After a wild ride the previous week put through, we continue in a similar fashion with Q2 GDP data from UK and Japan, RBA and RBNZ rate decisions and Canadian employment report.
USD
PCE deflator, FED’s preferred inflation measure, came in at 1.4% y/y vs 1.5% y/y as expected in the month of June. Core PCE came in at 1.6% y/y same as the previous month vs 1.7% y/y as expected. Personal income came in at 0.4% as expected and as previous month while personal spending came in at 0.3% as expected but down from 0.5% the previous month. Consumer confidence for the month of July smashed expectations coming in at 135.7 vs 125.0 as expected with prior reading showing 124.3. US consumers post a lot of faith in US economy at the start of Q3. ISM manufacturing PMI came in at 51.2 vs 51.7 the previous month. The biggest drag was employment which came in at 51.7 vs 54.7 the previous month. A nice positive in the reading is that new orders rose to 50.8 from 50 the previous month.
FED has cut interest rate by 25bps to 2-2.25% range at their July meeting as widely expected. This was the first rate cut in a decade. George and Rosengren dissented from a rate cut. Labour market remains strong and balance sheet runoff will end on August 1. Chairman Powell stressed the rate cut was not necessarily the start of an easing cycle but was rather a stimulative measure aimed at insuring against downside risks coming from global developments. He also highlighted trade uncertainty as being more prominent than expected and that it is a risk that has to be assessed in a new way. Chairman’s reference to the rate move as a “mid-cycle adjustment to policy” with an “insurance aspect” drove equities to their lows of the day. He later modified his statements saying that rate cuts are still possible indicating that this move is not “one-and-done”. Data dependence was stressed again as main factor when deciding about future rate moves.
In an unexpected move president Trump announced additional 10% tariffs on the remaining $300 billion of Chinese imports to the US. These goods have not been hit by tariffs before and these additional tariffs will be applied from September 1. The surprise move brought risk aversion to the markets making USDJPY fall over 200 pips. WTICrude was already down on the day but the news on tariffs sent it tumbling down for more than 7% on a day. China stated that if tariffs are applied it will retaliate. Speculations are rising that this move by president Trump was motivated by his desire to push FED toward future rate cuts.
Nonfarm payrolls came in at 164k as expected. This is a rare case that number comes in as expected. The unemployment rate has stayed at 3.7% vs 3.6% as expected due to the rise in participation rate that ticked up to 63%. Average hourly earnings beat expectations and came in at 0.3% m/m vs 0.2% as expected and 3.2% y/y vs 3.1% y/y as expected. The thing that takes away the shine from the report is downward revision of 41k to the headline number for previous two months.
This week we will have non-manufacturing PMI data.
Important news for USD:
Monday:
ISM Non-Manufacturing PMI
EUR
Consumer confidence in July, first month of Q3, came in at -6.6 as expected. Economic confidence dropped to 102.7 from 103.3 the previous month and in combination with falling industrial and service confidence readings it shows a sluggish start to Q3 for Euro area. Preliminary CPI for the month of July came in at 1.1% y/y as expected but core CPI slipped down to 0.9% y/y from 1.1% the previous month. Another blow to the EU economy at the start of Q3.
Preliminary Q2 GDP came in line with expectations at 0.2% q/q and the unemployment rate in June ticked down to 7.5%, to lowest levels since July of 2008. Final manufacturing PMI came in at 46.5 vs 47.6 the previous month indicating recession-like symptoms in manufacturing sector with all of the major countries showing readings below 50. Retail sales in June came in at 1.1% m/m vs 0.3% m/m as expected. Very nice beat but dent to the reading is placed by downward revision of previous month to -0.6% m/m.
This week we will have final PMI data for the month of July.
Important news for EUR:
Monday:
Markit Services PMI (EU, Germany, France)
Markit Composite PMI (EU, Germany, France)
GBP
Boris Johnson and his ministers took the firm stance over the weekend about Withdrawal Agreement thus increasing the likelihood of No-Deal Brexit and GBP suffered because of it. GBPUSD dropped below 1.22 mark which is a 29-month low. EU officials are said to be ready to hold a no-deal summit on October 17. Chancellor of the Exchequer Sajid Javid has announced an additional budget of GBP2.1bn toward preparations for a hard exit.
BOE left bank rate unchanged at 0.75% with 0-0-9 vote rate. Detailed projections continue to assume smooth Brexit and do not account for no-deal Brexit. According to board members gradual and limited tightening remains appropriate and while labour market is no longer tightening pay growth is stabilising. They have estimated Q2 GDP to be flat while 2019 and 202 GDP forecasts have been slashed down to 1.3% from previous 1.5% and 1.6% respectively. 2021 GDP is seen at 2.3%. Inflation is seen rising to 1.9% in one year’s time and 2.23% in two years’ time. Governor Carney stated that perceived chance of no-deal Brexit has risen and that updated version of worst-case Brexit scenario will be delivered after September. Impact of trade tensions is larger than anticipated. Manufacturing PMI for the month of July came in at unchanged at 48. Markit has reported that some clients are moving their supply chains away from the UK ahead of Brexit. Before the BOE rate decision GBPUSD fell below 1.21 for the first time since January 2017.
This week we will have PMI and trade balance data, preliminary Q2 GDP reading which is expected to come out negative, industrial and manufacturing data as well as data on business investment.
