Daily Market Outlook by Kate Curtis from Trader's Way

Forex Major Currencies Outlook (Mar 22 – Mar 26)

Preliminary March PMI data will highlight the week followed by inflation and spending data from the US.

USD

Headline retail sales in February came in at -3% m/m vs -0.5% m/m as expected. January reading was revised higher to 7.6% m/m from 5.3% m/m as previously reported which makes headline number come almost along the expectations. Other categories had the similar faith with control group coming in at -3.5% m/m vs -0.6% m/m as expected with January upward revision to 8.7% m/m from 6% m/m. Sales in February were up 6.3% y/y. Extreme weather in February is the main culprit for the drop. Auto sales category showed the biggest drop while gas station sales rose 3.6%, thus making it the only category that rose. Additional stimulus cheques, combined with normal weather should propel this number higher in March reading.

Fed has left rates and monetary policy unchanged as was widely expected reiterating that asset purchases will continue until “substantial further progress” is made. They have come up with new macroeconomic projections showing improvements in all measures. GDP is now seen between 5.8% and 6.6% for 2021. The unemployment rate is seen between 4.2% and 5.7% while PCE is seen between 2.2% and 2.4% for 2021. Dot-plot shows that several members now see rate hike in 2023. Fed Chairman Powell stated that the economy is still far away from recovery as indicated by almost 9.5 million unemployed more than before the pandemic. He reiterated that full employment and price stability should be shown in data, not in expectations. Additionally, Fed looks at a broad number of employment measures, with the unemployment rate being just one of them. Overall, there seems to be no rush for rate hikes. The markets understood the dovishness of Fed and pushed USD lower. During the week USD managed to recover due to the rise in yields since Fed did not mention anything about possible new “Operation Twist” (Selling near-end Treasuries to buying long-end in order to reduce yields on long-end Treasuries). The rise in yields was characterized as a good sign of a recovering economy. When asked about SLR Chairman Powell declined to comment stating that an announcement will be made in the coming days and on Friday it was announced that there will be no extension. Current SLR is ending on March 31 and should lead to the drop in banks liquidity which could lead to lower lending and lower acceptance of deposits.

This week we will have final Q4 GDP reading as well as Fed’s preferred inflation measure PCE.

Important news for USD:

Thursday:

  • GDP

Friday:

  • PCE

EUR

We got first March data in the form of German ZEW survey. Current situation improved to -61 from -67.2 in February while expectations rose to 76.6 from 71.2 the previous month. The rise in expectations shows the optimism regarding vaccine developments with ZEW noting that anticipations are for around 70% of the population to be vaccinated by the autumn. Caveat is that survey was done prior to the AstraZeneca issue. Germany has stopped administering AstraZeneca vaccine due to the research showing it caused blood clot problems with number of patients. After the investigation into the issue has been done by EMA it has been concluded that there is no connection between vaccine and blood clots. Countries will continue to administer AstraZeneca vaccines and ZEW survey data stands.

This week we will have preliminary March PMI data.

Important news for EUR:

Wednesday:

  • Markit Manufacturing PMI (EU, Germany and France)
  • Markit Services PMI (EU, Germany and France)
  • Markit Composite PMI (EU, Germany and France)

GBP

BOE has left bank rate and asset purchases unchanged as was widely expected. Members have acknowledged some positives in financial conditions that occurred since February, but overall, there were no hawkish moments in the statement. They have reiterated their resolve to take additional measures if inflation outlook weakens adding that they do not intend on tightening monetary policy conditions until there is enough evidence regarding achieving the inflation target. There was no talk about recent rise in 10y yields. GBP was sent down on their message as markets were hoping for more upbeat statement.

This week we will have plethora of economic data including employment, inflation, preliminary March PMI and consumption data.

Important news for GBP:

Tuesday:

  • Employment Change
  • Unemployment Rate

Wednesday:

  • CPI
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

Friday:

  • Retail Sales

AUD

RBA minutes from the March meeting show that wage growth needs to reach 3% for bank members to raise interest rate and the rise is not expected until 2024. February employment report went in RBA’s desired direction. Employment change came in at 88.7k vs 30k as expected. The unemployment rate fell to 5.8% from 6.3% in January with participation rate staying the same at 66.1%. All of the jobs were full-time as full-time employment came in at 89.1k. A tremendously strong report and if it now pushes wage growth we may see a rate hike before 2024 target.

Chinese data for the two-month period of January-February showed huge boost impacted by the base effect, that is comparing the data with period of January-February 2020 when country was fighting with the coronavirus induced lockdowns. Industrial production came in at 35.1% y/y while retail sales came in at 33.8% y/y. Both readings beat expectations. Jewellery, automobiles and catering were the biggest contributors to the growth of retail sales while automobiles and micro-processors lead the way in industrial production growth.

NZD

Q4 GDP data surprised to the downside by coming in at -1% q/q vs 0.2% q/q as expected. We are now in the middle of March so this data is ancient history, however given the data concerning Q1 we may see New Zealand getting back into recession as measured by two consecutive quarters of negative GDP growth. GDT price index came in at -3.8% thus making the first decline after eight consecutive auctions with rising prices.

CAD

February headline inflation ticked higher to 1.1% y/y from 1% y/y in January. Analysts were expecting a 1.3% y/y reading. Median and common core measures came in unchanged from the previous month at 2% y/y and 1.3% y/y respectively while trim slipped to 1.9% y/y from 2% y/y in January. Appliance prices were the biggest contributor to the rise in inflation followed closely by gasoline prices while clothing prices were the main drag. March reading will be far more interesting as it will be impacted by the base effect from first lockdown. Retail sales in January fell -1.1% m/m vs -3% m/m as expected. Second straight month of drops but much less than expected. Around 1 in 7 retailers was impacted by lockdown in January. Advanced February reading shows a jump of 4% m/m breaking the two month of drops and painting brighter picture of Canadian consumers.

JPY

BOJ has left short-term interest rate unchanged and modified its monetary policy. Yields on 10y JGB will remain at 0% but range in which they can fluctuate has been widened to 25bp from 20bp previously. This is the most hawkish move from BOJ so far. There will be no upper limit on JGB purchases. The other change refers to ETF purchases. The bank has abandoned their JPY6 trillion annual target. Upper limit of JPY12 trillion is still in place. Governor Kuroda stated that their ETF purchases are not undermining stock market purchases and that they are prepared to ease further if the need arises. Inflation on the national level for February showed some improvements with both headline and ex fresh food categories coming in at -0.4% y/y as expected vs -0.6% y/y in January. Still deflation is ruling Japan and it will stay there for a while.

This week we will have preliminary March PMI data as well as inflation data for March for Tokyo area.

Important news for JPY:

Wednesday:

  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

Friday:

  • CPI

CHF

SNB total sight deposits for the week ending March 12 came in at CHF702.8bn, down from CHF703.1bn as markets keep EURCHF hovering around the 1.11 level.

This week we will have SNB meeting. No changes in rate and policy are expected.

Important news for CHF:

Thursday:

  • SNB Interest Rate Decision

Forex Major Currencies Outlook (Mar 29 – Apr 2)

NFP and preliminary inflation data from Europe will be the highlights of the week. US president Biden will deliver speech on Wednesday regarding the economy during which the new infrastructure stimulus worth around $3 trillion should be presented. This will be a shortened trading week as we will have Good Friday which, coupled with quarter-end rebalancing, will lower liquidity in the markets.

USD

Existing home sales and new home sales missed expectations and fell sharply from January reading coming in at 6.22 million and 775k respectively. Cold weather in Mid-West can be blamed as the main culprit for the decline in housing. It is still left to see if this is the one-off drop or a beginning of the trend as lumber prices are rising leaving less profit for investors. Final Q4 GDP reading was revised higher to 4.3% from 4.1% as reported by the second reading. February headline PCE rose to 1.6% y/y from 1.5% y/y in January while core PCE slipped to 1.4% y/y from 1.5% y/y the previous month. Inflation will start to rise next month when base effect takes center stage coupled with stimulus checks which will increase incomes and should push spending growth to almost double digits.

This week we will have ISM manufacturing PMI and NFP data. Headline number is projected between 410 and 620k while the unemployment rate should drop toward 6%.

Important news for USD:

Thursday:

  • ISM Manufacturing PMI

Friday:

  • Nonfarm Payrolls
  • Unemployment Rate

EUR

Preliminary March PMI data surprised to the upside with manufacturing coming in at 62.4, services at 48.8 and composite at 52.5. Manufacturing was propped by amazing reading of 66.6 from Germany, more than a 3-year high, achieved on the back of rising output, new orders and new export orders. Supply chain constraints also contributed to the rise through prices paid and supply deliveries categories which will prompt producers to transfer those costs to consumers thus leading to a rise in inflation. Services are still affected by the ongoing lockdowns but are faring much better than analysts expected. The reading is highest since August of last year and is moving closer to the 50-expansion level.

Germany has announced an extension to lockdown until April 18. Q1 GDP is expected to be negative due to harsh lockdown measures and now with extension of it until mid-April there are growing concerns that Q2 GDP can also be negative. Potential for recovery is from H2 but with slow progress on vaccination it is highly questionable from this stand point. If the manufacturing sector keeps up producing at the current rate it can act as a savior and prevent a drop in Q2 GDP.

This week we will have preliminary March inflation data. Due to the base effect, comparing the reading with the pandemic influenced reading from March 2020, we can expect a significant jump in inflation.

Important news for EUR:

Wednesday:

  • CPI

GBP

Employment report for February showed that claimant count jumped to 86.5k from -20.8k the previous month and pushed the claimant count rate to 7.5% from 7.2%. The unemployment rate for January ticked down to 5% while employment change in the three-month period dropped -147k. This is a very mixed report which is heavily impacted by the underlying furlough scheme. Inflation reading showed a slowdown and came in much weaker than expected with headline CPI reading 0.4% y/y and core CPI 0.9% y/y. Discounts on clothing were the main contributor of weaker reading. After the inflation reading, chances of BOE hiking rates any time soon have dropped.

