Forex Major Currencies Outlook (Aug 26 – Aug 30)
Durable goods, PCE inflation and second reading of Q2 GDP from US along with preliminary August inflation from EU and PMI numbers from China are main events in the week ahead of us.
Existing home sales in July came in at 5.42m vs 5.39m as expected and up from the 5.29m the previous month. Sales were up 2.5% m/m and prices were up 4.3% y/y. Currently lower interest rates seem to assist housing market. New home sales came in at 635k vs 647k as expected with prior reading showing big revision up to 728k from 646k.
FOMC meeting minutes showed that most FED officials viewed rate cut as mid-cycle adjustment. A couple of officials were for 50bp rate cut while several of them were for no change. A few participants expressed the concern that a cut could be misinterpreted as a negative signal about the strength of US economy. Three reasons that FED saw for cutting rates according to minutes are 1) Deceleration in business fixed investment, manufacturing and overseas. 2) Risk management 3) Inflation.
China announced that it will retaliate and levy tariffs on additional $75bn of US goods. New tariffs will range from 5% to 10% and will start on September 1 and December 15. This news has completely dampened the risk mood in the markets. Response by president Trump is expected, he will not let this go by. And as expected Trump announced increase in tariffs on Chinese goods by 5%.
This week we will have data on durable goods, second reading of Q2 GDP, housing data, PCE inflation and data on personal income and spending.
Important news for USD:
- Durable Goods
- Consumer Confidence Index
- Goods Trade Balance
- Pending Home Sales
- Personal Income
- Personal Spending
Final CPI for the month of July came in at 1% y/y vs 1.1% y/y according to the preliminary reading but core CPI came in at 0.9% y/y as preliminary reading showed so there was no reaction in the market. Construction output in June came in unchanged vs -0.3% m/m the previous month which was revised down to -0.5% m/m. One good month to stop the further bleeding but yearly number illustrates the fall coming in at 1% y/y vs 1.7% y/y the previous month revised down from 2% y/y. Although this data was already calculated in Q2 the trend is to the downside so we can expect further declines in Q3.
Preliminary PMI data for the month of August for the EU Area came in at 47 vs 46.2 as expected for manufacturing, 53.4 vs 53 for services and 51.8 vs 51.2 for the composite. The rise was achieved thanks to jump in French manufacturing (51 vs 49.5 as expected) while the German manufacturing also came in better than expected at 43.6 vs 43 and up from 43.2 the previous month. Germany is still in the deep whole as far as manufacturing goes, but markets were very happy to see a rebound in the reading. EURUSD managed to climb over 1.11 on these data. Consumer confidence for the month of August came in at -7.1 vs -6.6 the previous month. It is interesting that according to this reading consumer confidence has not been in the positive territory for at least 30 years. Still it is trending in the wrong direction.
German Finance Minister Scholz stated that Berlin could make available up to 50 billion EUR of extra spending in case of a slowdown thus opening the possibility that German will loosen up their frugal fiscal policy which would have positive impact on EUR. Italian Prime Minister Conte resigned thus preventing early elections. Conte attacked deputy prime minister Salvini in a speech saying that it wasn’t in Italy’s interests to hold elections every year. Talks about forming new government are under way.
This week we will have data on sentiment, final consumer confidence reading, preliminary inflation reading for the month of August and July unemployment rate from EU, while there will be readings on business climate, final Q2 GDP and employment data from Germany.
Important news for EUR:
- Ifo Business Climate
- Ifo Business Expectations
- GDP (Germany)
- Unemployment Change (Germany)
- Unemployment Rate (Germany)
- Consumer Confidence Index
- Economic Sentiment Indicator
- Unemployment Rate
New prime minister Johnson met with chancellor Merkel and president Macron. Merkel said that “Maybe we can find that solution in the next 30 days, why not?” while the French are taking much tougher stance on the Brexit issue with Macron stating that Irish backstop is indispensable and acting as the protector of stability in Ireland. An unnamed French official said that the baseline scenario now seems to be a no-deal Brexit.
