The busy upcoming week for financial markets has started off quietly, with traders and investors keeping asset classes within tight ranges overnight as they look ahead to an economic calendar later in the week that is chalked full of event risk. Most of the focus for market participants will be on the United States this week, as there will be an FOMC meeting, July’s employment report, and the first look at second quarter GDP all hitting the wires over the span of the next five trading sessions. Of the three important announcements, the one most likely to have an impact on markets will be the first estimate of Q2 GDP. After the drastically disappointing contraction in GDP growth over the course of the first quarter, the consensus is for activity to rebound and erase the losses experienced at the start of the year; however, the dip in momentum at the end of the second quarter has thrown into question whether this is a sure thing, and if the slide in GDP for Q1 can solely be attributable to weather issues. The relatively weak performance in retail sales over the course of the most recent quarter is something market participants should be mindful of, as it could act as a major headwind for Q2 GDP coming in around the 3% handle. That being said, there were a number of revisions to healthcare spending in the previous quarter, so depending on how they are accounted for in the subsequent quarters to come, consumer spending (which accounts for right around 70% of American GDP) might not be affected as much as one would expect from looking only at the retail spending figures. Heading into the slew of American economic releases, Treasury yields have firmed overnight with the 10-year climbing to 2.48%, while the DXY has received a slight offer tone but pivots around the 81 handle.
Looking at overnight action around the globe, the Asian session saw risk-correlated assets well bid as talk of stimulus and cash support for local banks in China, which helped the Shanghai Comp rally by 2.41%. The optimism experienced in Asia failed to filter through to the European session, where a lack of economic releases has resulted in cautious equity performance mid-way through their session, with the FTSE, Dax, and Stoxx all lower ahead of the North American cross. The Euro is trying to push back from the battering it received last week, but the bid tone at the moment lacks panache, with the technical positioning for EURUSD warning a continuation of the sell-off witnessed last week may continue. Thursday will see the flash CPI release for the overall zone hit the wires and may give the common-currency a boost if sliding consumer prices can find a bottom; otherwise, a y/o/y reading that comes in sub 0.5% would prompt an acceleration of Euro weakness.
Heading into the North American open, equity futures are flat before the opening bell, with a lack of new geopolitical developments and economic releases to really swing price action in a decisive fashion. The Loonie is little changed from Friday’s close after the pummeling it received at the end of last week, and while there is a dearth of American economic data this week, domestically there is little on the docket until Thursday when May’s GDP figures are announced. Pending Home Sales for the American economy in the month of June are set to be released at 10:00EST and expected to moderate their pace of growth with only a 0.5% gain after the 6.1% experienced in May. With the Existing Home Sales coming out better than expected last week, only to see housing market optimism fade with a smaller anticipated number of New Homes sell, Pending Home Sales today is essentially the tie breaker for tier-1 housing data, and although won’t necessarily be a catalyst for direction over the course of the week, will most likely dictate price action for a day with little other economic releases.
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