Preliminary March PMI data showed big improvements. Manufacturing rose to 57.9 from 55.1, while services jumped to 56.8 from 49.5 in February. Even the gradual lifting of restrictions had a huge positive impact on the services reading. Composite was propelled to 56.6 from 49.6 the previous month. Supply deliveries still play a big role in the readings due to supply chains being impaired, but still the readings show that demand for UK services and manufacturing goods is present both domestically and abroad.

AUD

China will introduce the anti-dumping tariffs on March 28 and will go on for five years. Imports of Australian wine will be hit by duties of between 116.2% and 218.4%. This will have a negative impact on already weak relationships between China and Australia. PBOC has announced that potential growth for China in the next five years should be between 5 and 5.7%.

This week we will have official PMI data from China.

Important news for AUD:

Wednesday:

  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)

NZD

The New Zealand government announced a set of new measures to fight the rise in housing prices that is occurring to the low rates policy. Housing prices has been added to the central bank’s mandate. The government removed a tax incentive that encouraged speculation and will make more land available to boost supply. Assistance will continue to be provided for first-time buyers and low-income households. The announcement led to the huge drop in NZDUSD and the pair has not managed to recover during the week finishing it down 150+ pips.

CAD

BOC announced that they would start unwinding its emergency liquidity measures. The short-term financing facility will end in May, while the commercial paper and the provincial and corporate bond programs will expire shortly and not be renewed.

JPY

Preliminary March PMI data showed a minor improvement across the measures. Manufacturing rose to 52 in February, which is the highest reading in over 18 months, while services ticked up to 46.5 from 46.3 the previous month which pushed composite to 48.3 from 48.2 in February. The reading shows a growing divide between the manufacturing and services sectors caused by the state of emergency. March inflation for the Tokyo area continued to improve but at the snail pace. Headline CPI came in at -0.2% y/y vs -0.3% y/y in February and ex fresh food came in at -0.1% y/y vs -0.3% y/y the previous month. Ex fresh food and energy component is the only positive reading with 0.3% y/y, up from 0.2% y/y in February.

CHF

SNB has left the policy rate unchanged at -0.75% as was widely expected. Swissy is highly valued according to their assessment and they remain willing to act in the FOREX market if necessary. Inflation expectations have risen to 0.2% in 2021 and 0.4% in 2022 vs flat in 2021 and 0.2% in 2022 as previously expected. GDP should be in the range of 2.5-3% for 2021 while the pick-up in activity to pre-pandemic levels is expected in H2 of 2021. Total sight deposits for the week ending March 19 came in at CHF702.9bn vs CHF702.8bn the previous week. This is a negligent change as markets are pushing Swissy down on their own with EURCHF hovering above the 1.10 level.

Forex Major Currencies Outlook (Apr 5 – Apr 9)

A calm week ahead of us with thin liquidity on Easter Monday will bring RBA meeting, ISM Non-Manufacturing PMI and employment data from Canada. Vaccine roll-out developments and covid related news will be on the minds of investors.

USD

President Biden announced new infrastructure plan worth $2.25 trillion which will be funded fully by tax hikes. Infrastructure building will be done solely by the US corporations. Tax rate on corporations is proposed to rise to 28% from 21% currently. This will lead to lower issuance of government bonds, treasuries, and assuming demand for bonds stays the same, it should lead to rise in treasury prices, drop in treasury yields and consequently lower USD.

ISM Manufacturing PMI for March beat expectations and came in at 64.7 for the highest reading since 1983! New orders rose to astonishing 68 from 64.8 in February thus making the highest reading since 2004. Employment sub index rose to 59.6 from 54.4 in February. A small dent in otherwise great reading is that prices paid sub index dropped less than expected. It came in at 85.6 from 86 in February. The report shows booming demand for manufacturing products.

Headline NFP number for March came in at 916k vs 660k as expected. The unemployment rate was pushed down to 6% as was expected from 6.2% in February while participation rate ticked up to 61.5%. The underemployment rate continued to drop and now came in at 10.7%. The drop in average wages is a result of lower paying workers returning to work as the leisure and hospitality sector led the way. Overall, a very strong reading that leaves potential for equally strong readings in the months to come.

This week we will have ISM Non-Manufacturing PMI and data from the latest Fed meeting.

Important news for USD:

Monday:

  • ISM Non-Manufacturing PMI

Wednesday:

  • FOMC Minutes

EUR

Sentiment data in March surpassed expectations. Economic sentiment rose to 101 from 93.4 in February while industrial sentiment went into positive after more than 14 months. It came in at 2 vs -3.1 the previous month. Optimism is prevailing as economic rebound should pick up from Q2 and especially from H2.

After higher-than-expected jumps in German and Spanish inflation preliminary March Eurozone inflation came in at 1.3% y/y vs 1.4% y/y as expected. The rise is mostly due to the rising energy prices compared with March of 2020. When we take away energy, we see that core reading came in at 0.9% y/y vs 1.1% y/y as expected due to a drop in goods inflation. Considering constraints on supply chains we can see this drop in goods inflation only as transitory and we expect it to pick up in Q2. ECB is prepared to look-through overshooting inflation and this weak reading will be easily dismissed by them.

German authorities have banned the use of AstraZeneca’s vaccine for people under 60 due to new cases of blood clots.

GBP

Final reading of Q4 GDP showed an improvement to 1.3% q/q vs 1% q/q as preliminary reported. The increase was due to the strong rise in business investment (5.9% q/q vs 1.3% q/q in the first reading) and modest rise in government spending (6.7% q/q vs 6.4% q/q in the first reading). Private consumption, on the other hand, dropped -1.7% q/q vs -0.2% as preliminary reported.

AUD

JobKeeper, an employment subsidy introduced to help mitigate effects of pandemic, ended on March 28. Westpac estimates that it puts 100k people at the risk of losing jobs. They expect that these loses will be spread over the coming months pushing the unemployment rate up. Retail sales in February dropped -0.8% m/m but came in at 9.1% y/y.

Official PMI numbers from China easily beat expectations with manufacturing coming in at 51.9 and services jumping to 56.3 from 51.4 in February. Those numbers pushed composite reading to the very healthy 55.3 level. Within manufacturing reading both new orders and new export orders rebounded. New orders category posted a stronger reading indicating that domestic demand is leading the recovery. Within services, construction measure hit 62.3 level, it shows infrastructure investment that was announced in the Two Sessions. Caixin manufacturing reading showed a different picture as it fell to 50.6 while rise to 51.4 was expected. Rising input costs have impeded manufacturing activity. Although it is in the expansion for almost a year it is getting dangerously close to dropping below the 50 level.

This week we will have RBA meeting. No changes to cash rate and monetary policy are expected

Important news for AUD:

Tuesday:

  • RBA Interest Rate Decision

NZD

ANZ survey of the business confidence in March show the reading drop to -4.1 from being flat the previous month. ANZ noted that “All forward-looking activity indicators were lower in the second half of the month. The preliminary results would not have captured the full lockdown impact”. They also added that “as the demand overshoot wanes and the tourists are missed more and more, the economy will go largely sideways this year”.

CAD

GDP for the first month of 2021 came in at 0.7% m/m vs 0.5% m/m as expected. Healthy beat indicating that Canada will post a positive Q1 GDP reading. Wholesale and manufacturing led the way and were the biggest contributors while retail was a drag, dropping for the third time in last 4 months.

This week we will have employment data.

Important news for CAD:

Friday:

  • Employment Change
  • Unemployment Rate

JPY

February employment report showed that the unemployment rate remained at 2.9% while expectations were for it to tick up to 3%. Retail sales for the same period crushed expectations and came in at 3.1% m/m vs 0.8% m/m as expected. BOJ Tankan survey showed improvement for both large and small manufacturing and non-manufacturing business. Capex is now seen rising 3% instead of -1.4% as was expected. Businesses reported that they see USDJPY at 106.71 in 2021 and EURJPY at 123.1. These are average values for 2021 fiscal year, from April 2021 to March 2022. CPI is seen at 0.4% for 2021, 0.8% in 3 years’ time and 1% in 5 years’ time. Nowhere close to BOJ’s 2% target level.

CHF

SNB total sight deposits for the week ending March 26 came in at CHF702.7bn vs CHF702.9bn the previous week. SNB is on the cruise control as markets keep Swissy subdued. Inflation in March missed expectations. Headline CPI came in at -0.2% y/y while core CPI plunged deeper into deflation with -0.4% y/y. Retail sales in February showed a big drop of -6.3% y/y vs -0.7% y/y in January. Both inflation and consumption affirm the need for SNB’s accommodative monetary policy.

Forex Major Currencies Outlook (Apr 26 – Apr 30)

The week ahead of us will have Fed meeting and BOJ meeting. This will be followed by preliminary Q1 GDP from the US and EU and finally on Friday inflation data from both the US and EU. Data on personal spending and personal income from the US will also be announced on Friday.

USD

President Biden spoke about increasing tax on capital gains for wealthy investors earning more than $1 million. Proposed tax increase should be toward 39.6% from 20% previously. This led to the unease in the markets with S&P500 dropping almost 1% on the release. Biden campaigned on the promise of capital gains tax hike, however there is a long road ahead for it to pass through the Congress.

This week we will have preliminary Q1 GDP data, Fed’s preferred inflation PCE data combined with personal spending and income data as well as Fed meeting. After BOC hawkish move toward a rate hike in H2 of 2022 chairman Powell will be pressed to express Fed’s stance on why they do not see rate hikes until 2024.