RBA meeting minutes stated that board would consider further easing measures if necessary but first they will assess developments in domestic and global economies. They see “extended period” of low interest rates as reasonable. Lower AUD will assist exports and tourism. There is more spare capacity in the labour market than previously thought which will limit wage growth. Risk to the economy are tilted to the downside in near term but are more balanced further out. Escalations in US-China trade are presenting downside risks for the global growth. Positive effects of tax cuts, infrastructure spending and lower AUD have been emphasized putting overall neutral tone.
This week we will have private capex and housing data from Australia as well as official manufacturing and non-manufacturing August data from China.
Important news for AUD:
- Private New Capital Expenditure
- Building Approvals
- Manufacturing PMI (China)
- Non-Manufacturing PMI (China)
NZD was trending down at the beginning of the week due to speculations about introduction of QE programme. GDT price auction saw decline of -0.2%. making it the second consecutive negative auction. Retail sales for Q2 came in at 0.2% q/q vs 0.3% q/q as expected and down from 0.7% q/q for the previous quarter. After soft card reading last week the drop in retail sales was expected. Weaker consumer confidence and higher petrol prices attributed to weaker than expected reading.
Speaking at Jackson Hole meeting governor Orr stated that they will do whatever is necessary to support NZ economy. He added that after 50bp rate cut they can afford to wait, watch and observe the happenings. Inflation expectation have become very important signal to watch and he stated that QE is not bank’s central scenario.
This week we will have trade balance data and data on business confidence.
Important news for NZD:
- Trade Balance
- ANZ Business Confidence
Manufacturing sales came in -1.2% m/m vs -1.8% m/m as expected, down from 1.6% m/m the previous month. The petroleum/coal product industry (-3.8%) and food (-2.5%) attributed most to the decline. On the other hand, primary metals were the biggest positive contributor. Wholesale trade rebounded in June to 0.6% m/m from abysmal reading of -1.8% m/m in May. Sales have risen 1.3% in Q2 for a thirteenth consecutive quarter of rising sales with 4 out of 7 subsectors showing increase in sales. Inventories came in at 1.5% m/m for a tenth consecutive month of rising inventories which puts a worrying sign.
CPI for the month of July came in at 2% y/y vs 1.7% y/y as expected and 0.5% m/m vs 0.2% m/m as expected. Core measures came in at: median 2.1% y/y as expected, common 1.9% y/y vs 1.8% y/y as expected and trim 2.1% y/y vs 2% y/y as expected. Better than expected readings across all the measures remove expectations of possible near term rate cut by BOC. Retail sales for the month of June came in unchanged vs -0.3% m/m as expected and up from -0.1% m/m the previous month. Ex-autos category heavily beat the expectations coming in at 0.9% m/m vs 0% m/m as expected.
This week we will have data on Q2 GDP.
Important news for CAD:
Trade balance for the month of July came in at -JPY249.6 bn vs -JPY194.5 bn as expected. Both exports and imports came in negative but not as bad as expected and better than the previous month. Exports came in at -1.6% m/m vs -2.3% m/m as expected for the eighth consecutive month of falling exports while imports came in at -1.2% m/m vs -2.3% m/m as expected. Exports to China fell by 9.3% y/y thus increasing the concerns about the magnitude of global slowdown. CPI came in at 0.5% y/y down from 0.7% y/y the previous month. CPI ex fresh food and energy came in at 0.6% y/y vs 0.5% y/y as expected and previous month. Drop in headline number but rise in core number. Still far away from targeted 2%.
Preliminary PMI data for August showed that manufacturing PMI ticked up to 49.5 from 49.4 the previous month and services came in at 53.4 vs 51.2 the previous month. Although manufacturing ticked up it is still below 50 level, for the fourth consecutive month. The data is trending in the right direction but it will need to speed up in order to get back to expansion territory.
This week we will have Tokyo CPI for the month of August, employment and consumption data as well as data on industrial production.
Important news for JPY:
- Retail Sales
- Unemployment Rate
- Industrial Production
Trade balance for the month of July came in at CHF3.63 bn vs CHF4.1 bn the previous month. Exports were down -1.8% m/m while exports were down -0.5% m/m. Industrial production in Q2 came in at 4.8% y/y vs 4.3% y/y the previous quarter. Nice and steady rise in industrial production, although Swiss economy is primarily service oriented.
This week we will have data on number of employees in the Swiss economy.
Important news for CHF:
- Employment Level