)

Inflation data from US and EU along with second estimate of Q1 US GDP and initial reading of Canadian Q1 GDP will be the highlights of the shortened week since Monday is holiday in US and UK and liquidity will be thin in the markets, therefore we advise caution with trading.

USD

Housing market started to crumble with housing starts coming in at 891k, down 30.2% from the previous month and building permits fell 20.8% to 1074k. Sales of existing homes fell from 5.27m in March to 4.33m in April. Increasingly mounting uncertainties, including rising unemployment, are weighing on people and long-term investment in houses is not on their minds. Initial jobless claims showed 2438k new claims for the week which is more than expected but down from the previous week. This puts the total number to over 38 million from their initial rise nine weeks ago. Continuing claims have surpassed the 25 million mark which is a devastating number with grave socioeconomic consequences.

This week we will have second estimate of Q1 GDP, durable goods orders data and Fed’s preferred inflation measure PCE along with personal spending data.

Important news for USD:

Thursday:
  • GDP
  • Durable Goods Orders
Friday:
  • PCE
  • Personal Spending
EUR

Preliminary PMI data for May showed improvements with EU manufacturing climbing to 39.5, services to 28.7 and composite to 30.5. Data for May shows improving business conditions compared to April but it does not show any sign of significant recovery yet. Markit states that data adds more credence to the belief that downturn bottomed in April. Demand is expected to remain weak for a prolonged period of time and Q2 GDP is expected to drop almost 10% compared to Q1 GDP.

Germany and France announced a plat to increase EU fiscal support by €500bn, coming from new debt raised by the European Commission and distributed as grants. This proposal needs to be approved by all 27 EU state members which may pose a problem, but markets have reacted positively to it pushing EUR higher.

This week we will have sentiment data as well as preliminary May inflation data.

Important news for EUR:

Thursday:
  • Economic Sentiment Indicator
Friday:
  • CPI
GBP

Jobless claims in April have skyrocketed to 856.5k from 12.1k previously which pushed claimant count rate to 5.8%. Average weekly earnings came in at 2.4% 3m/y down from 2.8% 3m/y the previous month indicating downward pressures on wages and subsequently inflation. The unemployment rate came in at 3.9%, but as a reminder, this is reading from March when country was not under lockdown for the entire month so we can expect much higher print for April’s reading.

Inflation in April almost halved from previous month’s 1.5% y/y to 0.8% y/y due to the unprecedented drop in energy prices. Core CPI came in at 1.4% y/y as expected, down from 1.6% y/y the previous month. Preliminary May PMI data showed an improvement compared to the previous month reaffirming that bottoming occurred in April. Output and jobs continued to decline, although at a slower pace than in April. Markit states that recovery is very slow and could take years, not months. Retail sales just added to more woes coming in at -18.1% m/m and -22.6% y/y with ex fuel category coming in at -15.2% m/m and -18.4% y/y. The worst retail sales reading in the series. Governor Bailey stated that due to the effects of pandemic on the economy possibility of introducing negative rates is under active review. That along with the data put a lot of downward pressure on GBP.

AUD

RBA May minutes showed that bank is monitoring financial and economic developments. Stimulus package was introduced recently, therefore members opted to maintain current policy and continue monitoring developments. They reiterated their willingness to keep the rates low and credit available to households and businesses in order to support the economy. Global recovery is expected to start in late 2020. H1 GDP is seen falling -10% while personal consumption is expected to drop -15%. Outlook for H2 depends on the easing of restrictions and their overall impact on the economic activity.

This week we will have PMI data from China.

Important news for AUD:

Sunday:
  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)
NZD

Retail sales in Q1 came in at -0.7% q/q and 2.3% y/y. The country was under lockdown only in the late part of March so the reading is devastating, indicating that with normal conditions during 85% of Q1 consumption plunged. Additionally, Q4 2019 reading was revised down to 0% q/q which just added another blow to the already weak report.

This week we will have trade balance and business confidence data.

Important news for NZD:

Tuesday:
  • Trade Balance
Thursday:
  • ANZ Business Confidence
CAD

Headline inflation number for April came in at -0.2% y/y indicating deflationary conditions caused by the big drop in energy prices. This is the first time since the crisis of 2009 that inflation fell below 0. These conditions should not be prevailing as we have seen oil prices rebound so we can expect May reading to go back into the positive territory. A drop in inflation is also seen with clothing and footwear while food prices showed an increase due to stockpiling caused by virus outbreak. Core measures came in line with the expectations: median at 2% y/y, common at 1.6% y/y and trim at 1.8% y/y. Retail sales in March came in at -10% m/m with ex autos category coming in at -0.4% m/m. Retail ecommerce reported a jump of 16.3% while food and beverage category rose 22%. On the other side, motor vehicle and parts dealers came in at -35.6%. Statistics Canada expects April reading to come at -15.6% m/m.

This week we will get Q1 GDP reading.

Important news for CAD:

Friday:
  • GDP
JPY

Preliminary Q1 GDP came in at -0.9% q/q vs -1.1% q/q as expected and -3.4% q/q annualised vs -7.1% q/q as expected. Although data came in better than expected this is the second consecutive quarter of negative GDP which puts Japan into recession for the first time since H2 of 2015. Both private consumption and business investment came in negative but stronger than the previous quarter while exports dropped -6% which is the biggest drop in almost a decade. Economy minister Nishimura stated that significant slump is expected in Q2 due to weak overseas demand. Additionally, lockdowns are still in place along the provinces which will add to Q2 GDP woes which is already seen contracting more than 20%.

Trade balance data for April show a deficit of -JPY930.4bn, almost double than it was expected. Exports were down -21.9% y/y, of which most notable are falls in exports to US -37.8% y/y and EU -28% y/y, while imports were down -7.2% y/y. Preliminary May PMI data show continuation in drop of manufacturing reading to 38.4 while services improved from their lows to 25.3 and pushed composite to 27.4 from 25.8 the previous month. Markit notes that PMI numbers for April and May indicate GDP falling at an annual rate greater than 10%. Headline inflation came in at 0.1% y/y, excluding fresh food category slipped into deflation for the first time since 2016 coming in at -0.2% y/y due to a drop in prices of energy and services while ex fresh food, energy category came in at 0.2% y/y. Japan’s fight with deflation continues and they are slowly losing the battle.

This week we will have Tokyo inflation data, employment, consumption as well as preliminary April industrial production data.

Important news for JPY:

Friday:
  • Tokyo CPI
  • Unemployment Rate
  • Retail Sales
  • Industrial Production
CHF

Total sight deposits for the week ending with May 15 came in at CHF673.5, up from CHF669.1bn the previous week. SNB continues to relentlessly fight Swissy’s strength as EURCHF is getting dangerously close to 1.05 level.

This week we will have industrial production and trade data.

Important news for CHF:

Monday:
  • Industrial Production
Thursday:
  • Trade Balance
 
Forex Major Currencies Outlook (June 1 – June 5)

Employment data from North America, ECB, BOC as well as RBA meetings and PMI data from China are set to capture the most attention in the week to come.

USD

Second estimate of Q1 GDP came in at -5% vs down from -4.8% that preliminary reading showed. Private consumption improved compared to the preliminary reading but the gross private fixed investment came in much worse than preliminary reported. Initial jobless claims for the week ending May 23 came in at 2123k which puts total amount of jobless claims from mid-March to almost 41 million. This is the tenth week of claims above 2 million per week. Analysts are expecting weekly jobless claims to remain above 1 million through at least June. Continuing claims have fallen for the first time since the virus outbreak and although they reached devastating 21 million people it shows a glimmer of hope before next week’s NFP report.

PCE for April came in at 0.5% y/y while core PCE slipped to 1% y/y. Personal spending continued to plunge and came in at -13.6%. An interesting reading is personal income which rose 10.5%. The increase is achieved due to unemployment benefits that were designed to put income received to the national average level. However, due to the fact that great majority of laid-off workers were earning considerably less than average wages, it has led to them being better paid than if they were working. Unemployment benefits will be paid until July 31.

This week we will have PMI data from ISM, trade balance data and NFP report on Friday. Expectations are for drop of a bit below 5 million with the unemployment rate shooting to almost 20%.

Important news for USD:

Monday:
  • ISM Manufacturing PMI
Wednesday:
  • ISM Non-Manufacturing PMI
Thursday:
  • Trade Balance
Friday:
  • Nonfarm Payrolls
  • Unemployment Rate
EUR

German Ifo data for May showed a rebound from April data. The hope for a recovery is based on gradual lifting of lockdown. Germany reportedly wants to support medium-sized companies that have less than 250 employees by paying them up to €50 000 per month from the period of June to December. In order to be eligible for assistance, a company should have recorded at least a 60% y/y drop in sales for the months of April and May, meaning those companies that were hardest hit by the virus impact. Economic sentiment in May showed a small improvement compared to April readings, however services sentiment dropped further down shattering hopes of fast recovery.