Important news for USD:

Wednesday:

  • Fed Interest Rate Decision

Thursday:

  • GDP

Friday:

  • PCE

EUR

ECB has kept key rates unchanged at their meeting as was widely expected. The size of PEPP programme stays at the €1.85 trillion level with monthly asset purchases at the pace of €20bn. They are prepared to step up purchases if the need arises and purchases in Q2 will be higher than those in Q1. ECB President Lagarde stated that vaccine optimism underpins expectations for an economic recovery. Inflation has picked up due to the base effects but overall price pressures remain low and unsatisfactory. Economic data indicate a resumption of growth in Q2. The governing council has basically reaffirmed their stances from March meeting and with the next meeting coming on June 10 they are prepared to wait and take clues from the incoming economic data. Preliminary consumer confidence for the month of April came in at -8.1 vs -11 as expected for the lowest reading since February of 2020 and thus indicating optimism around consumers that vaccine rollout will lead to lifting of restrictions soon which will in turn release pent-up demand.

This week we will have preliminary Q1 GDP, which is expected to show a negative reading as well as preliminary April inflation reading.

Important news for EUR:

Friday:

  • GDP
  • CPI

GBP

Claimant count change in March came in at 10.1k and pulled down the rate to 7.3%. The official unemployment rate in February ticked down to 4.9% from 5% in January. The numbers are helped by the furlough scheme that is set to go on until September. It will keep the rate subdued in the meantime, after which it may jump toward 7%. Headline inflation for the same period rose to 0.7% y/y from 0.4% y/y in February with core reading coming in at 1.1% y/y from 0.9% y/y the previous month. Inflation readings are very much influenced by the base effect and we can expect inflation to continue to rise in the coming months. Lifting of certain restrictions in early March led to retail sales more than tripling the expectations (5.4% m/m vs 1.5% m/m as expected) and 7.2% y/y vs 3.5% y/y as expected. Non-food store provided the biggest boost with 13.4% rise in March while clothing sector also contributed with amazing 17.5% rise. These are additional indicators of pent-up demand that will be released as more and more restrictions are lifted and will have a positive impact on Q2 GDP growth.

AUD

RBA monetary policy minutes for April showed the bank’s stance to continue providing “highly supportive” monetary policy until employment and inflation goals are achieved. The possibility of a rate hike is highly unlikely until 2024 as board members do not see employment and inflation targets converging to their levels, inflation within 2-3% target range. During the week AUDUSD has rose over the 0.78 level on the back of weak USD.

This week we will have Q1 inflation data from Australia as well as official PMI data from China.

Important news for AUD:

Wednesday:

  • CPI

Friday:

  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)

NZD

Headline inflation for Q1 2021 came in at 0.8% q/q as expected and 1.5% y/y vs 1.4% y/y as expected. RBNZ sees inflation in the range of 2-3% for this year due to the transitory factors before dropping down in 2022. Core inflation came in at 1.9% y/y and is in line with the bank’s 1-3% target range. GDT price index came in basically unchanged at -0.1% while NZDUSD enjoyed a strong start to the week, climbing toward the 0.72290 level before backing down.

CAD

At their April meeting BOC has left the rate unchanged at 0.25% as expected but took a much more hawkish tone. First, QE was tapered from CAD4bn/week to CAD3bn/week. Additionally, GDP forecast has been revised up to 6.5% from 4% in January. Bank members stated “We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. Based on the Bank’s latest projection, this is now expected to happen sometime in the second half of 2022”. This is a huge event as it moves chances of potential rate hike and monetary policy normalization toward H2 of 2022 from 2023. Governor Macklem stated bank’s confidence in underlying economic strength adding that forward guidance is ‘outcome based’. USDCAD plunged almost 150 pips after the announcement.

Headline inflation in March doubled to 2.2% y/y from 1.1% y/y in February. The main culprit was rising energy prices and ; if they were deducted headline CPI would have come unchanged at 1.1% y/y. Core readings were all up with Trim and Median being over 2%. BOC sees inflation hovering around the upper bound of their 1-3% range in the coming months as a result of base effects. However, “inflation should return to 2% on a sustained basis sometime in the second half of 2022”.

JPY

Trade surplus in March jumped to JPY663.7bn on the back of surging exports that rose 16.1% y/y thanks to the rise in exports to China (37.2%). Preliminary April PMI data showed manufacturing rise to 53.3, highest value in over 3 years, while services remained unchanged at 48.3. Composite was pushed to 50.2 for the first expansionary reading since January of 2020. Prefectures of Tokyo, Osaka, Hyogo, and Kyoto are looking for at least three weeks of state of emergency measures to be implemented in order to try to subdue the spread of the virus. With new measures being implemented, the services sector will soon be hit hard again and we may see a decline in services in the May PMI reading.

This week we will have BOJ meeting as well as inflation data for Tokyo area. No changes in the monetary policy are expected, however with prefectures entering new state of emergencies we could see more dovish tone being struck.

Important news for JPY:

Tuesday:

  • BOJ Interest Rate Decision

Friday:

  • CPI

CHF

SNB total sight deposits for the week ending April 16 came in at CHF701.5bn vs CHF701.3bn the previous week. With markets making EURCHF hover around the 1.10 level SNB sees no reason to step up their intervention. Trade balance data in March showed a surplus of CHF5.82bn on the back of rebound in exports 4.5% m/m.

Forex Major Currencies Outlook (May 3 – May 7)

BOE and RBA meetings coupled with NFP on Friday will be the highlights of the upcoming week.

USD

FOMC meeting failed to deliver any news on the tapering of the QE program. The Fed funds rate and QE of $120bn/month were unchanged as was widely expected. The rise in inflation was attributed to transitory factors. Fed Chairman Powell stated that it will take “some time” for substantial progress to be achieved adding that the economy is a “long way” from the Fed’s goals. Inflation expectations will likely move up with a tighter labour market. Overall a dovish message from the Fed that pushed the USD lower. Some positives from the statement include the assessment of impact of the vaccination program combined with fiscal support on the economic recovery. Statements like “indicators of economic activity and employment have strengthened” and “sectors most adversely impacted by the pandemic have improved” also add small positives.

Preliminary March durable goods improved from February but heavily missed expectations. Headline number came in at 0.5% m/m vs 2.5% m/m as expected while capital goods reading came in at 0.9% m/m vs 1.8% m/m as expected. Shortages in semi-conductor chips were the main culprit for the reading as they had a big influence on the transportation section (-1.7%). Advanced Q1 GDP reading came in at 6.4% annualised. Personal consumption increased 10.7% vs 10.5% as was expected, contributing with more than 100% and giving even more power to the reading. Business investment was also very strong, coming in at 9.9%. Drags on the reading were inventories and net exports.

On the inflation front, headline PCE came in at 2.3% m/m vs 1.5% m/m in February while core PCE rose 1.8% m/m vs 1.4% m/m the previous month. Core reading returned to the pre-pandemic level of February 2020 indicating mounting inflation pressures. Fed Chairman Powell has reiterated numerous times that they are prepared to look through any overshoot in inflation and will characterize the rise in prices as transitory. As stimulus cheques fully kicked in, personal income came in at 21.1% m/m which in turn pushed personal spending to 4.2% m/m.

President Biden has unveiled his $1.8 trillion dollar plan that will focus on education and childcare. The entire plan will be financed by raising taxes. The maximum tax rate on capital gains will be 39.6% and it will be applied only to those within top one percent of earners.

This week we will have ISM PMI data coupled with NFP on Friday. Headline number may be well over a million according to some analysts while the unemployment rate should drop toward the 5.8% level.

Important news for USD:

Monday:

  • ISM Manufacturing PMI

Wednesday:

  • ISM Non-Manufacturing PMI

Friday:

  • Nonfarm Payrolls
  • Unemployment Rate

EUR

German government has raised its GDP forecast for 2021 to 3.5% from 3% in January citing the lifting of restrictions as the positive sign for the economy. They see a “bigger-than-expected” recovery in Q4 and expect the economy to reach pre-pandemic levels in 2022, projecting GDP of 3.6% for the year.

Preliminary Q1 GDP reading for the Eurozone came in at -0.6% q/q vs -0.8% q/q as expected. Germany reading came in at -1.7% q/q pulling the reading down, although France positively surprised with 0.4% q/q reading. With vaccination program continuing at the current pace and restrictions being lifted across the continent, pieces are in place for a rebound in H2 of 2021. Preliminary April inflation reading saw headline inflation jumping to 1.6% y/y vs 1.3% y/y which is be attributed to the rising energy prices on the back of base effects, while core reading dropped for the fourth straight month and came in at 0.8% y/y vs 0.9% y/y in March. This indicates that sustained price pressures are still missing.

GBP

Covid-19 cases have continued to decline, putting the UK on a course to move successfully to the third stage of Prime Minister Johnson’s four-stage reopening plan on May 17. This next phase will see indoor hospitality and professional sporting venues reopen to the public. However, the insensitive statement attributed to the Prime Minister, that he would rather see dead bodies pile up than instigate another lockdown is preventing the pound from rising.

This week we will have BOE meeting. No changes in policy and rate are expected, however we could see more hawkish stance from the bank pushing the pound up.

Important news for GBP:

Thursday:

  • BOE Interest Rate Decision

AUD

Inflation data for Q1 came short. Headline number came in at 0.6% q/q vs 0.9% q/q as expected and as was in Q4 of 2020 with 1.1% y/y vs 1.4% y/y as expected. Automotive fuel saw the biggest rise in prices (8.7% q/q). Trimmed mean core measure came in at 0.3% q/q vs 0.5% q/q as expected and 1.1% y/y vs 1.2% y/y as expected and as was in Q4 of 2020. RBA targets y/y trimmed core in the 2-3% range and with reading coming in at measly 1.1% we can expect bank to continue their loose monetary policy without indications for tightening in 2021. Official stance is that there will be no rate hikes until 2024. We can also see inflation picking up in Q2 due to the “base effect”, however this will be characterized as transitory by the monetary authorities and overlooked.

