Currency markets had a mixed ending to the second quarter that saw US Dollar strength. What’s next? The first week of Q3, which sees the US Independence Day holiday, is jam-packed with the Non-Farm Payrolls, the FOMC Minutes, and more. Here are the highlights for the upcoming week.
Concerns about trade relations between the US and China dominated the headlines. For a change, there was some relief as Trump preferred to use an institution, CIFUS, to tackle Chinese investment rather than using an emergency law. This allowed markets to stabilize and a “risk on” atmosphere to take place. US data was mixed, with a beat on the Fed’s favorite inflation figure, the Core PCE, and a miss on the final version of Q1 GDP, 2%. Durable goods orders also had a mixed outcome with a miss on the core but with upwards revisions. The EU Summit resulted in an accord on migration and this gave a boost to the Euro as it defused the political crisis Merkel was facing in Germany. The pound was supported by an upgrade of Q1 GDP to 0.2% but Brexit clouds remain after the EU Summit. The Canadian Dollar managed to recover amid rising oil prices (mostly inventory related this week) and also a beat on GDP.
Update: the market mood has improved and allowed the greenback to recover. Things quieted down on Independence Day, but not only due to the holiday. It seems that the trade battles between the US and China have moved to a lower level, at least for now. Things may heat up on Friday though. As markets were waiting for the US to impose tariffs on China, German Chancellor Angela Merkel showed openness to cutting EU tariffs on cars, a move that may sooth relations with the US. The US ADP NFP missed expectations with only 177K, but enjoyed an upwards revision. This is not a huge miss.
Markets reacted with a shrug to the US tariffs on China and the counter-duties by the world’s second-largest economy.
- ISM Manufacturing PMI: Monday, 14:00. The first hint towards the NFP is expected to tick down from 58.7 to 58.2 points, still reflecting robust growth in the sector. The Prices component, which is another gauge of inflation and is watched by markets, is predicted to slide from the sky-high levels of 79.5 points to 74.3, which still represents price pressures. Actual: 60.2 points.
- Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia has not changed its interest rate in nearly two years. This time is unlikely to be different. Phillip Lowe and his colleagues are expected to leave the Cash Rate at 1.50%. The statement has hardly changed either in recent months. Any warning about trade relations may weigh on the Australian Dollar. The Reserve Bank of New Zealand came out with a slightly dovish statement and the RBA could follow. Actual: no change, but it stood out against the RBNZ’s dovishness.
- UK Services PMI: Wednesday, 8:30. The third and last of the purchasing managers’ indices in the US is for the services sector, the largest and most important one. The forward-looking survey stood at 54 points in May and is expected to tick down to 53.9 points in the read for June. A pick up in growth during the spring could boost the indicator and the pound, while concerns about Brexit could push it down.
- ADP Non-Farm Payrolls: Thursday, 12:15. This jobs report for the private sector has been postponed to Thursday due to the 4th of July holiday on Wednesday. ADP reported a relatively low level of job gains in May: 178K, yet within the normal ranges for the past few years. A slightly stronger growth is on the cards now: 190K. Any significant deviation will not only move the dollar but will also shape expectations for Friday’s Non-Farm Payrolls report.
- ISM Non-Manufacturing PMI: Thursday, 14:00. Similar to the services sector report, the publication for the services sector showed a similar level of growth in May: 58.6 points. And also here, a small slide to 58.3 is on the cards. The headline and the employment component are the last hints before the all-important Non-Farm Payrolls.
- FOMC Meeting Minutes: Thursday, 18:00. The Fed releases the minutes from the June decision which delivered a hawkish hike. In addition to raising interest rates, the Fed was bullish on the economy and signaled two additional interest rate raises this year. It will be interesting to see how optimistic the Fed is and how concerned they are about trade. Fed Chair Jerome Powell briefly commented on trade in the press conference, saying that business contacts are worried. The minutes may reveal more on that. Another topic is wages, that are “puzzling” according to the Fed Chair.
- US tariffs on China come into effect: Friday. The US announced tariffs on Chinese goods worth $50 billion a few weeks ago, but they will come into effect on July 6th. China announced it would retaliate. The time between the announcement and the actual imposition was seen as allowing for negotiations to proceed. However, there have been no meaningful movements in defusing the situation. If a last-minute deal is struck, a risk-on atmosphere could sink the yen and also weigh on the US Dollar, especially against commodity currencies. If mutual tariffs are imposed and the US announces a counter-retaliation to Chinese tariffs, the greenback could suffer.
- US Non-Farm Payrolls: Friday, 12:30. The first Friday of the month features the king of economic indicators. The jobs report for May was upbeat with a gain of 223K, better than expected, and a monthly rise of 0.3% in wages, which are no less important. Year over year, salaries were up by 2.7% in May. Similar figures are on the cards for June: an increase of 200K jobs and another pay rise of 0.3% m/m. Any movement towards 3% y/y wage growth would be cheered by the US Dollar, while a deceleration towards 2.5% would hurt it. Job gains would need to fall below 150K to hurt, or climb above 250K to have a meaningful impact.
- Canadian jobs report Friday, 12:30. Canada suffered two consecutive months of falls in jobs, with a loss of 7.5K positions in May. A rebound is likely now. The unemployment is projected to remain at 5.8%. It is important to note that wage growth is becoming more important in Canada. The 3.9% y/y rise in May supported the loonie despite the disappointing drop in jobs.
*All times are GMT
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