European Commission is reportedly said to propose €750bn virus recovery fund as a means of aid member states. It is said that €500bn will be in grants and €250bn will be in loans. Italy is set to receive €82bn in grants, Spain €77bn while France will get €39bn. Additionally, Italy will get €91 bn in loans while Spain will be getting €63bn in loans. Initial market reaction was very favourable, pushing EURUSD over 1.10 mark and reaching 1.11 on Friday. Preliminary May inflation came in at 0.1% y/y for the lowest reading in the past four years. A small comfort can be found in core inflation, which held steady at 0.9% y/y. The inflation data are taking the back seat due to the markets focus on virus related data, however once that settles inflation data will gain in importance.

This week we will have final May PMI data, consumption data and ECB rate decision. Expectations are for ECB to ramp up their PEPP (Pandemic Emergency Purchase Programme) by €500bn and prolong it for at least a year.

Important news for EUR:

Monday:
  • Markit Manufacturing PMI (EU, Germany, France)
Wednesday:
  • Markit Services PMI (EU, Germany, France)
  • Markit Composite PMI (EU, Germany, France)
Thursday:
  • Retail Sales
  • ECB Interest Rate Decision
  • ECB Monetary Policy Press Conference
GBP

Brexit talks continued throughout the week. EU seemed prepared to ease their “maximalist approach” on fishing rights, thus making first concession in negotiations. There is still a long road ahead but this may be interpreted as a first step in the right direction. Special adviser to the Prime Minister, Dominic Cummings, violated the lockdown rules which he helped devise. This is causing PM’s approval ratings to decline and some members of Tory party are calling for Cummings’ resignation. There is also a turmoil among common people. If they see Cummings’ act as one set of rules that apply for the elite and the other set of rules for all the rest it can lead to more and more people breaking the rules thus slowing the return to normal.

This week we will have final May PMI data and since we are entering June we can expect trade negotiations between the UK and EU to intensify. June 30 is the deadline when Britain must decide whether it wants an extension to the transition period. If not, a no-deal Brexit at the end of the year becomes the default.

Important news for GBP:

Monday:
  • Markit Manufacturing PMI
Wednesday:
  • Markit Services PMI
  • Markit Composite PMI
AUD

RBA Governor Lowe stated his satisfaction with the introduced economic package. The bank will keep its expansionary monetary policy until progress is made towards full employment and they are confident on inflation. Current cash rate of 0.25% is effectively the lowest it can go and negative rates are extraordinary unlikely. Rates will stay this low for years to come and bigger role of fiscal policy is needed.

Private capital expenditure for Q1 came in at -1.6% q/q beating both the expectations and the previous quarter which was at -2.8% q/q. Estimates for Q2 are much more bleak. AUD was the second biggest beneficiary of the risk-on mood in the markets with AUDUSD shooting up to 0.66559 where its advance was capped by 200 DMA.

This week from Australia we will have trade balance and consumption data, as well as RBA meeting which is expected to be a tnon-event while Q1 GDP has potential to move the markets. Caixin PMI data along with trade balance data will come from China.

Important news for AUD:

Monday:
  • Caixin Manufacturing PMI (China)
Tuesday:
  • RBA Interest Rate Decision
  • RBA Rate Statement
Wednesday:
  • GDP
  • Caixin Services PMI (China)
  • Caixin Composite PMI (China)
Thursday:
  • Trade Balance
  • Retail Sales
Sunday:
  • Trade Balance (China)
NZD

Trade balance in April came in at NZD1267mn for a largest monthly surplus on record. This was achieved on the back of plunging imports which came in at NZD3.99bn, down from NZD5.14bn the previous month. Exports also dropped, not as dramatically as imports, due to the lockdown caused by the virus outbreak and stoppage in the economy. Business confidence in May improved to -41.8 vs -66.6 the previous month with activity outlook also improving. NZD was the biggest beneficiary of the risk-on mood in the markets with NZDUSD shooting up to 0.62100 level with some analyst seeing it rise to 0.64 in the coming months. Currently its rise is capped by 100 DMA.

CAD

Q1 GDP came in at -8.2%, a significant drop from 0.3% in Q4 of 2019. The reading is a biggest drop since Q1 of 2009 and household spending with -2.3% is the worst quarter reading ever. These historical lows will quickly be surpassed as Q2 is expected to show even bigger drops. Prime Minister Trudeau considers scaling back on some relief programs as the economy re-opens.

This week we will have BOC meeting, trade balance and employment data. This will be the first BOC meeting presided by new governor Macklem so his views on policy will garner more attention.

Important news for CAD:

Wednesday:
  • BOC Interest Rate Decision
  • BOC Rate Statement
Thursday:
  • Trade Balance
Friday:
  • Employment Change
  • Unemployment Rate
JPY

Tokyo area inflation for the month of May came in at 0.4% y/y, ex fresh food category came in at 0.2% y/y while ex fresh food, energy category came in at 0.5% y/y. There are beatings on both expectations and previous month’s reading, however there is little place for joy since numbers are miles away from the target of 2%. April unemployment rate ticked to 2.6%. Preliminary industrial production for April plunged to -9.7% m/m and -14.4% y/y. The decline was led by -33% m/m drop in auto production, the biggest drop since 2013. Waning global demand is shattering the auto industry. Retail sales added to the horrific data dropping -9.6% m/m and -13.7 y/y for the biggest year on year drop in more than two decades.

Prime minister Abe has announced nationwide lifting of state of emergency. He added that plan is for introduction of contract tracing app in the mid-June. If the number of virus infections rise government will consider reimposing state of emergency. Government has announced new stimulus package that will amount to JPY117 trillion.

This week we will have final May PMI data as well as data on household spending.

Important news for JPY:

Monday:
  • Markit Manufacturing PMI
Wednesday:
  • Markit Services PMI
  • Markit Composite PMI
Friday:
  • Household Spending
CHF

Total sight deposits for the week ending May 22 continued to climb and are now at CHF679.9bn vs CHF673.5bn the previous week. Prevailing risk appetite in the previous week assisted them in pushing EURCHF to test 1.06 level. European Commission stimulus gave boost to EUR making EURCHF shoot to 1.07 level which may ease SNB’s intervention in the markets. SNB Chief Jordan reiterated their willingness to intervene more strongly if the need arises. Trade balance in April came in at CHF4.04bn, up from downwardly revised CHF3.96bn the previous month. Both exports (-10%) and imports (-17.8%) completely plunged amid virus peak.

This week we will have consumption and inflation data along with Q1 GDP.

Important news for CHF:

Tuesday:
  • Retail Sales
Wednesday:
  • GDP
Thursday:
  • CPI
 
Forex Major Currencies Outlook (June 8 – June 12)

Fed’s meeting with their assessment of latest NFP report and economic projections will be the highlight of the upcoming week.

USD

ISM manufacturing PMI for the month of May came in at 43.1 vs 41.5 the previous month. Improvements were seen in all indices with production and employment, which represent consumption, rising the most. New orders and new export orders, which represent demand, improved but at a slow rate and are still deep in contraction territory. Non-Manufacturing PMI came in at 45.4 vs 41.8 the previous month. Business activity showed the biggest jump followed by new orders and new export orders while employment improved only marginally. Still, all of the relevant readings are below the 50 level. Initial jobless claims for the week ending May 29 came in at 1877k for the first reading below 2000k in 2 months. Total number of initial jobless claims climbed to 42.7 million.

Nonfarm payrolls completely surprised expectations by coming in at 2509k vs -7500k as expected. The unemployment rate fell to 13.3% while participation rate rose to 60.8%. Those are still very weak numbers but they represent significant improvement compared to last month. The leisure and hospitality sector showed the biggest gain with 1239k followed by education, healthcare, retail trade and construction jobs. Wages fell -1% m/m indicating that low-earning workers returned to their jobs.

Riots are still raging across America triggered by the murder of Afro-American George Floyd by a police officer. President Trump at first signaled that martial law could be implemented, which would be the first time that it is implemented since the 1992 and Los Angeles riots, however he later eased his tone.

This week we will have inflation data as well as Fed’s meeting. Lower rates are still not an option so there will be no change in rates. Macroeconomic projections and press conference will garner all of the attention.

Important news for USD:

Wednesday:
  • CPI
  • Fed Interest Rate Decision
  • FOMC Economic Projections
  • FOMC Press Conference
EUR

Eurozone manufacturing PMI for May came in at 39.4 vs 39.5 preliminary on the back of the weaker final German reading. May reading shows improvement from April, but it is rather weak reflecting the prevailing economic conditions in the Eurozone. Markit notes that both domestic and external demand looks set to remain subdued. Additionally, the labour market and profits could deteriorate further thus preventing any meaningful recovery. Final services reading came in at 30.5 vs 28.7 as preliminary reported with composite rising to 31.9 from 30.5 as preliminary reported. Improvements are made from April but they are still in contraction and are lacking strength to push the economy toward meaningful recovery. Recovery of output to pre-pandemic levels may take years according to Markit.