Official PMI numbers for April from China showed readings still in expansion but slowing down from the March. Manufacturing came in at 51.1 with new export orders dropping down to 50.4 indicating waning demand most likely due to Covid-related disruptions, so we may expect this sub index to pick up in May as reopening around the World continues. Services came in at 54.9 and composite was at 53.8. Caixin manufacturing PMI, on the other hand, continued its rise and came in at 51.9 vs 50.6 in March. Output and new orders rose at the fastest pace this year and were coupled with increases in input costs.

This week we will have RBA meeting from Australia. No changes in policy and rate are expected, progress on employment and assessment of the inflation figures will be watched. China will report Caixin PMI data and trade balance.

Important news for AUD:

Tuesday:

  • RBA Interest Rate Decision

Friday:

  • Caixin Services (China)
  • Caixin Composite (China)
  • Trade Balance (China)

NZD

RBNZ policymaker Peter Harris stated that they are still not reaching employment objectives and that monetary stimulus is still needed. Signs of wage inflation are missing and unemployment remains “relatively high”. NZD may finish as a top performer from G10 currencies in April however May is usually bad month for it so we can see some downward pressure on it in the coming month.

This week we will have employment data for Q1.

Important news for NZD:

Wednesday:

  • Employment Change
  • Unemployment Rate

CAD

BOC Governor Macklem stated that they expect to see a strong growth led by consumption in the H2 of 2021. He added that inflation reading influenced their decision to lower QE to CAD3bn/week. USDCAD was trying to stay below the 1.24 level at the start of the week and then it was pushed down to the 1.23 level on the back of the dovish Fed and stayed below it. Retail sales in February came in at 4.8% m/m vs 4% m/m as expected. Data shows that 9 out of 11 sub-sectors showed an increase in sales and were led by motor vehicles. Clothing and accessories as well as furniture made significant gains compared to January. This is rather old data point since we are already in May, however this was a very strong report and one of the reasons for BOC’s hawkish stance at their last meeting. Advanced estimates of March reading are for a 2.3% m/m rise giving more fire power to already strong Q1.

This week we will have employment data.

Important news for CAD:

Friday:

  • Employment Change
  • Unemployment Rate

JPY

BOJ made no changes to their monetary policy as was widely expected. The rate is still held at -0.10%, targeted yields on 10y JGBs are still around 0% and cap on ETF purchases is at JPY12 trillion. The bank made upgrades to the economic forecasts and now sees GDP in 2021 at 4% vs 3.9% in January. For 2022 GDP even bigger upgrade has been made as it is now seen at 2.4% vs 1.8% in January. On the other hand, inflation expectations are downgraded to 0.1% for core inflation in 2021 vs 0.5% expected in January. BOJ quarterly report shows that pace of the economic recovery will be moderate and that risks are skewed to the downside. They have assessed the financial system as stable which may give JPY some love. However, reimposed states of emergency in three largest prefectures combined with very low vaccine admissions, only 1.4% of the population has received at least one dose, will keep JPY subdued.

CHF

SNB total sight deposits for the week ending April 23 came in at CHF701.7bn vs CHF701.5bn the previous week. A rather negligible change as EURCHF is safely hovering over the 1.10 level and is on its way to the 1.11 level. Retail sales in March rebounded tremendously from poor February reading indicating pent-up demand. The reading came in at 22.6% m/m vs -6.6% m/m the previous month.

Forex Major Currencies Outlook (May 10 – May 14)

Inflation and consumption data from the US coupled with preliminary Q1 GDP reading from the UK will be the highlights of the week.

USD

ISM manufacturing PMI in April came in at 60.7 vs 65 as expected and down from 64.7 the previous month. New orders and employment sub indices came in weaker than in March, however they are still at a very high levels indicating strong manufacturing sector. Semi-conductor chip shortages are the main culprit for the drop from the previous month. One thing that is concerning is that prices paid index continued to rise and came in at 89.6 vs 85.6 in March. This is a 13-year high. Rising input prices will be transferred to consumers at some point which would lead to higher consumer prices, inflation. ISM Non-manufacturing PMI also eased coming in at 62.7 vs 63.7 in March. New orders and production sub indexes were down from March reading, but still in the 60s. New export orders and employment sub indexes both improved. A matter of concern is the rise in prices paid and supply deliveries sub indexes. Prices paid also rose to a 13-year high and in combination with elevated supply deliveries it indicates shortages and supply constraints raising changes for disruptions in the future.

Dallas Fed president Robert Kaplan talked about tapering and adjusting bond purchases. He stated historically elevated stock prices, tight credit spreads and surging housing prices. As we get closer to the June meeting we could see more members start to talk about lowering the bond-buying in the future. That could give USD a nice boost. US Treasury Secretary Janet Yellen, former chairman of the Fed, stated that due to the expected success of fiscal stimulus “interest rates will have to rise somewhat to make sure our economy doesn’t overheat”. This have sent shivers down the spine in the market with equities dropping quickly. Later during the day, she clarified her statement saying that it is “not something I’m predicting or recommending”. Fed chairman Powell and NY Fed president Williams came out with statements reiterating their dovish view of the economy.

Nonfarm payrolls for April heavily missed expectations. The report showed 266k jobs added vs 1000k as expected. March reading was revised down for almost 150k jobs. The unemployment rate ticked up to 6.1% from 6% in March, expectations were for it to drop to 5.8%. The participation rate ticked higher to 61.7% from 61.5% the previous month indicating more people returning to workforce and taking a sting out of the rise in the unemployment rate. Questions about the pace of recovery will be raised. Fed will continue to reiterate that economy still has a long way to go.

This week we will have inflation and consumption data. Headline inflation should shoot close to 4%.

Important news for USD:

Wednesday:

  • CPI

Friday:

  • Retail Sales

EUR

Final services PMI in April for Eurozone was unchanged at 50.3 thanks to the strong reading from Spain while German and French readings saw small downward revisions. German reading even dipped into contraction with 49.9. Composite PMI was revised up to 53.8 from 53.7 as preliminary reported. Markit states that "April’s survey data provide encouraging evidence that the Eurozone will pull out of its double-dip recession in the second quarter”. Retail sales continued to rise in March coming in at 2.7% m/m vs 1.6% m/m as expected. There were also upward revisions to February reading giving more strength to the report. Non-food products contributed the most (4.6% m/m) while automotive fuels decreased (-2.9% m/m). Continuation of the consumption trend coupled with easing of restrictions will have a positive influence on Q2 GDP.

GBP

Final manufacturing PMI for April improved to 60.9 from 60.7 as preliminary reported thus making it the record reading in almost 27 years. Output and new orders continued expanding at an increased rate. Markit notes that "The sector also remains beset by supply-chain issues and rising inflationary pressures. Disruption following Brexit and COVID-19, especially at ports, caused a further near-record lengthening of supplier delivery times. The resulting input shortages kept producer price inflation among the highest over the past four years.” Final services PMI was revised up to 61 from 60.1 as preliminary reported which pushed composite to 60.7 from 60 as preliminary reported. Services reading is highest in 8 years and it reflects loosening of restrictions in the UK. With all three reading into 60s there is a reason to be optimistic about the UK economy.

BOE has left both bank rate and total amount of purchases unchanged. They are at 0.10% and £895bn respectively. MPC members do not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. GDP forecast for 2021 is now at 7.25% while GDP for 2022 is seen at 5.75%. Inflation is seen at 2.31% in one year’s time. In the statement, MPC members have stated that pace of asset purchases would be slowed down. The pound dropped first on the news that there will be no changes to asset purchases and then rebounded when the statement came.

This week we will have preliminary Q1 GDP data.

Important news for GBP:

Wednesday:

  • GDP

AUD

RBA has left cash rate unchanged at their May meeting as widely expected. Targeted yield on 3-year bonds was also unchanged at 0.10%. At the July meeting, RBA will consider future bond purchases following the completion of the second AUD100 bn of QE purchases as well as whether to change 3-year targeted bonds from April 2024 to November 2024. The bank assessed economic recovery as stronger than expected and they see that trend continuing. There will be a small, modest pick-up in wages and inflation. They have reiterated their stance not to increase the cash rate until inflation is sustainably within the 2-3% target range, which is forecast for 2024 at the earliest. GDP for 2021 has been revised up to 4.75% and 3.5% in 2022. The unemployment rate should hover around 5% at the end of 2021, falling to 4.5% at the end of 2022. Underlying CPI to be at 1.5% this year, rising to 2% in mid-2023 with CPI to be temporarily above 3% in the Q3 of 2021.

Caixin services PMI jumped to 56.3 from 54.3 in March on the back of expanding new orders. Rising input costs, labour and raw materials, indicate that inflation pressures are building. Composite PMI came in at 54.7 vs 53.1 the previous month for the highest reading in 2021. Trade continued to bloom in April. Trade surplus was $42.85bn and it was achieved on the back of exports increasing 32.3% y/y while imports rose 43.1% y/y. China’s economic planning agency (NDRC) is going to halt activities under the China-Australia Strategic Economic Dialogue ‘indefinitely’. With China being Australia’s largest trading partner this decision could seriously impede Australia’s economy and push AUD down.

This week we will have inflation data.

Important news for AUD:

Tuesday:

  • CPI (China)

NZD

Employment report for Q1 was a strong one. Employment change was unchanged on q/q basis and came in at 0.6%, however expectations were for a 0.3% rise. The true shine of the report can be seen in the unemployment rate which fell to 4.7% from 4.9% in Q4 of 2020. At the same time, participation rate rose to 70.4% from 70.2% the previous quarter. Preliminary business confidence for May came in at 7, back into positive after -2 reading in April. Finance Minister Robertson stated that economic recovery has exceeded every forecast, adding that fiscal spending will carry on to support the economy.

