The first week of Q3 opened with a resumption of the US Dollar’s strength, but it found itself retreating later on. US inflation and consumer confidence stand out in the upcoming week. Here are the highlights for the upcoming week.
US data remained upbeat, supporting the US Dollar. More importantly, the greenback enjoyed safe-haven flows related to the growing concerns about trade wars. The political crisis in Germany dominated the headlines early in the week but was quickly resolved, allowing some relief for the euro. In the UK, the government continued struggling to decide on its approach while negotiations with the EU remained stuck. The market mood improved later on as the US tariffs on China came into effect without any fanfare. In addition, German Chancellor Merkel opened the door to reducing EU tariffs on cars as a move meant to ease tensions with the US. The euro liked it and it had a positive effect beyond the common currency. The FOMC Meeting Minutes showed optimism about the US economy but also warned on trade, in an overall dovish document. The US Non-Farm Payrolls came out better than expected on the headline with 213K but missed on wages that remained stagnant at 2.7% YoY. Will markets continue ignoring trade tariffs and tensions?
Update: The drama in UK politics took over the headlines. The UK government’s soft Brexit stance initially supported the pound but after the resignations of Davis and Johnson, it tumbled down. ECB President Draghi did not say anything new. US PPI came out above expectations, helping the US dollar. A bigger help for the greenback came from the news that the US is seriously moving to impose tariffs on $200 billion of Chinese goods. The risk-off atmopsphere was not immense, but did move markets.Updates:
- UK monthly GDP (first of its kind): Tuesday, 8:30. This is the first release of UK GDP on a monthly basis. This publication is for the month of May and we will also get data for previous months. As it is the first of its kind, the attention and the reaction may be relatively strong, even though this is not a quarterly figure but only a quarterly one.
- US PPI: Wednesday, 12:30. Producer, or factory gate prices, are eyed for inflation in the pipeline, and it has been looking upbeat lately. The report also serves as a warm-up ahead of the CPI data. HEadline PPI increased by a robust 0.5% in May while core PPI advanced at a more modest 0.3%.
- Canadian rate decision: Wednesday, 14:00, press conference at 15:15. The Bank of Canada laid down heavy hints that it is about to raise rates in this all-important July meeting, which also consists of new forecasts and a press conference by Governor Stephen Poloz and Deputy Carolyn Wilkins. The economy has shown signs of picking up in the second quarter and the most encouraging data point is the increase in wages. However, trade relations with the US have deteriorated since their last meeting. The US imposed tariffs on steel and aluminum and Canada retaliated. Nevertheless, it seems that the BOC will dismiss this source of uncertainty at the moment and hike from 1.25% to 1.50%. A lot depends on the post-decision press conference. A hint that the tightening cycle is over, for now, could send the C$ down despite the rate increase. Optimism about the economy could send the loonie higher.
- ECB Meeting Minutes: Thursday, 11:30. The European Central Bank made big announcements in its June decision and the policy accounts will reveal more data about the deliberations behind the scenes. The ECB laid out its plan to reduce bond-buying to €15 billion in Q4 2018 and end QE altogether from 2019. However, they also pledged to leave interest rates at current levels through the summer of 2019 and President Mario Draghi stressed the conditionality attached to any changes in the policy. It will be interesting to see how wide was Draghi’s backing and the strength of the hawkish camp led by Bundesbank President Jens Weidmann. The document may also contain hints about further action. Trade concerns may also be of interest after reports stating that the ECB is worried about the implications of trade disputes on the economy.
- US CPI: Thursday, 12:30. Consumer prices are gradually accelerating, with Core CPI reaching 2.2% y/y in May. Both headline and core CPI figures increased by 0.2% back then. The data for June will show if core prices continue picking up or if we see a setback after the acceleration. Both headline and core CPI are expected to rise by 0.2% m/m.
- US UoM Consumer Sentiment: Friday, 14:00. The last word of the week belongs to this highly regarded survey by the University of Michigan and Reuters. The final version for June’s survey showed a score of 98.2 points, within the range seen in recent months. Any change will also serve as a hint for the retail sales report in the following week. A small rise to 98.3 is on the cards.
*All times are GMT
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