ECB left key policy rates unchanged and it upped PEPP programme by €600bn now reaching €1.35 trillion. PEPP will be extend at least until end of June 2021. Expectations were for an increase of €500bn. Germany has announced a €130bn stimulus package. Two packages combined sent EURUSD rallying to 1.12720 and it moved toward 1.14 by the week’s end. Lagarde stated that Q2 contraction will be unprecedented and that they see 2020 GDP at -8.7%. Rebound of 5.2% is expected in 2021 and 3.3% in 2022. Downward price pressures are expected to continue and inflation target of 2% will not be reached by 2022. They see it at 1.3% in 2022.

This week we will have final Q1 GDP reading.

Important news for EUR:

Tuesday:
  • GDP
GBP

Manufacturing PMI for May was slightly upgraded to 40.7 vs 40.6 preliminary. Services PMI improved to 29 pushing the composite to 30. Lackluster improvements in PMI readings indicating serious issues with the economy.

Chancellor of the Exchequer Sunak is said to be drawing up plans for an emergency stimulus package in early July, in a further attempt to restart the UK economy. He fears that the UK hospitality sector could lose as many as two million jobs if it is not re-opened by the summer. BOE Governor Bailey encouraged banks to prepare for the failure of trade agreement between UK and EU by the end of the year. BOE executive director for markets Hauser stated that negative rates will not occur in the near-term and if the decision is made to introduce them it will be the right thing to do at that moment. UK Brexit negotiator Frost stated that progress in trade talks has been “limited”.

This week we will have GDP as well as trade balance data.

Important news for GBP:

Friday:
  • GDP
  • Manufacturing Production
  • Industrial Production
  • Trade Balance
AUD

RBA has left the cash rate at 0.25% as widely expected. This accommodative approach will be maintained as long as it is required. The rise in iron ore prices as well as risk appetite in the markets led AUDUSD up over 5% in May. Q1 GDP came in at -0.3% q/q and 1.4% y/y, both in line with expectations. This is the first contraction in 9 years. Q2 will be a worse reading as the full effect of the lockdown is shown, which will put Australia in recession for the first time in 29 years. April retail sales came in at devastating -17.7% m/m due to the countrywide lockdown. Trade balance showed a smaller surplus of AUD8800m due to the higher drop in exports (-11%) than in imports (-10%).

Official manufacturing PMI from China for May came in at 50.6 vs 51.1 as expected. Non-Manufacturing PMI came in at 53.6 and helped keep composite PMI at 53.4, same as the previous month. All three readings came well in expansion territory with new orders category picking up. Caixin manufacturing PMI returned to expansion territory with 50.7 reading. Caixin services PMI leaped back into the expansion territory with 55 from 44.4 the previous month. Composite also returned to the expansion territory with 54.5 reading completing the V-shape recovery for Caixing PMI.

This week we will get inflation data from China.

Important news for AUD:

Wednesday:
  • CPI (China)
NZD

GDT auction came in 0.1% for a second consecutive positive auction. Kiwi was the best performer of the week gaining more than 250 pips vs USD bouncing from 100 DMA and breaking through 200 DMA.

CAD

BOC has left rate at 0.25% as widely expected as they have emphasized in their recent statements that they see 0.25% level as effective lower bound. Q2 GDP is expected to show a decline of 10-20%. They see the economy resuming growth in Q3. Short-term funding conditions have improved. Therefore, BOC is reducing the frequency of its term repo operations to once per week, and its program to purchase bankers' acceptances to bi-weekly operations.

Trade balance in April came in at -CAD3.25bn. Exports plunged -29.7% m/m while imports plunged a bit less -25.1% m/m. Crude oil exports fell -55.1% m/m. Interesting data is that Canada recorded its first service surplus since 2007. Canada historically runs deficits on travel services due to residents seeking warm weather abroad, however the majority of foreign travel has been shut down amid virus outbreak which led to the lowering of travel services deficit.

Employment change in May surprised to the upside by coming in at 289.6k vs -500k as expected. The great majority of those jobs were full-time (219.4k) with part-time job also showing an increase (70.3k). The unemployment rate grew to 13.7% for the highest unemployment on record. Participation rate rose to 61.4%.

JPY

Capex for the Q1 surprised and came in at 4.3% y/y vs -5% y/y as expected. On the other hand, company profits in Q1 dropped -32% y/y for the biggest drop since Q3 2009. This huge drop in profits will lead to a drop in Q2 Capex. May manufacturing PMI came in at 38.4 as preliminary reported but down from 41.9 in April. Services PMI came in at 26.5 vs 21.5 the previous month and composite climbed to 27.8 from 25.8 the previous month. Both readings show an improvement but it is very anemic. Demand for services for in Japan continues to crumble while employment falls the sharpest in a decade.

This week we will have final Q1 GDP reading as well as earnings data.

Important news for JPY:

Monday:
  • GDP
Tuesday:
  • Labour Cash Earnings
CHF

SNB total sight deposits for the week ending May 29 came in at CHF681.6bn vs CHF679.9bn previous week. Deposits increased at a slower pace since EURCHF crossed the 1.07 level. Retail sales in April plunged -19.9% y/y since the entire country was under lockdown. Q1 GDP showed contraction coming in at -2.6% q/q and -1.3% y/y. Headline inflation in May came in at -1.3% y/y with core coming in at -0.6% y/y. Both came in as expected but both showed a drop compared to April’s numbers indicating mounting deflationary pressures in the economy.
 
Forex Major Currencies Outlook (June 15 – June 19)

This week we will have BOE, BOJ and SNB meetings coupled with employment data from UK and Australia as well as consumption data from US, UK and Canada.

USD

Fed has kept rates at the current bound of 0-0.25% as widely expected and did not talk about potential introduction of negative rates. They will keep their holdings of bonds “over the coming months” at least at the current pace. Buying will continue across the curve, meaning both short and long-term bonds, and they buy approximately $80bn a month in Treasuries and $40bn a month in agency MBS. They have reiterated their intent to fully support the economy. Projections for 2020 show GDP at -6.5%, unemployment at 9.3% and PCE inflation at 0.8%. The projections for the Fed funds rate at the end of 2020 comes in at 0.1% with the same rate for 2021 and 2022. Fed Chairman Powell stated in press conference stated Fed’s strong commitment to using all their tools for as long as necessary to get back to full employment adding that yield curve control effectiveness “remains an open question”. "We will continue to use our powers forcefully. aggressively and proactively," Powell’s words emphasize Fed’s determination. He also asked for more fiscal stimulus as there are limits on monetary policy. The dovish tone has been dominating the press conference reflecting very well Fed’s stance and viewpoint cemented with expression: The FOMC “is not even thinking about thinking about raising rates,”

Inflation data for May came in at 0.1% y/y, dangerously close to deflation territory. Declines in the indexes for motor vehicle insurance, energy, and apparel more than offset increases in food and shelter indexes. Core CPI came in at 1.2% y/y vs 1.4% y/y the previous month. This is the first time since core CPI is measured, starting from 1957, that reading was declining for the third consecutive month. Initial jobless claims for the week ending June 5 came in at 1542k continuing the declining trend. Continuing claims climbed to almost 21 million.

This week we will have consumption and housing data.

Important news for USD:

Tuesday:
  • Retail Sales
Wednesday:
  • Housing Starts
  • Building Permits
EUR

Final Q1 GDP reading was revised up to -3.6% q/q from -3.8% q/q preliminary and -3.1% y/y from -3.2% y/y preliminary. These small improvements in the reading did not have an impact in the markets as it is widely expected that Q2 GDP will be negative in the double digits. Industrial production in April showed horrific numbers coming in at -17.1% m/m and -28% y/y.

This week we will have ZEW survey as well as final inflation data for May.

Important news for EUR:

Tuesday:
  • ZEW Economic Sentiment Indicator (EU and Germany)
Wednesday:
  • CPI
GBP

April’s GDP came in at -20.4% m/m vs -18.7% m/m as expected. Manufacturing production came in at -24.3% m/m, industrial production at -20.3% m/m and construction output at -40.1% m/m. Terrible numbers all around -, the worst in the history -, for the month when the entire economy was stopped due to the virus outbreak. Since the economy reopened in May, we can expect better numbers in the coming month.

Negotiations on future EU-UK relations are at a standstill. Michel Barnier, Chief EU Negotiator, stated that Britain wants all the benefits of the EU membership without the obligations. If no extension of the transition period is agreed by June 30 it raises chances of a no deal. European Commission stated that post-Brexit negotiations will be held on June 29 to 3 July, it will be a restricted meeting, followed by meetings on the weeks of 6 July, 13 July, 20 July, 27 July, and 17 August.

This week we will have employment, inflation and consumption data capped with BOE interest rate decision. No change in the rate is expected but we should see increase in asset purchase program supporting the pound. Special attention will be paid to the possibility of introducing negative rates.