CAD

Employment report in April was plagued by renewed lockdowns, however it painted the worse picture than expected. Headline number came in at -207.1k vs -150k as expected. Majority of jobs lost were full-time jobs (-129.4k). The unemployment rate rose to 8.1% from 7.5% in March while participation rate dropped to 64.9% from 65.2% the previous month. USDCAD dropped below the 1.22 level during the week and is fighting to stay there. With weak NFP reading we could see USD weakness due to Fed not rushing to taper or raise rates, which opens up a potential for selling the rallies in USDCAD.

JPY

Final services PMI for April saw improvement to 49.5 from 48.3 as preliminary reported. This is the highest reading since January of 2020 and very close to expansion. The reading also showed fastest job creation in two years. Composite PMI was pushed upward thanks to services and came in at 51 vs 50.2 as preliminary reported. Wages data showed earnings rise 0.2% m/m vs -0.2% m/m as expected for a first rise since March of last year. The Government is considering extending state of emergency until the end of the month, possibly going into the June as well, while easing some of the restrictions.

CHF

SNB total sight deposits for the week ending April 30 came in at CHF701.4bn vs CHF701.7bn the previous week. Although EURCHF has dropped below the 1.10 level SNB does not see it as a threat and continues to ease its actions in the market. Inflation in April came in at 0.3% y/y as expected, thus climbing from 14 months of deflation. It is attributed to the base effects due to the wreck pandemic made in the economy a year ago. Core inflation came in flat vs -0.1% y/y as expected.

Forex Major Currencies Outlook (May 17 – May 21)

Preliminary PMI data from the EU and the UK combined with first reading of Japan’s Q1 GDP, employment report from Australia as well as production and consumption data from China will be the highlights of the week.

USD

Inflation data in March posted some concerning numbers. Headline reading printed 4.2% y/y vs 3.6% y/y as expected with core reading rising 3% y/y vs 2.3% y/y as expected. Prices of used cars were the biggest contributor to the rising inflation jumping 10% m/m. Rising commodity prices in combination with supply chain disruptions and base effects all led to the rise in prices. Additionally, the shortage of labour caused by need for parents to stay at home due to the home schooling of children coupled with generous unemployment benefits led to companies needing to offer higher wages in order to attract workers. Inflation should continue to run hot until we enter Q3. It will be interesting to see how Fed members will react to the data and if they will still continue to characterize inflation as “transitory”. Higher than expected inflation caused investors to give higher probability to QE tapering. Wages declined by -3.7% for hourly earnings and -1.4% for weekly earnings. This drop can be attributed to reopening and rehiring among low income jobs. Retail sales in April came in unchanged from March, however previous month’s reading was revised higher to 10.7% m/m, thus making this another decent report. Retail sales rose 51.4% y/y showing the adverse impact on the economy that first lockdown had.

EUR

ECB member Martin Kazaks stated last week that ECB may consider slowing down the pace of PEPP purchases at their June meeting. ECB chief economist Philip Lane stated that they will assess PEPP program in June and it can lead to either raising purchases or cutting purchases. ZEW survey for May showed current situation measure of German economy improving to -40.1 from -48.8 in April. Expectations category had more impressive jumps with German expectations coming in at 84.4 vs 70.7 in April and EU expectations at 84 vs 66.3 the previous month. Expectations reading indicate an overwhelming optimism regarding reopening and mass vaccination among investors. European Commission has raised GDP forecasts for 2021 and 2022. GDP in 2021 is now seen at 4.3% vs 3.8% previously while GDP in 2022 is expected to be at 4.4% vs 3.8% as previously stated. Inflation still poses a big problem and is seen at 1.7% in 2021 and then dropping to 1.3% in 2022.

This week we will have a second estimate of Q1 GDP as well as preliminary May PMI readings.

Important news for EUR:

Tuesday:

  • GDP

Friday :

  • Markit Manufacturing PMI (EU, Germany, France)
  • Markit Services PMI (EU, Germany, France)
  • Markit Composite PMI (EU, Germany, France)

GBP

SNP, Scottish National Party, pro-independent party, failed to secure majority at the last week’s election. They will form a majority government with Greens, also a pro-independent party, however markets are not seeing independence referendum being held in the near future. Additionally, Conservative party managed to win in Hartlepool, a Labour constituency since its creation in 1974, thus making the victory in by-election even more impressive. Markets have reacted to both events by boosting the GBP and sending GBPUSD pair almost 160 pips up at the start of the week. Prime Minister Johnson stated that England will move to Step 3 of lockdown easing on May 17. This includes reopening of indoor hospitalities while cinemas, pubs, restaurants and hotels will reopen with some capacity limits.

First estimate of Q1 GDP showed the economy contracting by -1.5% q/q vs -1.6% q/q as expected and -6.1% y/y vs -7.3% y/y as expected. Real GDP Q1 2021 was 8.7% lower than where it was at the end of 2019, before pandemic caused disruptions. Household consumption declined by -3.9% q/q vs -1.7% q/q the previous quarter. The drop was led by spending in restaurants and hotels, which fell by -26.4% due to the covid related restrictions. Business investment plunged -11.9%, government spending rose 2.6% and net exports were positive contributor since imports fell by more than exports (-15.6% vs -11.6%). We are already mid-May, mid-Q2, so the Q1 GDP data will not have impact on the pound. One very encouraging data for Q2 GDP was March GDP data. It showed an increase of 2.1% m/m and with reopening combined with mass vaccination it will lead to strong April as well Q2 reading.

This week we will have employment, inflation and consumption data as well as preliminary May PMI readings.

Important news for GBP:

Tuesday:

  • Claimant Count Change
  • Unemployment Rate

Wednesday:

  • CPI

Friday:

  • Retail Sales
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

AUD

Business confidence in April boomed. It came in at 26 vs 17 in March while business conditions came in at 32 vs 24 the previous month. They are both record highs and indicate great optimism about the economy moving further and getting out of the lockdown. All sectors are well into positive territory with services and mining leading the way of gains. High capacity utilisation indicates expansion in business investment and hiring. Final retail sales for March came in at 1.3% m/m vs 1.4% m/m as preliminary reported. For Q1 the reading came in at -0.5% q/q vs -0.4% q/q as expected.

Inflation report for April from China showed CPI rising to 0.9% y/y from 0.4% y/y in March, but the real inflation jump can be seen in the PPI number. It jumped to 6.8% y/y from 4.4% y/y the previous month. The rise in iron ore prices as well as in non-ferrous metal (aluminium, copper, lead, nickel, etc.) prices contributed most to the rise in producer price index. ING analysts note that “semiconductor chip shortage is going to bring us chip inflation”. Expectations are for producers to pass on the burden of rising input costs to consumers, thus increasing inflation (CPI).

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Monday :

  • Retail Sales (China)
  • Industrial Production (China)

Thursday :

  • Employment Change
  • Unemployment Rate

NZD

Finance minister Robertson stated that economic recovery was better than expected. There is a scope to lower debt levels after the recovery is secure. At the moment, monetary and fiscal policies will remain accomodative. Card spending in April rose 4% m/m with astonishing rise of 108.7% y/y showing just how devastating the first lockdown was.

CAD

USDCAD dipped below the 1.21 level at the start of the week and stayed below it for the first part of the week. Combination of weaker USD caused by disappointing NFP report and rising oil prices due to the Colonial Pipeline disruption led to drop. The pair has dropped below levels seen in September of 2017 and it was at the lowest levels since May of 2015. Once Colonial Pipeline restarted mid-week, oil prices tumbled, the pair reversed and breached the 1.22 level before dropping back again at the 1.21 level where it finished the week.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

  • CPI

Friday :

  • Retail Sales

JPY

BOJ summary of opinions from April policy meeting stated economy is likely to recover, mainly on external demand, but the outlook remains highly uncertain with risks skewed to the downside due to uncertainties caused by the pandemic. Household spending for March rebounded to 6.2% m/m from -6.6% m/m in February. This is the first positive reading in 3 months and although it is very welcoming it may be considered an anomaly. With reimposed state of emergency and falling income we cannot see consumption continuing to rise in the coming months.

This week we will have preliminary of Q1 GDP and May PMI readings.

Important news for JPY:

Tuesday :

  • GDP

Friday:

  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

CHF

SNB total sight deposits for the week ending May 7 came in at CHF705bn vs CHF701.4bn the previous week. This is a significant jump in sight deposits considering the trend from the past month and may indicate that SNB wishes to push EURCHF closer to the 1.10 level.

Forex Major Currencies Outlook (May 24 – May 28)

RBNZ meeting along with inflation data from the US will be most watched economic events in the quiet data week ahead of us.

USD

Housing starts in April surprised to the downside coming in at 1569k vs 1702k as expected. Building permits also missed but on a much smaller scale, they came in at 1760k vs 1770k as expected. Recent surge in material costs, particularly lumber, led to a slower supply of houses. Demand seems to be unaffected and this seems to be just a bump in a rising trend.

April’s FOMC minutes showed members feeling that economy still has a long way to go toward the recovery. The statement that caught the most attention was: “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.” Although the wording is very carefully constructed and contains many conditions, markets took it as hint that QE taper can come sooner than expected which pushed USD higher. We need to consider that the meeting took place before the latest weak NFP report. Additionally, we do not expect any serious talk from the Fed about tapering before Jackson Hole meeting, scheduled to take place in August.

This week we will have second estimate of Q1 GDP, durable goods orders for April so we get a glimpse in how Q2 is starting and Fed’s preferred inflation measure PCE along with personal spending data.

