The US Dollar was mixed amid an influx of trade headlines, a strong US GDP and more. What’s next? The turn of the month features the Fed decision, the Non-Farm Payrolls, and the BOE decision. And as always, US President Trump has its influence on markets. Here are the highlights for the next week.
Developments on trade were interesting with an advance on NAFTA but a retreat on trade relations between the US and the EU. US GDP came out at 4.1% annualized, the best in four years but below the high expectations. The release led to small sell-off of the greenback. The ECB left its policy unchanged and President Draghi clarified that they will not raise rates until September 2019. The news weighed on the euro. The EU rejected a key part of the UK’s Brexit plan, and this sent the pound lower.Updates:
- Japan rate decision: Tuesday morning. The Bank of Japan is far from reaching its core inflation goal of 2%. Nevertheless, they have recently gradually limited their bond buying, triggering speculation of a quiet exit from the stimulus program. The upcoming decision will serve as an opportunity to clarify their policy and analyze the situation. No change in policy is projected.
- Euro-zone inflation: Tuesday, 9:00. The recent figures for June have shown a divergence between headline inflation and core inflation. Headline CPI advanced to 2% y/y, buoyed by rising oil prices. On the other hand, core inflation slipped to 0.9%, showing that the underlying situation has not changed. We will now receive the preliminary data for July which is projected to show 2% on the headline once again and a tick up in core CPI to 0.9%.
- Euro-zone GDP: Tuesday, 9:00. The euro-zone slowed down in the first quarter of 2018 after an excellent 2017. This was attributed to temporary factors. A repeat of the same number is on the cards for Q2.
- Canadian GDP: Tuesday, 12:30. Canada reported an increase of 0.1% in its overall economic output in April, the first month of 2018. A slightly stronger growth rate is likely for May, which probably saw increased activity in the spring. A growth rate of 0.3% is forecast.
- US Core PCE Price Index: Tuesday, 12:30. This is the Fed’s favorite inflation measure. It finally reached the 2% target back in May. We already know that the parallel Core CPI continued advancing in June, accelerating from 2.2% to 2.3%. However, due to a different methodology, the Core PCE is expected to rise by only 0.1% and may even drop from 2% y/y in the read for June.
- CB Consumer Confidence: Tuesday, 14:00. The Conference Board’s Consumer Confidence gauge remained at a high level of 126.4 points in June. An almost identical figure is projected for July: 126.5. The University of Michigan’s number did not move too much.
- New Zealand jobs report: Tuesday, 22:45. The small nation publishes employment data only once per quarter, giving the release an extra oomph. Back in Q1, employment increased by 0.6%, slightly better than expected. The unemployment rate stood at 4.4%, a low level reflecting a solid economy. Employment change is projected to rise by 0.4% while the unemployment rate is expected to remain unchanged at 4.4%.
- US ADP Non-Farm Payrolls: Wednesday, 12:15. Automated Data Processing is the biggest provider of payrolls in the US. Its jobs report for the private sector precedes the official one and provides some guidance. Back in June, the ADP NFP came out slightly below expectations at 177K, but still in line with the broader trend. A slightly faster pace of gains is on the cards for July: 186K.
- US ISM Manufacturing PMI: Wednesday, 14:00. The forward-looking gauge for the manufacturing sector topped the 60 level in June, reaching 60.2 points, a superb level indicating robust growth. The Prices component also remained high at 76.8 points, albeit below the peak. A small drop to 59.4 is predicted.
- US Fed decision: Wednesday, 18:00. The Federal Reserve raises rates in June and also took the hawkish path, indicating two additional raises in 2018. Since then, Fed Chair Jerome Powell has been very upbeat on the economy while also warning that trade tariffs are not good. President Donald Trump lashed out at the Fed for raising rates while he was stimulating the economy. At this meeting, no change is projected. Nevertheless, any change in wording about inflation, employment, or any comments about trade in the statement, can make a difference. Powell and his colleagues will likely leave the door wide open for a rate hike in September when he will also hold a press conference.
- UK rate decision: Thursday, 11:00, press conference at 11:30. The Bank of England hinted it would raise rates in its August meeting. A hike to 0.75% would send the interest rate to the highest level since the financial crisis. However, as inflation remained stuck at 2.4%, retail sales disappointed in June, and with Brexit uncertainty, the BOE may yet surprise by not moving. Apart from the interest rate, the BOE will also publish the meeting minutes of the event, which will show how many members supported the decision. No less important is the Quarterly Inflation Report released on this occasion, making it “Super Thursday”. Updated forecasts for inflation and growth will be eyed. BOE Governor Mark Carney will present the report and will certainly be asked about Brexit uncertainty.
- UK Services PMI: Friday, 8:30. The third and last of Markit’s purchasing managers’ indices for the UK is the most important one. The services sector had an OK PMI score of 55.1 in June, above the 50-point threshold that separates expansion from contraction. A drop to 54.7 is on the cards.
- US Non-Farm Payrolls: Friday, 12:30. The all-important US jobs report beat expectations in June with a gain of 213K. However, wages fell short of expectations and climbed by only 0.2% month over month. The unemployment rate rose to 4%, but that was due to a welcome increase in the participation rate. Expectations stand at a gain of 193K positions, a drop in the unemployment rate to 3.9% and most importantly, wages are projected to rise by 0.3% m/m this time.
- ISM Non-Manufacturing PMI: Friday, 14:00. The services sector report is released after the NFP, but may still have an impact. The indicator stood at a strong 59.1 points back in June, reflecting upbeat growth. A similar figure is likely also for July. A slide to 58.7 is on the cards.
*All times are GMT
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