Important news for GBP:

Tuesday:
  • Claimant Count Change
  • Unemployment Rate
  • Average Weekly Earnings
Wednesday:
  • CPI
Thursday:
  • BOE Interest Rate Decision
Friday:
  • Retail Sales
AUD

AUDUSD has reached 0.7063 level intraday but its advance was capped at 0.70 and it has been on decline after the FOMC meeting. Hourly 100 and 200 SMA have been broken to the downside and although retest of the levels is expected we see them as the new resistance and the price bouncing lower from them toward daily 200 SMA.

Trade balance data for May from China showed surplus rising to $62.93bn from $45.33bn the previous month. Exports fell -3.3% while imports fell whopping -16.7%. Exports of medical devices showed the biggest surge, almost doubling, followed by rise in exports of textiles, primarily face masks. A drop in oil prices as well as in soybeans and natural gas led to declining value of imports. Inflation slipped to 2.4% y/y. Food prices kept it elevated while non-food came in at 0.4% y/y. PPI continued to decline and came in at -3.7% y/y.

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

Important news for AUD:

Monday:
  • Retail Sales (China)
  • Industrial Production (China)
Tuesday:
  • RBA Meeting Minutes
Thursday:
  • Employment Change
  • Unemployment Rate
NZD

Electronic card retail sales have posted a tremendous monthly rise in May coming in at 78.9% m/m. This result was influenced by catastrophic reading in April and year-on-year figure attests to that coming in at -6%. Kiwi was continuing its advance against dollar during the first part of the week, but then it weakened after the Powell’s conference.

This week we will have Q1 GDP data.

Important news for NZD:

Thursday:
  • GDP
CAD

Housing starts in May came in at 193.5, up from downwardly revised 166,4k the previous month. This constitutes a healthy rise of 16.2%.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:
  • CPI
Friday:
  • Retail Sales
JPY

Final Q1 GDP data came in at -0.6% q/q vs -0.9% q/q preliminary and -2.2% annualised vs -3.4% as preliminary reported. Improvements were achieved thanks to strong business investment which came in at 1.9% vs -0.5% as preliminary reported. Private consumption came in a bit weaker at -0.8%. Expectations are for a bigger drop in Q2 due to weaker export and fall in private consumption caused by the virus outbreak. Cash earnings for April came in at -0.6% y/y vs -1% y/y as expected. Core machinery orders, a good proxy for capex 6 to 9 months ahead, for the same month came in much worse than expected at -12% m/m and -17.7% y/y.

This week we will have trade balance and national inflation data along with BOJ interest rate decision. There will be no change in the rate, however further stimulus may be announced, especially in the corporate sector as well as potential introduction of loans with negative interest rates.

Important news for JPY:

Tuesday:
  • BOJ Interest Rate Decision
  • BOJ Monetary Policy Statement
Wednesday:
  • Trade Balance
Friday:
  • CPI
CHF

SNB sight deposits for the week ending June 5 showed a first decline in over a month coming in at CHF680.1bn vs CHF681.6bn the previous week. With EUR gaining significant strength and EURCHF almost at 1.09 level SNB can stay on the sidelines for time being.

This week we will get trade balance data as well as the SNB interest rate decision. Swissy has been weakening lately which will make it easier for SNB to stand pat and reiterate their willingness to intervene in FX markets if need arises.

Important news for CHF:

Thursday:
  • SNB Interest Rate Decision
  • SNB Monetary Policy Assessment
  • Trade Balance
 
Forex Major Currencies Outlook (June 22 – June 26)

This week we will have RBNZ meeting, PCE and personal spending data from US as well as preliminary June PMI data from EU, GBP and Japan.

USD

Retail sales in May rebounded more than double than expected coming in at 17.7% m/m vs 8.6% m/m as expected. In addition to the strong headline reading previous month’s number was revised higher giving more strength to the report. Clothing stores along with furniture stores were the biggest contributors. This should ease the negative impact of lockdown on Q2 GDP, however the reading is down -6.1% compared to May 2019. Initial jobless claims for the week ending June 13 came in at 1508k vs 1290k as expected. This is the 13th week of claims above 1 million. Continuing claims are hovering around 20.5 million.

The Secondary Market Corporate Credit Facility (SMCCF), worth $750bn, was announced in March. With this program Fed will buy debt in markets, even directly from companies, rather than via ETFs as was done previously. The new program will involve purchases of corporate bonds issued by investment-grade US. Companies as well as corporate bonds issued by companies that were investment-grade rated as of March 22, 2020.

This week we will have housing data, final Q1 GDP reading, durable goods data as well as PCE inflation and personal spending data.

Important news for USD:

Monday:
  • Existing Home Sales
Tuesday:
  • New Home Sales
Thursday:
  • GDP
  • Durable Goods Orders
Friday:
  • PCE
  • Personal Spending
EUR

German ZEW survey of the current situation came in at -83.1 vs -93.5 the previous month for a small move in the right direction. Expectations category for both Germany and EU came in stronger than previous month (64.4 and 58.6 respectively) indicating optimism regarding possible economic recovery in second part of the year. Final May inflation data showed headline number at 0.1% y/y and core number at 0.9% y/y, both same as preliminary reported.

This week we will have preliminary June PMI readings.

Important news for EUR:

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

Jobless claims for May came in at 528.9k with claimant count rate jumping to 7.8% from 5.8% the previous month. In period from March to May they surged astonishing 125.9%. The ILO unemployment rate, which is measured as the number of unemployed workers divided by the total civilian labour force, stayed the same in April at 3.9%. Around 9,1 million people were furloughed. A huge drop was seen in wages with average weekly earnings dropping to 1% 3m/y from 2.3% 3m/y the previous month. Slower wage growth indicates lower consumption which in turn will put downward pressure on inflation. Inflation in May came in at 0.5% y/y as expected with core sliding to 1.2% y/y vs 1.3% y/y as expected. Retail sales came in at 12% m/m vs 6.3% m/m as expected and up from -18% m/m the previous month. Core retail sales (ex autos, fuel) also bounced back more than exepected coming in at 10.2% m/m from -15% m/m the previous month. Although the monthly figures show a great rebound, yearly figures show that consumption is still very much subdued compared to the previous year.

BOE has left the rate unchanged at 0.10% and they have expanded their asset purchase program by £100bn. MPC have voted 8-1 in favour to increase QE program target with BOE chief economist Andy Haldane the only one to dissent. MPC members expect total stock of asset purchases to be hit around the turn of the year. They have stated their readiness to increase the amount of purchases if necessary. There was no mention of negative rates or yield curve control.

Prime Minister Johnson had an hour-long videoconference call with European Commission President Ursula von der Leyen and other EU officials with both sides agreeing to work toward a deal. According to the document from German government they expect negotiations to intensify only after September.

This week we will have preliminary June PMI readings.

Important news for GBP:

Tuesday:
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI
AUD

Employment change in May came in at -227.7k vs -78.8k as expected, almost a threefold miss. The unemployment rate jumped to 7.1% from 6.4% the previous month while participation rate fell to 62.9% from 63.5% the previous month. Full-time employment change was -89.1 k while part-time employment change came in at -138.6k. This is a very weak report compounded with negative revisions to the previous numbers as well as the fact that drop in the participation rate smoothed the jump in the unemployment rate and still it jumped almost full percentage point. Preliminary retail sales report showed a bounce to 16.3% m/m from – 17.7% m/m the previous month. Prime Minister Morrison announced a new spending program of AUD1.5bn, 2/3 of which will be spent on infrastructure. Additionally, Australia will raise minimum wage by 1.75% to stimulate aggregate demand and ease negative effects of the virus on the labour market.

Industrial production in May in China came in at 4.4% y/y vs 5% y/y as expected but up from 3.9% y/y the previous month. Retail sales came in at -2.8% y/y vs -2.3% y/y as expected for a fourth consecutive month of decline in consumption. Previous month’s reading was at -7.5% y/y so both consumption and industrial production are improving albeit at slower than expected rate.

NZD

RBNZ Governor Orr stated in an interview his satisfaction with impact of QE, pointing to flatter yield curve. Next steps could include increase in QE, increase in number of instruments included in QE as well as negative interest rates indicating that RBNZ still has many tools to support the economy. Q1 GDP came in at -1.6% q/q vs -1% q/q as expected. Since Q2 GDP will be negative. due to the effects of the lockdown, this signals a recession in New Zealand (two consecutive quarters of negative GDP growth). GDT price index came in at 1.9% for the third consecutive auction of rising dairy prices.

This week we will have RBNZ rate decision, no change is expected, they should stand the pat and let the already taken measures produce results as well as trade balance data.

Important news for NZD:

Wednesday:
  • RBNZ Interest Rate Decision
  • RBNZ Rate Statement
Thursday:
  • Trade Balance
CAD

Headline inflation for May came in at -0.4% y/y vs 0% y/y as expected. Food and shelter category contributed positively to the reading but reading was overturned by drops in clothing, transportation and recreation, education and reading categories. Core measures came as expected: median at 1.9% y/y, common at 1.4% y/y and trimmed at 1.7% y/y, all of them weaker than the previous month. Retail sales in April were horrific, coming in at -26.4% m/m vs 15.1% m/m as expected with the ex-auto category coming in at -22% vs -12% as expected. April was the worst month with full lockdown throughout. Early retail sales estimates for May from Statistics Canada see them rebounding by 19.1% m/m.