Important news for USD:

Thursday :

  • GDP
  • Durable Goods Orders

Friday :

  • PCE
  • Personal Spending

EUR

Preliminary May PMIs for the Eurozone showed manufacturing ticking down to 62.8 from 62.9 in April due to a drop in German reading. Still it is a very healthy reading indicating that manufacturing sector is going strong. Services showed impressive rebound coming in at 55.1 vs 50.5 in April. German services returned to expansion after a small dip down the previous month. Composite reading was also elevated and came in at 56.9 vs 55.1 as expected. Markit noted that: "Demand for goods and services is surging at the sharpest rate for 15 years across the eurozone as the region continues to reopen from covid-related restrictions. Virus containment measures have been eased in May to the lowest since last October, facilitating an especially marked improvement in service sector business activity, which has been accompanied by yet another near-record expansion of manufacturing. Growth would have been even stronger had it not been for record supply chain delays and difficulties restarting businesses quickly enough to meet demand, especially in terms of re-hiring.”

Second reading of Q1 GDP came in unchanged at -0.6% q/q and -1.8% y/y. After two consecutive quarters of negative growth reopening of economies is giving boost to services sector, as can be seen in May services PMI, which would in turn boost GDP and return it back into positive territory. Final inflation data for April showed headline reading unchanged at 1.6% y/y while core reading slipped to 0.7% y/y vs 0.8% y/y as preliminary reported.

GBP

Employment report for April shows positive impacts of reopening. Claimant count, unemployment claims, fell -15.1k. Official ILO unemployment rate ticked down to 4.8% from 4.9% in March while employment change for the previous three months came in at 84k vs 50k as expected and up from -73k measured the previous month. Inflation came in on par with expectations, headline 1.5% y/y and core 1.3% y/y. Energy prices contributed the most with a 9% increase in gas and electricity while clothing and footwear rose by 2.4%. As reopening continues, we are sure to see inflation readings in the coming months printing higher numbers.

Retail sales in April were impressive. Headline reading came in at 9.2% m/m vs 4.5% m/m as expected. Retail sales ex autos, fuel came in at 9% m/m vs 4.4% m/m as expected. Yearly figures came in at 42.4% y/y and 37.7% y/y respectively showing the stark contrast from year ago when the lockdown was first introduced. Clothing/footwear sales were the biggest contributor. This makes it a third consecutive month of rising retail sales indicating strong domestic demand. Additionally, this more than double beat on expectations, will revise Q2 GDP projections higher.

Preliminary PMI numbers for May show manufacturing at 66.1, services at 61.8 and composite at 62. This is the fourth consecutive month with all three PMI readings rising. Overall business activity is expanding at a on record level pace led by pent-up demand and loosening of restrictions. Strong PMI numbers add to the story of firm Q2 GDP reading.

AUD

Employment report was a mix of positives and negatives. On positive side we have the unemployment rate ticking down to 5.5% and full-employment rising 33.8k. On the negative side we have employment change dropping -30.6k vs 20k as expected, participation rate dropping to 66% from -66.3% in March and part-time employment falling -64.4k. RBA stated that the return to full employment is a high priority for monetary policy. A drop in the unemployment rate will be welcomed, but there is still a long way to go until it reaches the levels needed for rate hikes. Markets were not moved by the release as more data is needed to assess the employment picture.

Industrial production for April came in at 9.8% y/y vs 10% y/y as expected for a slight miss while retail sales came in at 17.7% y/y vs 25% y/y as expected for a large miss. Production of passenger cars was the biggest drag on the industrial production and it was caused by chip shortages while integrated circuits production showed the biggest rise. Regarding retail sales ING notes possibility that “this reflects postponed consumption to save for discounts in the Golden Week holiday in May, during which sellers offer more discounts on online shopping platforms. So, this could be a temporary slowdown, and if so, we should see a moderate rebound in May.”

NZD

GDT auction showed the price index coming in at -0.2%. This is the third auction in a row of falling prices, however all three drops were less than 1%. It is interesting that in times when almost all commodity prices are booming milk is staying almost flat.

This week we will have Q1 consumption data as well as RBNZ meeting. No changes in the rate are expected, however we may see the members hinting at lowering of QE programme, which in turn would give NZD a boost.

Important news for NZD:

Monday :

  • Retail Sales

Wednesday :

  • RBNZ Interest Rate Decision

CAD

Inflation in April came in at 3.4% y/y vs 3.1% y/y, up from 2.2% in March. This is the highest reading almost 10 years, it comes after two consecutive 0.5% m/m increases. Energy prices and transportation prices have contributed the most to price rises indicating base effects. Core readings also showed increases with median and trim readings coming in at 2.3% y/y while common was at 1.7% y/y. BOC already announced tapering of QE to CAD3bn/week and is on the way to raise rates next year. However, inflation is creeping in faster than they will react, so the question remains will they follow in footsteps of other central banks and label this inflation as transitory?

Retail sales in March showed another increase with headline reading coming in at 3.6% m/m vs 2.3% m/m as expected and ex autos category at 4.3% m/m vs 2.3% m/m as expected. Unfortunately, this will be the last month of positive readings in a while as during April Canada was under severe lockdown which inevitably curtailed retail sales. Advance estimate of April’s reading shows a -5.1% m/m print. Consumption component should not have a big contribution to Q2 GDP.

JPY

PPI data for April showed an increase of 3.6% y/y vs 3.1% y/y and up from 1.2% y/y in March. This reading confirms what we have seen in other countries, rising input prices. The ‘domestic final goods prices’ index, an index that has some measure of correlation with CPI, comes in at 1.7% y/y. BOJ may be happy to see some sign of inflation, although it is caused by supply-side issues. National inflation data show inflation reversing recent trend and plunging deeper into negative with headline reading coming at -0.4% y/y vs -0.2% y/y in March. Almost entire drop in headline reading can be attributed to drop in cell phone fees, which dropped 26.5% y/y. Preliminary May PMI showed declines with manufacturing coming in at 52.5 vs 53.6 in March and services coming in at 45.7 vs 49.5 the previous month. Services were hit hard by the reimposed states of emergency and it pulled composite down to 48.1 from expansionary 51 in March.

Preliminary Q1 GDP came in at -1.3% q/q vs -1.1% q/q as expected. A small miss due to the drop in business investment which came in at -1.4% q/q vs 0.8% q/q. Personal spending contracted less than expected and came in at -1.4% q/q vs -1.9% q/q as expected. Restrictions imposed by the state of emergency pushed GDP into negative territory. Considering current covid situation and extended states of emergency around the country it is likely that Q2 will also print negative reading. GDP for the fiscal year, March to March, fell -4.6% for the biggest drop ever recorded.

CHF

SNB total sight deposits for the week ending May 14 came in at CHF707.7bn vs CHF705bn the previous week. SNB is stepping up their game in the markets as EURCHF slides away from the 1.10 level.

Forex Major Currencies Outlook (May 31 – June 4)

RBA meeting, followed by preliminary Eurozone inflation data and NFP on Friday will be the highlights of the data filled week ahead of us. US and UK markets will be closed on Monday which will lead to lower liquidity in the markets.

USD

Consumer confidence in May dropped to 117 from downward revised 117.5 in April. Expectations were for a 119 reading. Present situation improved while expectations category seriously deteriorated. This indicates that short-term outlook is positive but long-term there are concerns among consumers. Three major categories, homes, automobiles and major household appliances, all showed declines in the long-term revealing unease among consumers regarding inflation effects down the 6-months period. New home sales in April came in at 863k vs 950k as expected. With the average sale price rising 20.8% y/y consumers are right to be concerned about what the future brings.

Preliminary April durable goods orders missed expectations and came in at -1.3% y/y. Headline reading was terrible, however core reading was the start. It rose 2.3% y/y vs 1% y/y as expected indicating that Q2 had a strong start. Additionally, March core reading was revised up to 1.6% y/y from 1% as previously reported. Q1 GDP reading was unchanged at 6.4% annualized. Personal consumption was higher at 11.3% vs 11% as preliminary reported with business investment now showing 10.8% vs 9.9% in the first reading.

Fed’s preferred inflation metric PCE for April came in at 3.6% y/y, up from 2.4% in March. Core PCE came in at 3.1% y/y vs 1.9% y/y the previous month. Base effects are the main culprits for such a jump in inflation. Fed members’ comments will be closely watched. Will they continue with their assessment of inflation as transitory or will they show some concern regarding high numbers? Personal spending dropped to 0.5% m/m from 4.7 m/m in March while personal income plunged -13.1% m/m due to government cheques being handed the previous month.

This week we will have ISM PMI data as well as NFP on Friday. After a weak April reading expectations are for headline number to print over 600k with the unemployment rate dropping to 6%.

Important news for USD:

Tuesday:

  • ISM Manufacturing PMI

Thursday:

  • ISM Non-Manufacturing PMI

Friday:

  • Nonfarm Payrolls
  • Unemployment Rate

EUR

Final reading of German Q1 GDP came in at -1.8% q/q vs -1.7% as preliminary reported with -3.1% y/y vs -3% y/y as preliminary reported. Final reading provided us with more information about the components of the GDP. The main drag was private consumption which came in at -5.4% q/q. With Germany being heavily under lockdown during Q1, the drop is completely justified. Net exports also contributed to the drop while government consumption and capital expenditure had positive impacts on the GDP. Markets are looking ahead toward H2 and with ongoing vaccination and reopening as well as low Q1 reading we can see a bigger rebound in Q2 and beyond. Ifo data for May showed all components rising indicating growing optimism among managers regarding Q2 and H2. A small concern is that raw material prices are rising rapidly and that producers are planning to shift increasing costs to consumers, thus leading to inflation.

Economic sentiment continues to improve. It has now risen to 114.5, propelled by the rise in services sentiment. Services rose to 11.3 from 2.2 in April due to reopening and loosening up of restrictions. They are now at their pre-pandemic levels. Final consumer confidence came in at -5.1, up from -8.1 the previous month. This is the highest consumer confidence reading since 2019 indicating growing optimism among consumers going into the summer.

