RBNZ meeting, inflation data from the UK and Canada, consumption data from the US and China as well as employment data from Australia will be the highlights of the week ahead of us.
USD
Fed Governor Michelle Bowman spoke over the weekend and came out with some hawkish remarks. She clearly stated that additional rate hikes will be needed and acknowledged that although inflation coming down is a positive input, inflation still remains too high. Bowman is a permanent Fed voting member and is considered to be neutral so some extra weight should be attributed to her statements. President of the New York Fed, also a permanent voter, stated in an interview with New York Times that he cannot rule out possibility of a rate cut in 2024. Markets are pricing five rate cuts in 2024. Williams reiterated Fed’s data dependence. He added some hawkish comments as well as he stated that rates will have “to be kept restrictive for some time” and added that he is open to future rate hikes. Philadelphia Fed president stated that if there are no new alarming data by September meeting he can see Fed pausing and hold rates steady at that level.
CPI July number came in at 3.2% y/y vs 3.3% y/y as expected and markets rallied on a smaller than expected increase in inflation (it was 3% y/y in June). This is is the first increase in headline number since June of 2022. Core CPI ticked down to 4.7% y/y from 4.8% y/y in June. Both headline and core rose 0.2% m/m as expected and as previous month. Energy component of inflation fell -12.5% y/y, a smaller than -16.7% y/y drop the previous month. Used car prices dropped 1.3% m/m. Shelter was the biggest contributor to the number as it accounted fore more than 90% of the total reading and increased 0.5% m/m and 7.7% y/y. After the details of the report were out and after San Francisco Fed President Daly reiterated Fed’s commitment to keep tight monetary policy conditions dollar regained its strength.
The yield on a 10y Treasury started the week and year at around 4.04%, fell to to 3.98% post inflation report and finished the week at around the 4.14% level post PPI report. The yield on 2y Treasury reached the high of around 4.9%. Spread between 2y and 10y Treasuries started the week at -73bp then widened to -80bp post CPI only to come back down and finish the week at around -72bp. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of a 25bp hike at September meeting at around 10% while probability of no change is at around 90%.
This week we will get consumption data and July FOMC minutes.
Important news for USD:
Tuesday:
Wednesday:
FOMC Minutes
EUR
German final inflation reading for July was unchanged at 0.3% m/m and 6.2% y/y. Yearly figure has declined from 6.4% y/y in June. France reading was also unchanged at 4.3% y/y, down from 4.5% y/y in June. Italy printed a decline in inflation to 5.9% y/y from 6.4% y/y the previous month. Spain saw an increase in inflation to 2.3% y/y from 1.9% y/y in June. We will get final Eurozone reading next week. The picture is still not clear for the September ECB meeting, but August inflation readings will give us more clarity.
GBP
Preliminary Q2 GDP reading surprised to the upside as it printed an increase of 0.2% q/q while it was expected to come out flat. It was helped by a strong June reading which printed an increase of 0.5% m/m vs 0.2% m/m as expected. Production led the way for quarterly reading with 0.7% increase, with manufacturing surging 1.6%, followed by construction at 0.3% and services at 0.1%. Household consumption rebounded strongly from Q1, where it was flat, and rose 0.7% while business investment rose 3.4%. There was a big surge in government spending of 3.1%. Net exports were a drag on the GDP.
This week we will have employment and inflation data.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
Wednesday:
CPI
AUD
July trade balance from China saw another jump in trade surplus as it printed $80.6bn, up from $70.62bn the previous month. However, as we dig deeper into the details we see that there is no reason for cheering the report. Exports have increased their declines and they fell 14.5% y/y while imports almost doubled their declines from June and fell 12.4% y/y. Weak international demand is responsible for decline in exports, but now that domestic demand is declining at a rapid pace imports are dwindling. Inflation data showed China experiencing deflation for the first time since February of 2021. CPI for July printed -0.3% y/y. PPI has experienced a small rebound by coming at -4.4% y/y vs -5.4% y/y in June, but it is still deep in deflation.
This week we will get employment data from Australia as well as production and consumption data from China.
Important news for AUD:
Tuesday:
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
Electronic retail card sales, comprising about 70% of total retail sales, were flat in July. Inflation expectations were adjusted. Looking 1 year ahead inflation expectation was lowered to 4.17% from 4.28% the previous quarter while 2 year ahead inflation expectation was raised to 2.83% from 2.79% the previous quarter.
This week we will have RBNZ meeting where no change to monetary policy is expected.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
Building permits in June rose 6.1% m/m. It printed a great jump of 12.6% m/m in May. Trade balance for the month of June fell deeper in deficit as exports fell more than imports. Although oil ripped throughout the week CAD has not benefited from it as it was dragged down by the strong risk off sentiment in the market.
This week we will have inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Labor cash data for the month of June saw increase of 2.3% y/y vs 2.9% y/y in May. Household spending saw surprising increase of 0.9% m/m in the month of June but yearly figure continued to deteriorate and fell to -4.2% y/y. The yield on a 10y JGB fluctuated between 0.57% and 0.64% this week and BOJ did not intervene in the markets.
This week we will have preliminary Q2 GDP data.
Important news for JPY:
Tuesday:
GDP
CHF
SNB total sight deposits for the week ending August 4 came in at CHF492.9bn vs CHF490.1bn the previous week. Deposits have been hovering around 490bn for the previous six weeks. This could be the sign of bottoming and no more Swissy buying from SNB. Seasonally adjusted unemployment rate for July ticked up to 2.1% but is still at exceptionally low levels, lower than pre-pandemic.