JPY

BOJ kept the short-term interest rate at -0.10% as widely expected. The state of Japan’s economy has been characterized as severe with exports, outputs and consumption falling sharply while the pace of increase in capex is clearly slowing. They will increase their pandemic combat program to around JPY110 trillion from JPY75 trillion previously. Governor Kuroda reiterated that BOJ sees the situation in the economy as extremely severe, added that they will take additional steps if needed and sees a recovery in second part of the year. Additionally, he added that the BOJ will not be able to raise interest rates before Fed hikes its rate. Since Powell stated last week that they are “not even thinking about thinking about raising rates” we will see a prolonged period of negative interest rates from Japan.

Trade balance for May came in at -JPY833.4bn vs -JPY1030bn as expected. Exports have plunged -28.3% y/y for the 18th consecutive month drop while imports fell -26.8% y/y for the 13th consecutive month drop. Exports to US have fallen amazing -50.6% y/y while exports to EU dropped -33.8% y/y. Exports to China, Japan’s biggest trade partner, were down -1.9% y/y. National inflation in May came in at 0.1% y/y, same as the previous month, vs 0.2% y/y as expected. Ex-fresh food category remained in the negative at -0.2% y/y while ex-fresh food, energy measure came in at 0.4% y/y vs 0.2% y/y the previous month. The battle with deflation intensifies and so far it looks that BOJ is on the loosing side.

This week we will have preliminary June PMI readings as well as inflation data from Tokyo area.

Important news for JPY:

Tuesday:
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI
Friday:
  • Tokyo CPI

CHF

Total sight deposits for the week ending June 12 came in at CHF679.5bn vs CHF680.1bn the previous week. Second week in a row of declining deposits as SNB eases their action in the markets ahead of the meeting. SNB left the policy rate unchanged at -0.75% as widely expected. They have lowered inflation expectations to -0.7% for 2020 and see inflation going back to positive only in 2022 (0.2%). Estimations are for -6% GDP contraction in 2020. SNB chief Jordan stated that Swissy is still highly valued and confirmed that they made substantial currency interventions since March. We have written about it and followed it through the rise in total sight deposits.
 
Forex Major Currencies Outlook (June 29 – July 3)

NFP, PMI data from China as well as preliminary June inflation from EU will headline the week. Please note that due to the Independence Day holiday US markets will be closed on Friday, causing lower liquidity and increased volatility, thus NFP data will be published on Thursday.

USD

Final Q1 GDP reading came in at -5%, same as the second reading. In comparison to the second reading personal consumption and investments declined but they were supplemented by the rise in government spending. Bounce back was seen in durable goods orders which came in at 15.9% m/m vs -18.1% m/m the previous month. Initial jobless claims continued to fall down but slower than expected and for the week ending June 20 they came in at 1480k vs 1320k as expected bringing the total number of claims since March 21 to over 47 million. Continuing claims for the week ending June 13, the week in which NFP is calculated, came in at 19 522k vs 20 000k as expected. Personal spending data came in at 8.2%, up from -12.6% the previous month while personal income fell to -4.2% from upwardly revised 10.8% the previous month. Once economy reopened spending rebounded propped by government stimulus cheques.

White House trade adviser Peter Navarro stated that President Trump decided to terminate the China trade deal saying it was over. The statement led to huge risk off sentiment in the market and Navarro retracted it later on saying that his comment “was taken out of context” which lead to the return of risk sentiment in the markets. President Trump tweeted that the deal is fully intact in order to clear things up and appease the markets. After stress test for banks was conducted the Fed has capped dividend payouts at Q2 levels and banned share buybacks in Q3.

This week we will have ISM manufacturing PMI, FOMC minutes, trade balance data and this week on Thursday NFP numbers. Expectations are very wide with headline number ranging from -1.2 million to 3 million with the unemployment rate expectations ranging from 15.1%. to over 20%.

Important news for USD:

Wednesday:
  • ISM Manufacturing PMI
  • FOMC Minutes
Thursday:
  • Nonfarm Payrolls
  • Unemployment Rate
  • Trade Balance
EUR

Preliminary PMI numbers for June all showed improvements compared to May. Manufacturing came in at 46.9 up from 39.4 the previous month, services came in at 47.3 up from 30.5 the previous month and composite came in at 47.5. French and German readings attributed to positive numbers. French readings even went above 50 level indicating expansion; however, it is only due to the reading being compared to previous month. Markit noted that output and demand are still falling in EU but at the slower pace. "The job market remains a particular area of concern, especially if demand fails to pick up sharply in coming months. We therefore continue to expect GDP to slump by over 8% in 2020 and, while the recovery may start in the third quarter, momentum could soon fade meaning it will likely take up to three years before the Eurozone regains its pre-pandemic level of GDP."

Ifo business climate rose to 86.2 from 79.5 the previous month while expectations category jumped to 91.4 from 80.1 the previous month. Ifo economist Wohlrabe stated that the economy is on the upward path now with expectations for German Q3 GDP growth of around 7%. ECB introduced new repo facility, EUREP for central banks outside of the euro area in order to provide more euro liquidity. Central banks will be able to borrow funds and use euro-denominated debt as a collateral. This program will run through June of 2021.

This week we will have sentiment data, preliminary inflation data for June as well as final June PMI data.

Important news for EUR:

Monday:
  • Economic Sentiment Indicator
  • Consumer Confidence
Tuesday:
  • CPI
Wednesday:
  • Markit Manufacturing PMI (EU, Germany, France)
Friday:
  • Markit Services PMI (EU, Germany, France)
  • Markit Composite PMI (EU, Germany, France)
GBP

Preliminary manufacturing PMI for June returned to expansion territory with 50.1 while services improved to 47 and lifted the composite to 47.6. The return of manufacturing above 50 level coincides with the reopening of plants. Markit states that economy is likely to return to growth in Q3 and add "Uncertainty over recovery prospects and job prospects also mean demand for many goods, especially non-essential big-ticket items, is likely to remain weak for many months, with Brexit uncertainty also continuing to cast a shadow over the economy."

Prime Minister Johnson announced relaxation of lockdown measures. Tourism and hospitality can resume on July 4 and social distancing rules will be relaxed as well. New social distancing requirement will be for 1 meter instead of 2 meters previously. The decision is positive for pound and it sent GBP pairs up at the beginning of the week.

This week we will have final Q1 GDP data as well as final June PMI data.

Important news for GBP:

Tuesday:
  • GDP
Wednesday:
  • Markit Manufacturing PMI
Friday:
  • Markit Services PMI
  • Markit Composite PMI
AUD

RBA Governor Lowe stated that they are not concerned with current level of AUD but they would like to see it lower at some point. He stated that it is hard to argue that AUD is overvalued and reiterated that rates will stay at current level for years in order to support economic recovery.

This week we will have trade balance and consumption data from Australia as well as official and Caixin PMI data from China.

Important news for AUD:

Tuesday:
  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)
Wednesday:
  • Caixin Manufacturing PMI (China)
Friday:
  • Trade Balance
  • Retail Sales
  • Caixin Services PMI (China)
  • Caixin Composite PMI (China)
NZD

RBNZ has left the official cash rate unchanged at 0.25% as widely expected. They have also left their QE program unchanged at NZD60bn adding that they will review the program regularly. The appreciation of the Kiwi puts additional pressure on export earnings and tilt the balance of economic risks to the downside. The meeting was a non-event although it had a dovish tone with RBNZ leaving the option of increasing QE open. Trade balance in May came in at NZD1253m vs NZD1290m as expected.

CAD

In his first public speech as the Governor of BOC Tiff Macklem stated that they will continue purchasing at least CAD5bn a week in federal bonds until the economy is on the right path to recovery. He also added that the bank prefers asset purchase programs over negative interest rates. Fitch rating agency has downgraded Canada’s credit rating from AAA to AA+ with a stable outlook due to the emergency spending which raised debt to GDP ratio to go over 100% level (115%).

This week we will have GDP for April and trade balance data.

Important news for CAD:

Tuesday:
  • GDP
Thursday:
  • Trade Balance
JPY

Preliminary manufacturing PMI number for June continued to decline and came in at 37.8 vs 38.4 the previous month while services staged a comeback to 42.3 from 26.5 the previous month, pushing the composite reading to 37.9. Manufacturing falling with services and composite below 50 indicates a rough path ahead for the economy. Headline Tokyo area inflation data for June came in at 0.3% y/y, ex-fresh food category came in at 0.2% y/y while ex-fresh food, energy came in at 0.4% y/y. All of the readings came as expected.

This week we will have consumption, employment and industrial production data as well as final June PMI data.