This week we will have preliminary inflation data for the month of May.

Important news for EUR:

Tuesday:

  • CPI

GBP

Concerns regarding covid variant first identified in India were dragging the pound down in the first half of the week. France and Germany are now demanding quarantine for people arriving from the UK. Vaccination is progressing at high speed, however there is increase in cases for people younger than 30 years. BOE policy maker Vlieghe stated that the better view of slack in economy will be available once the furlough scheme ends. He also added that if there is a smooth transition from the furlough scheme early rate hike is possible. Hawkish comments gave boost to the pound up in the second half of the week.

AUD

Q1 capex data smashed expectations coming in at 6.3% q/q vs 2% q/q as expected. Equipment and machinery led the way with 9.1% q/q increase followed by buildings and structures with 3.8% q/q. Next week we will have Q1 GDP reading and these numbers showed a strong investment in the first quarter and will surely push it higher than expected.

This week we will have Q1 GDP data and RBA meeting. No changes in rate or policy are expected, however there may be a change in tone after their neighbours, RBNZ, came up with a hawkish stance. We will have both official and Caixin PMI data from China.

Important news for AUD:

Monday:

  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)

Tuesday:

  • RBA Interest Rate Decision
  • Caixin Manufacturing PMI (China)

Wednesday:

  • GDP

Thursday:

  • Caixin Services PMI (China)
  • Caixin Composite PMI (China)

NZD

Q1 retail sales printed another strong reading for the New Zealand economy. The reading came in at 2.5% q/q up from -2.6% q/q in Q4 and 6.8% y/y up from 4.6% in the previous quarter. Electrical and electronic goods were the biggest contributor, closely followed by recreational goods.

RBNZ has left cash rate, Funding for Lending and LASP programmes unchanged as was widely expected. The tone of the statement was decidedly hawkish and it shows bank’s projection that hikes of the cash rate may come in H2 of 2022, if data continues to be strong. This is similar to BOC’s timeframe for rate hikes. They have acknowledged that economic activity returned close to its pre-pandemic level. NZDUSD has jumped almost 80 pips after the statement was released and passed the 0.73 level. Some local New Zealand banks even see rate increases coming in May of 2022. Governor Orr stated that potential rate hikes are heavily dependent on the path of the economic recovery in New Zealand, adding that recovery is still highly uncertain, although downside risks have lessened.

CAD

BOC Governor Macklem stated that he is comfortable with lowering stimulus extended during the pandemic due to the domestic economy’s resilience. He assessed tapering to be the right move for the economy and added that the economy still needs considerable monetary support. CAD gained against USD at the start of the week but then USD strength, due to the month-end rebalancing, caused the pair to rise above the 1.21 level.

This week we will have Q1 GDP and employment data.

Important news for CAD:

Tuesday:

  • GDP

Friday :

  • Employment Change
  • Unemployment Rate

JPY

Japan’s issues with the COVID outbreak continue to mount with the US issuing a “do not travel to Japan” advisory. The opening ceremony for Summer Olympic Games is approaching fast, it is scheduled for July 23, while state of emergency in Tokyo area and other prefectures was extended until June 20. Vaccination rate in Japan is around 7%, well below the average for developed countries. The wages subsidy programme has been extended till the end of July in order to help economy cope with the pandemic.

CHF

SNB total sight deposits for the week ending May 21 came in at CHF709.6bn vs CHF707.8bn the previous week. With EURCHF staying below the 1.10 level SNB is increasing their activity in markets.

Forex Major Currencies Outlook (June 7 – June 11)

ECB and BOC meetings coupled with inflation data from the US will dominate this week that will have EURO 2020 finally start on Friday.

USD

ISM manufacturing PMI for May came in at 61.2 vs 60.9 as expected. The reading is still well in expansion with new orders continuing their rise and coming in at 67 vs 64.3 the previous month. The employment component fell to almost 50 due to labour shortage. Component shortages were reported by almost all of manufacturing sectors and they are restraining recovery. ISM services PMI came in at 64 vs 63.2 as expected and up from 62.7 in April. A new record high for the reading as production, new orders and new export orders all improved. Order backlog also improved indicating strong demand. Low points of the reading are drop in employment component and rise in prices paid component (over 80). Supplier delivery times rose over 70 indicating supply congestions.

Fed announced that it plans to wind down on their pandemic induced Corporate Credit Facility. Their holdings are small, around $5bn in bonds and $8.6bn in ETFs, especially compared to Fed’s total balance sheet where assets are standing at $7.9 trillion, however this could be the potential sign of incoming tapering. They may opt to take things slowly and gradually, to ease the investors and avoid unwelcome market movements.

NFP for May missed expectations for the second month in a row. Headline number came in at 559k vs 675k as expected. The unemployment rate dropped to 5.8% from 6.1% in April, but the drop was achieved on the back of falling participation rate which came in at 61.6%. The underemployment rate dropped to 10.2% from 10.4% the previous month. Fed’s focus has shifted solely to employment numbers and although this reading has some positives they will not feel pressured to taper soon. Wages showed a small increase, 0.5% m/m and 2% y/y. Continuous rise in wages should lead to sustained inflation pressures.

This week we will have inflation data. With reopening of the economy, combined with base effects from last year some analysts see headline number rising to 4.7% y/y with core printing 3.2% y/y.

Important news for USD:

Thursday :

  • CPI

EUR

Preliminary inflation data for May saw reading come in at 2% y/y, up from 1.6% y/y in April. Rise in energy prices is the dominant factor in headline reading. Core reading came in at 0.9% y/y, up from 0.7% y/y the previous month, but still below 1%. That fact should keep ECB calm and allow them to characterize the rise in headline number as “transitory”. Final manufacturing PMI was upgraded to 63.1 from 62.8 as preliminary reported on the back of improvements in both German and French readings. Services and composite slightly improved to 55.2 and 57.1 respectively, staying well into the expansion territory, with German and French reading being unchanged. Another set of positive data raising expectations for Q2 GDP.

This week we will have final Q1 GDP estimate and ECB meeting. There will be no changes in the rate and we expect members to leave out talk about slowdown in PEPP as to prevent bond yields from rising. Rising yields could potentially weaken the recovery in the Eurozone. ECB will publish new staff projections.

Important news for EUR:

Tuesday :

  • GDP

Thursday :

  • ECB Interest Rate Decision

GBP

Services were revised up to 62.9 from 61.8 as preliminary reported and pulled with them composite also to 62.9 from 62 as preliminary reported. With reopening and loosening of restrictions employment conditions improved significantly. ONS notes that, as of mid-May, only 8% of workforce are furloughed. This will give more credibility to incoming employment reports.

This week we will have GDP data for April showing us how strong was the start of Q2.

Important news for GBP:

Friday :

  • GDP

AUD

RBA has left the cash rate and 3-year bond target yield unchanged at 0.10% as was widely expected. They stated that economic recovery was stronger than expected and they see 2021 GDP at 4.75% and 2022 at 3.5%. Potential virus outbreaks, such as one seen in the state of Victoria, have been characterized as sources of uncertainty, but they should be contained as more people receive the vaccine. Statement shows a positive on the employment front: “Progress in reducing unemployment has been faster than expected with the unemployment rate declining to 5.5 per cent in April. Job vacancies are at a high level and a further decline in the unemployment rate to around 5 per cent is expected by the end of this year. There are reports of labor shortages in some parts of the economy.” The meeting showed barely any changes from the one in May, July meeting has potential to bring changes to the monetary policy.

Q1 GDP came in at 1.8% q/q vs 1.5% q/q as expected. Adding to the beat was the fact that Q4 GDP was revised up to 3.2% q/q. Household consumption came in at 1.2% and was led by spending on services, recreation and culture. Private investment came in at 5.3% with machinery and equipment investment had the biggest impact due to sustained improvement in business confidence and Government tax incentives. Imports rose faster than exports thus making net exports a drag on the GDP.

Official PMI data from China for the month of May showed manufacturing dipping slightly to 51 from 51.1 in April. Expectations were for a small rise, however semi-conductor chip shortage and input costs rising to the highest level in a decade contributed to a slight decline. Non-Manufacturing PMI improved to 55.2 from 54.9 the previous month due to increased spending during the Golden Week holidays. Composite PMI was pushed up to 54.2 from 53.8 the previous month. Caixin manufacturing PMI came in as expected at 52. Total new orders index climbed to the highest level in 2021 due to strong export sales. Employment index was slightly over the 50 level. Report states:” Rapidly rising commodity prices began to disrupt the economy as some enterprises began to hoard goods, while some others suffered raw material shortages. Supply chains were also significantly affected.” Caixin services came in at 55.1 and composite at 53.8. Both experienced drops but both are in the expansion territory. New export orders component dropped into contraction indicating fall in global demand.

PBOC raised FX reserve requirement ratio from 5% to 7% as a way to fight ongoing yuan strength. New requirement will be implemented on June 15. During the week they have set USDCNY level at 6.3572, the lowest level for the pair in over 3 years. However, after those levels the pair has gained strength as we moved towards the end of the week with Friday set at 6.4072.

This week we will have trade balance and inflation data from China.

Important news for AUD:

Monday :

  • Trade Balance (China)

Wednesday :

  • CPI (China)

NZD

Final business confidence in May came in at 1.8 vs 7 as preliminary reported. It is a big downgrade of the preliminary reading, however it is an improvement from April’s -2 reading. RBNZ Assistant Governor Hawkesby put a brakes on potential NZD upside with his comments that next year’s rate hike is dependent on underlying economic assumptions. GDT price index came in at -0.9% making it the fourth consecutive auction of falling dairy prices. RBNZ Governor Orr stated that dairy exports are supporting the economy. Although the prices are steady or slightly dropping, global demand for dairy products is very strong which in turn gives strength to New Zealand’s terms of trade.

