The trade war between the US and China worsened after China retaliated and markets rattled. What’s next? Apart from trade and Brexit, the FOMC minutes, US durable goods orders, and other events will rock markets Here the highlights for the next week.
China struck back with counter-tariffs and hints it goes further. Stock markets fell and the safe-haven yen was the big winner. The pound suffered from the impasse in cross-party Brexit talks while commodity currencies were also on the back foot despite rising tensions in the Persian Gulf.
- Australian elections: Saturday, results due well before markets open. Australians are set to oust the center-right Liberal-National government led by a succession of leaders with Scott Morrison being the latest PM. They are projected to vote in the center-left led Labor led by Bill Shorten. Markets usually prefer a center-right pro-business government, but if the centrist Shorten wins a solid majority that will allow him to govern without interruptions, political stability and certainty will probably be better than a hung parliament.
- UK inflation: Wednesday, 8:30. Consumer price action has moderated in recent months, with headline inflation dropping to 1.9% year over year. Core CPI stood at similar levels in March, at 1.8%. Any rise in inflation will increase the chances of a rate hike by the BOE, assuming Brexit is resolved, which is a big if.
- FOMC meeting minutes: Wednesday, 18:00. The Federal Reserve left its interest rates unchanged in May and did not hint it is set to cut interest rates, contrary to investors’ expectations. Fed Chair Jerome Powell insisted that the factors behind low inflation are temporary and highlighted the upbeat economic indicators. Since then, both the jobs report and the inflation report were more than OK. While the minutes document a meeting that was held before the trade war flared up, it is important to note that it is redacted until the very last moment and is designed for markets’ consumption. The minutes may be somewhat more dovish than Powell’s comments, providing some solace to markets. We may see that some members of the all-powerful central bank wanted to cut interest rates this year.
- Euro-zone PMIs: Thursday morning: France at 7:15, Germany at 7:30, and the euro-zone at 8:00. Markit’s forward-looking surveys are well-correlated with actual growth figures and are closely watched by markets. The most significant indicator is Germany’s manufacturing purchasing managers’ index. The score stood at 44.4 points in May, showing that the locomotive of the euro-zone is contracting quite substantially. Any score below 50 represents contraction. The services sector is doing better, and not only in the continent’s largest economy but at 52.8 points, the currency bloc is only experiencing meager growth. Markets will want to see improvements now.
- ECB meeting minutes: Thursday, 11:30. The European Central Bank left its policy unchanged but reiterated that risks are moving to the downside. While some economic indicators have been improving, uncertainty remains high in light of the US-Chinese trade war, Brexit, and other factors. The document will likely repeat a cautious outlook.
- European elections: Thursday-Sunday. Citizens of the 28 member states, including the UK, will vote in a new European parliament. The body, based in Brussels and in Strasbourg, has limited clout over European matters, but its voice and its composition are important. Anti-immigration, euroskeptic parties are expected to make considerable gains after five turbulent years that saw an immigration crisis, Brexit, the rise of Donald Trump, rising employment, but high uncertainty about the future. A substantial gain for radical parties may weigh on the euro. A special focus will be given to the vote in the UK. If the ruling Conservative Party comes out with a poor outcome, the pressure on PM Theresa May to resign will likely mount. An unimpressive result for the opposition Labour will also increase the internal divide. The vote may prove a turning point in the never-ending Brexit process.
- UK retail sales: Friday, 8:30. UK shoppers were out and about in March and the volume of sales increased by a whopping 1.1%. The data for April may be different, as Easter came later. We may see another volatile outcome. In any case, the focus will soon turn back to Brexit.
- US durable goods orders: Friday, 12:30. Investment has been lagging in comparison to other parts of the US economy. The data for April, released now, will provide a better insight into GDP growth in the second quarter of the year. Headline orders rose by 2.7% in March but core ones advanced by only 0.4%. The focus remains on core figures due to the high volatility of the headline data, heavily influenced by aircraft sales.
*All times are GMT
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