Important news for JPY:

Monday:
  • Retail Sales
Tuesday:
  • Unemployment Rate
  • Industrial Production
Wednesday:
  • Markit Manufacturing PMI
Friday:
  • Markit Services PMI
  • Markit Composite PMI
CHF

SNB total sight deposits for the week ending June 19 came in at CHF680.1bn vs CHF679.5bn the previous week. Swissy was on the decline during first half of the week, therefore there was no need for SNB to react at first, however Swissy started gaining strength in the second part of the week which lead to rise in total sight deposits.

This week we will have consumption and inflation data.

Important news for CHF:

Tuesday:
  • Retail Sales
Thursday:
  • CPI
 
Forex Major Currencies Outlook (July 6 – July 10)

In rather quiet week ahead of us ISM Non-Manufacturing PMI, RBA rate decision and employment data from Canada will be on the docket.

USD

ISM manufacturing PMI came in at 52.6 vs 49.8 as expected and up from 43.1 the previous month for a highest reading of the year. Production and new orders indexes posted highest readings in a year while employment index substantially rose. Although the readings are very positive, they still show only that the economy reopened and not any substantial economic rebound. FOMC minutes showed that officials agreed for more analysis of yield curve control and urged more explicit forward guidance.

NFP report beat expectations by coming at 4800k. The unemployment rate was also better than expected and it dropped to 11.1%. Participation rate climbed to 61.5% so we have a double positive, the unemployment rate dropping and participation rate rising. Leisure and hospitality was the biggest contributor with 2.088mn, retail was up 740k, while 903k was in trade and transport and 568k in education and healthcare. On the other front, the initial jobless claims came in at 1427k vs 1350k as expected. Continuing jobless claims are still near 20 million.

This week we will have ISM Non-Manufacturing PMI which may garner more movements in the market than usual as investors will be accessing the health of services sector.

Important news for USD:

Monday:
  • ISM Non-Manufacturing PMI
EUR

Economic sentiment in June came in at 75.7 vs 80 as expected but up from 67.5 the previous month. Weaker than expected improvements are seen on industrial and services confidence readings indicating that optimism regarding recovery is subdued. Consumer confidence improved only to the -14.7 level. Preliminary CPI in June rose to 0.3% y/y from 0.1% y/y the previous month while core CPI dropped to 0.8% y/y as expected. Final manufacturing PMI improved to 47.4 from 39.4 the previous month on the back of strong readings from German and France. Final services reading was also better than preliminary reported coming in at 48.3 pushing composite to 48.5 from 47.5 as preliminary reported. Markit has noted that: "An improvement in business sentiment meanwhile adds to hopes that GDP growth will resume in the third quarter.”

This week we will have consumption data for May which are expected to show a rebound from the previous month.

Important news for EUR:

Monday:
  • Retail Sales
GBP

Final Q1 reading came in at -2.2% q/q vs -2% q/q as preliminary reported with all of the categories being revised down. Private consumption was at -2.9% vs -1.7% q/q preliminary while government spending showed the biggest decline coming in at -4.1% q/q vs -2.6% q/q as preliminary reported. With economy fully impacted by lockdown in Q2 there will be a horrific Q2 GDP reading pushing UK into a recession. Final manufacturing PMI came in at 50.1 same as preliminary reported while services came in at 47.1 vs 47 as preliminary reported pushing composite reading toward 47.7 from 47.6 as preliminary reported.

June 30 was the last day that UK could have asked for an extension of Brexit period. They have decided not the extend it and now if there is no deal by the end of the year UK’s relationship with EU will be on WTO rules. Negotiations pace will pick up as we get closer to the year-end but for now all of the attention is on UK’s fiscal measures to support the economy.

AUD

Trade balance data for May came in at AUD8.025bn vs AUD9bn as expected but with previous reading being revised down to AUD7.83bn. Exports came in at -4% m/m while imports fell even more at -6% m/m. Retail sales staged a rebound coming in at 16.9% m/m from -17.7% m/m the previous month.

Official PMI data from China for June came in better than expected. Manufacturing was at 50.9, non-manufacturing at 54.4, which is the best reading in seven months and composite was at 54.2. Factories and companies have returned to work and output is growing. On the downside there are signs that both external and internal demand are shrinking. Caixin manufacturing PMI came in at 51.2 for the highest reading of the year. Output component is in expansion for the fourth consecutive month with new orders being higher on the month. Caixin services skyrocketed to 58.4, the highest in over a decade, pushing the composite to 55.7. From the services report it can be seen that both domestic and international demand recovered and businesses were highly confident regarding the economic outlook.

This week we will have rate decision from Australia and inflation data from China. RBA is expected to leave the rate unchanged and give forward guidance on additional asset purchases and yield curve control.

Important news for AUD:

Tuesday:
  • RBA Interest Rate Decision
  • RBA Rate Statement
Thursday:
  • CPI (China)
NZD

Final business confidence reading for June came in at -34.4 vs -33 as preliminary reported, but a jump from -41.8 the previous month. RBNZ is closely watching business confidence reading and with readings moving in the right direction they can be more confident that they are taking proper policy moves.

CAD

GDP in April set a new record by coming in at -11.6% m/m. Manufacturing and construction sector as well as retail trade and transport and warehousing have seen drops bigger than -20% m/m. Accommodation and food services sector saw a drop of -42.4% m/m. When looked at chained GDP a decade of growth in Canadian GDP was wiped out by the preceding two months. Trade balance in May came in at CAD0.6bn vs -CAD4.27bn the previous month. Exports rose 6.7% m/m on the back of motor vehicles and parts as well as increase in oil prices. Imports fell -3.9% m/m with basic and industrial chemical, plastic and rubber products (-14.4%) being the biggest contributor. Exports to the United States were up 8.9% m/m increasing trade balance surplus with US to CAD2.8bn.

This week we will have employment data expected to show another positive reading.

Important news for CAD:

Friday:
  • Employment Change
  • Unemployment Rate
JPY

Retail sales in May staged a rebound of 2.1% m/m but 3% m/m was expected. The unemployment rate rose to 2.9% from 2.6% the previous month, which is the highest rate in over 3 years, while preliminary industrial production data fell to -8.4% m/m and -25.9% y/y, both worse than expected. Final manufacturing PMI for June came in at 40.1 up from 37.8 as preliminary reported while services came in at 45 propping up composite to 40.8. Improvements from the previous month’s horrors but still way below the expansionary 50 level.

This week we will have spending, earnings and machinery orders data.

Important news for JPY:

Tuesday:
  • Household Spending
  • Labor Cash Earnings
Thursday:
  • Core Machinery Orders
CHF

Total sight deposits for the week ending June 26 came in at CHF683bn vs CHF680.1bn the previous week. SNB is intervening to fight Swissy’s strength and push EURCHF toward 1.07 level. SNB has reduced the lower limit of its special liquidity-shortage financing facility rate in order to assist banks to obtain short-term liquid funds. The rate will be reduced to at least 0% and the change will come into effect from July 1. Retail sales in May staged a V-shape recovery coming in at 6.6% y/y vs -18.8% y/y previously. Inflation data continued to plunge into deflationary territory with headline CPI coming at -1.3% y/y while core CPI came in at -0.8% y/y.

This week we will have employment data.

Important news for CHF:

Wednesday:
  • Unemployment Rate
 
Forex Major Currencies Outlook (July 13 – July 17)

ECB, BOJ and BOC meetings combined with consumption data from US and China, as well as Chinese Q2 GDP and EU summit on Friday will highlight this eventful week.

USD

ISM non-manufacturing index in June rebounded to an exquisite 57.1 from 45.4 the previous month. Business activity index came in at 66 which is the highest reading in almost a decade. New orders rose to 61.6 level. High 50s and low 60s indicate a recovery that may be more than just a simple reopening. On the down side, the employment index rose only to 43.1 level from 31.8 the previous month. Weekly jobless claims for the week ending July 3 came in at 1314k vs 1375k as expected. This is the first lower-than-expected reading in several weeks and continuing claims dropped to 18 million. The price of gold has breached the $1800 level for the first time since 2011 reaching a high of $1818.

This week we will have inflation, consumption and housing data.

Important news for USD:

Tuesday:
  • CPI
Thursday:
  • Retail Sales
Friday:
  • Housing Starts
  • Building Permits
EUR

Retail sales in May rebounded 17.8% m/m from -12.1% m/m the previous month. The reading adds more to the view that April was the bottom and that economies are in the process of recovery after reopening. Compared to previous year retail sales are down -5.1% y/y. European Commission forecasts a deeper plunge in GDP than reported in spring. GDP for 2020 is now seen dropping -8.7% from -7.7% previously. Q2 GDP most likely fell by -13.5%.

This week we will have industrial production and final June inflation data. EU’s ‘special summit’ in Brussels will be held on July 17 and member states are set to discuss coronavirus recovery plans. ECB will leave both the interest rate and the PEPP program unchanged.