Important news for GBP:
Monday:
Markit Services PMI
Friday:
GDP
Industrial Production
Manufacturing Production
Trade Balance
Business Investment
AUD
Building approvals for the month of June came in at -1.2% m/m vs 0.2 m/m as expected making the drop on year to -25.6% y/y vs -24.3% y/y as expected and -19.6% the previous month. CPI for Q2 came in at 0.6% q/q vs 0.5 q/q as expected and 1.6% y/y vs 1.5% y/y as expected. Inflation is moving back towards the middle of 1-3% target range. Retail sales came in at 0.4% m/m vs 0.3% m/m as expected and 0.1% m/m the previous month. A drop in building approvals was going to raise claims for a rate cut in September or October but inflation and consumption readings have eased them.
Manufacturing PMI from China for the month of July came in at 49.7 vs 49.4 the previous month. Although this is the third month of contraction in a row there is a slight uptick in the right direction. Additionally, sub-indexes show nice improvement in new orders, new export orders and employment while inventories show decrease. Non-manufacturing PMI missed the expectations and came in at 53.7 vs 54.2 the previous month. New orders and new export orders declined but there was a jump in employment index. Composite PMI was a tad stronger at 53.1 vs 53 the previous month. Caixin manufacturing PMI came in at 49.9 vs 49.4 the previous month. It is on the cusp of going back into expansion territory. New orders showed a decent move up but employment is still weak and falling.
This week we will have trade balance data and RBA decision on interest rate. No change is expected at the meeting after last month’s cut and monetary policy statement will be published and scrutinized for more details later during the week. We will also get trade balance and inflation data from China.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
RBA Rate Statement
Trade Balance
Exports
Imports
Thursday:
Trade Balance (China)
Exports (China)
Imports (China)
Friday:
RBA Monetary Policy Statement
CPI (China)
NZD
Building permits for the month of June came in at -3.9% m/m vs 13.2% m/m the previous month. This data has a tendency to be volatile from month to month so it is better to use 3-month average which is at 0.6% and 6 month average which is at 1.5%. ANZ business confidence continued to deteriorate in July down to -44.3 vs -38.1 the previous month. This just adds more to the speculations about rate cut next week.
This week we will have employment data and bi-monthly GDT auction. Highlight of the week will be RBNZ interest rate decision. A cut is expected in order to prop up New Zealand’s economy amidst escalating global tensions.
Important news for NZD:
Tuesday:
Employment Change
Unemployment Rate
GDT Price Index
Wednesday:
RBNZ Interest Rate Decision
RBNZ Monetary Policy Statement
RBNZ Press Conference
CAD
GDP for the month of May came in at 0.2% m/m vs 0.1% m/m as expected which put it at 1.4% y/y vs 1.3% y/y as expected. The report showed that 13 out of 20 industrial sectors expanded and the biggest contributors to GDP were manufacturing and construction while wholesale trade and mining were the biggest drag. Better than expected reading but after previous readings of 0.5% and 0.3% it raises concerns about slowdown of Canadian economy. Trade balance for the month of June came in at $0.14bn vs -$0.30bn as expected. Previous month’s surplus has been revised down to $0.56bn. Second straight month of trade surpluses, however this one was achieved on both falling exports (-5.1% m/m with volume dropping -1.5%) and falling imports (-4.3% m/m with volume dropping -3.6%).
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
Building Permits
JPY
Retail sales for the month of June came in flat vs -0.3% m/m as expected and 0.5% y/y vs 0.2% y/y as expected. Japanese government downgraded its economic growth forecast for current fiscal year to 0.9% from 1.3% previously. Consumer inflation is estimated at 0.7%. Weaker exports caused by global slowdown have been cited as the main reason for the downgrade. Export growth is estimated at 0.5% vs 3% estimation made back in January. The unemployment rate slipped down to 2.3% thus being lowest since 1993. Preliminary industrial production data did not paint such a pretty picture. It came in at -3.6% m/m vs -1.7% m/m as expected and the previous month it was 2% m/m. Shipments fell -4.2% m/m vs -1.8% m/m the previous month while inventories rose 2.9% m/m vs 1.5% m/m the previous month indicating low demand and overall global slowdown. Final manufacturing PMI came in at 49.4 vs 49.3 the previous month for a third month of contraction in a row, same as in China.
BOJ has left short-term interest rates unchanged at -0.1% as widely expected. Guidance on rates has also not been changed, they state that low rates will stay for an extended period of time, at least through the spring of 2020. They have lowered GDP projections for 2019 to 0.7% vs 0.8% previously. Core CPI for 2019 including sales tax coming in October is projected at 1% versus 1.1% previously and for 2020 it is seen at 1.3% vs 1.4% previously. They still see inflation gradually increasing toward 2% target but risks are skewed toward downside for the economy. Governor Kuroda added that economy is expanding moderately and that risks from overseas’ economies are high.
This week we will have final PMI data for the month of July, household spending and wages data as well as preliminary Q2 GDP reading which is expected to come out negative.
Important news for JPY:
Monday:
Markit Services PMI
Tuesday:
Household Spending
Labour Cash Earnings
Friday:
GDP
CHF
CPI for the month of July came in at -0.5% m/m vs -0.4% m/m as expected, down from being flat the previous month. Headline CPI came in at 0.3% y/y vs 0.5% y/y as expected and 0.6% y/y the previous month while core CPI came in at 0.4% y/y vs 0.6% y/y and 0.7% y/y the previous month. CHF has been gaining a lot of strength across the markets due to its safe haven status. Combined with weakening inflation and further expected easing from ECB the SNB could react by introducing additional stimulus or taking action in currency markets to combat CHF strength.
This week we will have data on consumer confidence, consumption and employment.
Important news for CHF:
Monday:
Consumer Confidence
Retail Sales
Friday:
Unemployment Rate
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