Important news for EUR:

Tuesday:
  • Industrial Production
  • ZEW Economic Sentiment Index (EU and Germany)
Thursday:
  • ECB Interest Rate Decision
  • ECB Monetary Policy Press Conference
Friday:
  • CPI
  • EU Summit
GBP

Reports are circulating that BOE Governor Andrew Bailey has sent a letter to commercial banks preparing them for negative interest rates. The government has announced a £30bn stimulus package which amounts to almost 1.5% of GDP. Chancellor of Exchequer Rishi Sunak stated that their job is to protect and create jobs. They will pay £1000 bonus per employee that returns from furlough through to January. With almost 9 million people on furlough the program will amount to almost £9bn. The scheme will be designed so it pays firms to hire young people. VAT on hospitality and tourism will be cut from 20% to 5% for the next 6 months and in August there will be discount on for eating out from Monday to Wednesday.

This week we will have May GDP data, as well as inflation and employment data.

Important news for GBP:

Tuesday:
  • GDP
  • Manufacturing Production
  • Industrial Production
Wednesday:
  • CPI
Thursday:
  • Claimant Count Change
  • Unemployment Rate
AUD

RBA has kept the official cash rate at 0.25% as widely expected. Statement showed that they will continue maintaining an accommodative approach for as long as necessary and there will be no increases in the cash rate until progress in employment and inflation is made. Economic conditions have recently stabilized but the economy is still going through a “very difficult period”. The bank is prepared to scale up bond purchases if needed. The meeting was non-eventful with a reiteration of the statement from previous month and no mention of AUD strength as AUDUSD is getting closer to 0.70 level.

CPI from China in June came in at 2.5% y/y on the back of rising food prices. PPI came in at -3% y/y still indicating deflationary pressures producers face which in turn will hurt industrial profits, however at least the reading is moving in the right direction after four months of increasing declines. Previous month’s reading was at -3.7% y/y.

This week we will have employment data from Australia as well as Q2 GDP, trade balance, consumption and industrial production data from China.

Important news for AUD:

Tuesday:
  • Trade Balance (China)
Thursday:
  • Employment Change
  • Unemployment Rate
  • GDP (China)
  • Retail Sales (China)
  • Industrial Production (China)
NZD

GDT price auction came in at huge 8.3% with whole milk powder rising 14%. This is a fourth consecutive auction of rising prices and the high reading pushed kiwi up in the markets which led NZDUSD to test the 0.66 level. Electronic card spending in June, an indicator for retail sales, came in at 16.3% m/m vs 15% m/m as expected.

This week we will have Q2 inflation data.

Important news for NZD:

Wednesday:
  • CPI
CAD

Employment change in June came in at 952.9k vs 700k as expected and up from 289.6k in May. The unemployment rate dropped to 12.3%, although 12.1% was expected while the participation rate jumped to 63.8% from 61.4% the previous month. Participation rate is improving toward pre-pandemic levels, indicating that people are returning to work after the lockdown has been lifted. Full-time employment came in at 488.1k while part-time employment came in at 464.8k. Statistics Canada estimates that 3.1 million workers are now affected by lockdown from the peak of 5.5 million.

This week we will have BOC meeting where no change in the rate is expected.

Important news for CAD:

Wednesday:
  • BOC Interest Rate Decision
  • BOC Rate Statement
JPY

Wage data in May continued to deteriorate showing earnings at -2.1% y/y which in turn lead to household consumption plunging to -16.2% y/y. Household consumption has not risen since the sales tax hike in October of 2019. Declining wages and declining consumption add more downward pressure to Japan’s already deflationary climate. Core machinery orders, seen as a good proxy for capex in the coming months, came in at 1.7% m/m vs -5% m/m as expected and -16.3% y/y vs -16.8% y/y as expected. The rise in new orders was driven by the service sector. The reading is a rather volatile one but with current situation in the economy every positive reading is welcomed.

This week we will have BOJ meeting where no change in the rate is expected.

Important news for JPY:

Wednesday:
  • BOJ Interest Rate Decision
  • BOJ Monetary Policy Statement
CHF

Total sight deposits for the week ending July 3 came in at CHF687bn vs CHF683bn the previous week. SNB deemed that EURCHF is getting to close to the 1.06 level and decided to intervene in order to prevent Swissy’s appreciation. The unemployment rate in June declined to 3.3% after rising every month since February. This may indicate that Switzerland, from the labour market standpoint, is weathering the virus induced crisis quite well.
 
Forex Major Currencies Outlook (July 20 – July 24)

Preliminary July PMI data from Europe, UK and Japan as well as consumption data from UK and Canada will be eyed in an otherwise uneventful week.

USD

June CPI improved to 0.6% y/y as expected from 0.1% y/y in May on the back of rising gasoline and food prices. Energy prices rose 5.1% for the largest single-month increase in more than a decade. Core CPI remained at the 1.2% y/y level. Real average weekly earnings dropped to 4.6% y/y while real average hourly earnings dropped to 4.3% y/y. The numbers are still high due to government support packages that will run out on July 31.

Retail sales came in at 7.5% m/m vs 5% m/m as expected. Core retail sales came in at 5.6% m/m vs 3.6% m/m as expected while ex autos category came in at 7.3% m/m. There were beatings all around sending positive signals but there are still caveats. The structure of yearly changes shows double digit drops for food services and drinking places, clothing stores as well as electronics & appliances stores. Those are traditional brick and mortar businesses that were hit particularly hard by the virus and subsequent lockdown measures. An additional caveat is that weekly employment checks of $600 are still handed giving people more purchasing power. The big question is how consumption will react after the CARES act is terminated on July 31.

This week we will have housing and jobless claims data.

Important news for USD:

Wednesday:
  • Existing Home Sales
Thursday:
  • Initial Jobless Claims
Friday:
  • New Home Sales
EUR

Industrial production in May came in at 12.4% m/m vs 15% m/m as expected while previous month’s reading was revised down to -18.2% m/m. Lower than expected rebound will be predominant in June as well and a potential recovery will be shown only in Q3 numbers. ZEW survey of the current situation in Germany came in at -80.9 an improvement from -83.1 the previous month but far cry from the expected reading of -65. German expectations reading dropped to 59.3 after 3 months of rising. Slower than expected recovery combined with declining expectations, not a good recipe for the economy.

ECB has left rates unchanged as widely expected and reiterated their willingness to adjust all of their instruments. Interest rates will remain at present or lower levels until the inflation outlook robustly converges to a level sufficiently close to below 2%. PEPP program is kept at €1.350bn and will run at least through end of June 2021. ECB president Lagarde stated that incoming data are signalling resumption of economic activity. Signs are pointing of bottoming in April but outlook remains highly uncertain. Inflation is dampened by energy prices and they expect for it to pick up in early 2021. Lagarde added that the ECB “slowed down a little bit” the pace of PEPP purchases due because markets have stabilized. If the tapering continues there will be enough funds to last through the end of June 2021 without the need for increase in the program.

This week we will have preliminary July PMI data.

Important news for EUR:

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

Monthly GDP for May came in at 1.8% m/m vs 5.5% m/m indicating a very slow recovery from the abysmal -20.3% m/m reading in April. GDP has fallen -19.1% in the previous 3-month period. During May there were still lockdown measures in place, so it stifled the rebound. Industrial and construction output came below expectations while manufacturing production showed better than expected improvement. Yields on 2-year UK gilts slipped below Japanese 2-year yields indicating growing pessimism among bond traders with respect to UK growth prospects.

Jobless claims in June rebounded and came in at -28.1k vs upwardly revised 566.4k the previous month. Claimant count rate slipped to 7.3% from downwardly revised 7.4% the previous month. The unemployment rate for May remained at 3.9% with employment change for the same month coming in at -126k, more than double the expected of -275k. Earnings numbers present a problem with average weekly earnings dropping into negative at -0.3% 3m/y. The Overall employment picture is tainted by the government’s furlough program and cannot be easily interpreted. Inflation in June picked up to 0.6% y/y from 0.5% y/y in May while core CPI came in at 1.4% y/y vs 1.2% y/y in May. BOE Governor Bailey informed MPs that interest rates will remain depressed for at least two more years.

This week we will have consumption and preliminary July PMI data.

Important news for GBP:

Friday:
  • Retail Sales
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI
AUD

Employment change in June came in at 210.8k vs 100k as expected, more than doubling expectations for a hefty beat. The unemployment rate rose to 7.4% from 7.1% the previous month on the back of participation rate rising to 64% from 62.9% in May. Full-time employment change came in at -38.1k while part time employment change came in at 249k. The headline number looks impressive but great concern is that all of those jobs and more were part-time.

Trade balance data from China showed a decrease in the surplus to CNY328.94bn due to imports (6.2%) rising faster than the exports (4.3%). In dollar terms trade balance came in at $46.42bn with imports coming in at 2.7% while exports rose by only 0.5%. The rise in imports indicates that Chinese domestic demand is picking up with energy imports rising the most.

Q2 GDP came in at 11.5% q/q vs 9.6% q/q as expected and 3.2% y/y. This is a complete turnaround from -9.8% q/q in virus stricken Q1. Industrial production in June improved to 4.8% y/y as expected while retail sales again missed the expectations coming in at -1.8% y/y. Chinese monetary policy will continue supporting both production and consumption but with consumption still not having a positive month it is very concerning for the goods exporting countries and the world as a whole. On the positive side 10 out of 16 sectors that go into retail sales calculation expanded.

This week we will have minutes from the latest RBA meeting as well as speech by Governor Lowe.

Important news for AUD:

Tuesday:
  • RBA Meeting Minutes
  • RBA Governor Lowe Speech
NZD

Inflation data for Q2 came in at -0.5% q/q vs -0.6% q/q as expected and down from 0.8% q/q in Q1. When calculated y/y it came 1.5% vs 1.3% as expected and down from 2.5% in the previous quarter. Kiwi was not impacted by the data in the market and NZDUSD continued to hover around 0.66 level on positive risk sentiment.

CAD

BOC has left the rate unchanged at 0.25% with a commitment to keep rates at that level until inflation target is hit. BOC will continue CAD5bn per week in QE “until the recovery is well underway”. Economic decline has been characterised as "considerably less severe than the worst scenarios presented in the April MPR". Governor Macklem stated that rates will be on hold for at least 2 years.

This week we will have consumption and inflation data.

Important news for CAD:

Tuesday:
  • Retail Sales
Wednesday:
  • CPI
JPY

BOJ refrained from changing their monetary policy at their July meeting. Interest rate was kept at -0.10%. Board members reiterated their willingness to take additional easing measures, with eye on impact of pandemic on economy. They expect the economy to improve gradually in H2 but the pace of recovery will be moderate. Governor Kuroda stated at the press conference that economic activity has gradually resumed but that economy remains in an extremely severe situation.

This week we will have trade balance, inflation and preliminary July PMI data.

Important news for JPY:

Monday:
  • Trade Balance
Tuesday:
  • CPI
Wednesday:
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI
CHF

Total sight deposits for the week ending July 10 came in at CHF688.6bn vs CHF687bn the previous week. There was a slight increase in the deposits just enough for SNB to nudge Swissy in desired direction, away from the 1.05 level on EURCHF.
 
Forex Major Currencies Outlook (July 27 – July 31)

FOMC meeting followed by preliminary Q2 GDP readings, historic lows expected, from US and EU as well as official China PMI data will be highlights of the week.

USD

Existing home sales came in at 4.72m in June for a record breaking 20.7% m/m rise from 3.91m in May. Record-low mortgage rates led to return of buyers into the market. Single-family sales rose by 20% while condominium sales surged by 29%. Prices were little affected by the pandemic. Initial jobless claims for the week ending July 18 came in at 1416k vs 1300k as expected. Previous week showed claims of 1307k so this is the first rise after 15 consecutive weeks of falling claims. The reading brings total amount of reported claims since late March to 52.7 million. Continuing claims have continued their decline to 16197k. The $600 a week help for the unemployed will expire on July 31. Gold went over $1890 level, the highest it got since September of 2011 and is getting closer to the all-time high level of $1920.

This week we will have preliminary Q2 GDP reading as well as PCE inflation and personal spending data. FOMC meeting is not expected to produce rate changes or changes in their QE program, but as always, the tone will be heavily scrutinized.

Important news for USD:

Wednesday:
  • Fed Interest Rate Decision
  • FOMC Press Conference
Thursday:
  • GDP
Friday:
  • PCE
  • Personal Spending
EUR

After four long days of talks European leaders agreed to a package of €750 billion in grants and loans. Agreed division of funds shows €390bn in grants and €360bn in loans. With this move, the debt burden is shared among the members which could strengthen to Union and propel EUR higher. Additionally, the European leaders agreed upon the seven-year budget spanning from 2021 to 2027.

Preliminary PMI data for July showed improvements across all readings putting them back into expansion territory. Manufacturing PMI came in at 51.1 on the back of strong German reading that returned to 50 level. Services PMI came in at 55.1 with German coming in at 56.7 and French at 57.8 indicating reactivation of services industry after the lockdown. Composite PMI came in at 54.8 with German at 55.5 and French at 57.6. Markit noted that the output grew at the fastest rate in more than over two years in July. However, the concern is that the recovery could falter after this initial revival.

This week we will have sentiment data as well as preliminary Q2 GDP reading and preliminary July inflation data.

Important news for EUR:

Thursday:
  • Economic Sentiment Indicator
  • Services Sentiment Indicator
Friday:
  • GDP
  • CPI
GBP

Retail sales in June rebounded 13.9% m/m vs 8.3% m/m as expected. Much better than expected and a positive reading given that consumption almost returned to the levels from previous year with yearly retail sales coming in at -1.6% y/y. Ex autos, fuel category shoot almost double over expectations coming in at 13.5% m/m vs 7.9% m/m as expected. Preliminary July PMI numbers smashed expectations with manufacturing coming in at 53.6 vs 52 as expected, services at 56.6 vs 51.5 as expected and composite at 57.1 vs 51.7 as expected. Markit noted that numbers present step in the right direction, but there is still a lot of work to be done before the sustainable recovery is in sight.

Relationship with China has deteriorated after the UK cancelled its extradition treaty with Hong Kong. China vowed to retaliate on this topic and also in response to Britain's decision to phase out Hauwei technology. One of the moves China took was to block broadcast of Premier League matches on its territory. EU chief negotiator Barnier stated that EU and UK are still far away in the negotiations regard post-Brexit trade relationship adding that there is an objective risk of no deal.

AUD

RBA minutes from July meeting showed resolution from board members to keep easy monetary policy for as long as needed. They also agreed that there is no need to adjust the package of already implemented measures. Board members stated that there is no case for intervention in the foreign exchange market, given its limited effectiveness when the exchange rate is broadly aligned with its fundamental determinants. This means that they are satisfied with current AUD level and will not fight to keep it from strengthening further. Governor Lowe stated that he would like to see lower AUD but will not going to intervene to lower it. He also stated that the board has reviewed alternative monetary policy options but ultimately decided on no change, however they are not ruled out in the future.

This week we will have Q2 inflation data from Australia as well as official July PMI data from China.

Important news for AUD:

Wednesday:
  • CPI
Friday:
  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)
NZD

RBNZ stated that domestic financial markets have stabilized, therefore they have reduced liquidity interventions from daily to weekly. GDT price auction came in at -0.7%. The fall in prices is the first after four-consecutive positive auctions. NZDUSD has been shooting higher all week on the back of positive risk sentiment in the markets, reaching the 0.67 level. Trade balance showed a decline in surplus to NZD426m from NZD1286m previous month on the back of falling exports and rising imports. The data will give a small blow to Q2 GDP reading.

This week we will have ANZ business confidence, a closely followed metric by RBNZ.

Important news for NZD:

Thursday:
  • ANZ Business Confidence
CAD

Retail sales for May rebounded 18.7% m/m from -25% m/m in April, however expectations were for a rebound of 20% m/m. Ex autos category came in at 10.6% m/m vs 11.9% m/m as expected. Sales were up in 10 out of 11 sub sectors. Motor vehicle and parts dealers, general merchandise stores, as well as clothing and clothing accessories stores were the main contributors with food and beverage stores being the only negative sub sector.

Headline inflation for June came in at 0.7% y/y up from -0.4% y/y in May. Prices rose in 5 of the 8 major components with food and shelter prices contributing the most to the increase in the CPI. Prices for goods declined by less than the previous month. Common and trimmed core measures of CPI improved to 1.5% y/y and 1.8% y/y respectively while median CPI stayed the same at 1.9% y/y.

This week we will have May GDP data.

Important news for CAD:

Friday:
  • GDP
JPY

Trade balance in June came in at -JPY268.8bn vs -JPY11.9bn as expected. Exports have missed expectations and came in at -26.2% y/y, a 19th straight monthly drop, indicating a prolonged slowdown in global demand while imports came in at -14.4% y/y. Japanese exports account for around 15-18% of GDP. Exports to China, Japan’s biggest trading partner, came in at -0.2% y/y while exports of cars to China rose 18.8% y/y. Exports to the US came in at -46.6% y/y, an 11th straight monthly drop.

National inflation data for the month of June continued to show the same decade-long absence with the headline number coming in at 0.1% y/y. Excluding fresh food category came in flat, at least coming back from -0.2% y/y the previous month, while excluding fresh food, energy category came in at 0.4% y/y. Preliminary PMI data in July improved a bit compared to the previous month but still in the contraction territory. Manufacturing came in at 42.6, services at 45.2 while composite rose to 43.9 from 40.8 the previous month. Q3 data begins with a sluggish improvement.

This week we will have consumption, employment and preliminary June industrial production data.

Important news for JPY:

Thursday:
  • Retail Sales
Friday:
  • Unemployment Rate
  • Industrial Production
CHF

Total sight deposits for the week ending July 17 came in at CHF691.5bn vs CHF688.6bn the previous week indicating SNB activity in the forex market to fight off Swissy’s strength.

This week we will have consumption data.

Important news for CHF:

Friday:
  • Retail Sales
 
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