CAD

Employment report for the month of May showed employment change dropping -68k vs -25k as expected. The unemployment rate ticked up to 8.2% while participation rate dropped to 64.6%, which is concerning. Wages continued to decline coming in at -1.4% m/m while both full-time and part-time employment showed declines. The province of Ontario remained under lockdown in May with few other provinces increasing restrictions in May which led to weaker employment reading. GDP in March came in at 1.1% m/m and helped Q1 rise to 5.6% q/q annualized, however expectations were for a 6.8% q/q annualized growth. We have entered into the last third of Q2 so this data point will be of interest mainly to economists while markets will ignore it.

This week we will have BOC meeting. After last month’s meeting there will be no changes in monetary policy or rate and the tone of the statement should remain upbeat.

Important news for CAD:

Wednesday :

  • BOC Interest Rate Decision

JPY

Industrial production in April came in at 2.5% m/m vs 3.9% m/m as expected and 15.4% y/y vs 16.9% y/y as expected. Yearly figures are inflated due to base effects since April of 2020 was horrendous month for producers. Still, figures are softer than expected indicating slack in the economy. Retail sales for the same period are adding to the economic woes. They came in at -4.5% m/m vs -1.7% m/m as expected and 12% y/y vs 15.2% y/y as expected. Reimposed states of emergency around the country heavily impacted consumer activity. Q1 capex data came in at -7.8% q/q vs -6.8% q/q as expected indicating lower business investment which may lead to weakness in Q2 GDP. On the positive side, May manufacturing PMI was upgraded to 53 and it showed expansion in output and new orders categories with employment continuing its rise. Additionally, services reading was upwardly revised to 46.5 and propped composite reading higher to 48.8. The good news stop there as when we dig into the services reading we see drops in ouput and new businesses. Business optimism drops to four-month low. With state of emergency prolonged until June 20, services reading next month may drop even lower continuing the trend of sixteen consecutive months below the 50 level.

CHF

SNB total sight deposits for the week ending May 28 came in at CHF710.5bn vs CHF709.6bn the previous week. A slight increase in the sight deposits indicating that SNB is standing ready to push EURCHF over the 1.10 level. SNB Chairman Jordan reiterated bank’s stance that Swissy remains highly valued and added that inflation risk is modest. Inflation was negative in Switzerland, excluding April, since January of 2020. Additionally, strong currency will have negative impact on inflation. Q1 GDP came in at -0.5% q/q vs -0.4% q/q with prior quarter being revised down to 0.1% q/q, thus making the reading even weaker.

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Forex Major Currencies Outlook (June 14 – June 18)

FOMC meeting will be the highlight of the week, followed by consumption data from the US, China and the UK. We will also have BOJ and SNB meetings, but they will largely be non-events.

USD

Headline CPI in May came in at 5% y/y vs 4.7%y/y as expected and up from 4.2% y/y in April. Core reading came in at 3.8% y/y vs 3.5% y/y and up from 3% y/y the previous month. The main contributor to the rise in inflation are surging prices of used cars. Airfares also showed significant increase in prices as people start travelling again. Wages data showed a drop in average weekly earnings due to the lower paying workers returning into the workforce.

World Bank has come up with new projections on global growth and they see 2021 GDP now at 5.6%, up from 4.1% in January. Projections for 2022 are at 4.3% and 3.1% for 2023. US is expected to grow at 6.8% vs 5.5% in January while China is seen at 8.5% vs 7.9% in January. The bank’s long-term inflation expectations show continuation of low and stable inflation.

This week we will have consumption data and FOMC meeting. No changes in rate and policy are expected, however tone and assessment of inflation data will be scrutinized. Will it be characterised as “transitory” and business will continue as usual for or will hints of QE taper be presented? New forecasts for growth, inflation and the dot plot will be published.

Important news for USD:

Tuesday:

  • Retail Sales

Wednesday:

  • FOMC Interest Rate Decision

EUR

ZEW survey for June showed that German investors are satisfied with current situation, as the reading printed -9.1 vs -28 as expected. This is a huge improvement from -41 print in May. However, expectation category came in at 79.8 vs 86 as expected indicating waning optimism regarding future, due to supply chain disruptions. Eurozone expectations also missed coming in at 81 vs 84 as expected. Final Q1 GDP reading was positively revised and now it prints -0.3% q/q and -1.3% y/y.

ECB has left key rates unchanged as widely expected. PEPP will continue until at least the end of March 2022 and it will run at a significantly higher pace. ECB President Christine Lagarde stated that it is too early to talk about an exit from asset purchase programme. The proverbial can has been kicked down the road toward July meeting or perhaps even September meeting. New ECB projections see 2021 GDP at 4.6% vs 4% previously and 4.7% vs 4.1% previously for 2022. Inflation numbers are also seen higher, 1.9% y/y for 2021 and 1.5% y/y for 2022. Bundesbank also came out with their projections and now see 2021 GDP at 3.7% vs 3.0% previously with 2022 GDP at 5.2% vs 4.5% previously. Inflation data show 2021 HICP at 2.6% vs 1.8% previously and 2022 HICP at 1.8% vs 1.3% previously.

GBP

UK is in still fighting with covid. New strain, the so-called Indian, since it was first discovered in India, is considered to have 40% more transmission power than the other already fast-spreading variants. BOE chief economist Haldane gave the pound a farewell gift. He stated that economy is going strong, price pressures are showing and that BOE may have to consider lowering stimulus. He will be leaving his post after the June meeting. GDP in April came in at 2.3% m/m showing strong start to Q2. Chancellor of Exchequer Sunak proposed that financial services be exempt from recently announced new tax regime that sees minimum tax rate for corporations at 15%.

GBPUSD has risen to 1.4188 on the back of his comments while GBPJPY continues it rise moving closer to levels not seen since February of 2018. Concerns regarding postponement of “Freedom Day” from June 21 to mid-July combined with increased tensions with the EU due to Northern Ireland border dragged GBPUSD below the 1.41 level, only to go above it after the US inflation data.

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday:

  • Claimant Count Change
  • Unemployment Rate

Wednesday:

  • CPI

Friday:

  • Retail Sales

AUD

Trade balance for China in May came in at $45.53bn, up from $42.85bn in April. Exports rose 27.9% y/y. Expectations were for a bigger rise in exports, but a slowdown in all exports containing semi-conductor chips was the cause of the miss. Imports came in at 51.1% y/y due to the large increase in commodity prices. CPI for the same month came in at 1.3% y/y vs 1.6% y/y as expected due to a drop in pork prices. Non-food prices rose by 0.9%. On the other hand, PPI came in at 9% y/y vs 8.5% y/y and up from 6.8% y/y in April. PPI has risen every month in 2021 and this is the highest reading in 13 years. Growing divergence between CPI and PPI growth leads to shrinking of profits for producers which raises two questions: First, when will increases in input prices be transferred from producers to consumers thus leading to rise in CPI? Second, why hasn’t it been done already? One possible answer is that consumer power in China is weak, leading to a low demand for products which will be weakened by the potential rise in prices.

This week we will have employment data from Australia as well as consumption and production data from China.

Important news for AUD:

Wednesday:

  • Retail Sales (China)
  • Industrial Production (China)

Thursday:

  • Employment Change
  • Unemployment Rate

NZD

Electronic card retail sales, a good proxy for overall retail sales in the country, continued to rise for the third straight month coming in at 1.7% m/m and 18.1% y/y.

This week we will have Q1 GDP data.

Important news for NZD:

Thursday:

  • GDP

CAD

BOC has left policy rate and pace of QE unchanged as widely expected. The Canadian economy has been advancing in line with the assessment presented in April. New wave of virus has been hurting the economy at the start of Q2, however it is expected that recovery will pick up during summer months. The rise in commodity prices, most notably in oil, has led to CAD strength. Q1 GDP was weaker than BOC expected but “underlying details indicate rising confidence and resilient demand". They assessed that CPI will most likely remain around 3% during summer months, it will drop as we move toward the end of the year and as base effects are removed from calculation. Slack in the economy is still seen, therefore accommodative monetary policy is needed. The meeting was a non-event and we turn now to July 17 meeting which should provide more excitement.

This week we will have inflation data.

Important news for CAD:

Wednesday:

  • CPI

JPY

Final Q1 GDP reading was revised up to -1% q/q from -1.3% q/q as preliminary reported. Private consumption was a bit weaker coming in at -1.5% while business investment improved to -1.2%. Labour wages continued to improve and in April doubled expectations coming in at 1.6% y/y vs 0.8% y/y as expected.

This week we will have BOJ meeting. No changes in rate and monetary policy are expected.

Important news for JPY:

Friday:

  • BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending June 4 came in at CHF710.8bn vs CHF710.5bn the previous week. Employment picture continues to improve as seasonally adjusted unemployment rate in May came in at 3%, down from 3.2% in April. Inflation was impacted by base effects but with headline reading printing 0.6% y/y and core just 0.2% y/y SNB will just glance over it and continue with current monetary policy.

This week we will have SNB meeting. No changes in rate and monetary policy are expected.

Important news for CHF:

Thursday:

  • SNB Interest Rate Decision

Forex Major Currencies Outlook (June 21 – June 25)

BOE meeting coupled with preliminary June PMI data from Europe and PCE inflation data from the US will be the most interesting events in the week ahead of us.

USD

Retail sales in May missed expectations by coming in at -1.3% m/m vs -0.7% m/m as expected. On the positive side there was a big upward revision to April’s reading, up to 0.9% m/m from being flat as initially reported. Control group came in at -0.7% m/m vs -0.4% m/m as expected, however prior month’s reading was revised up all the way to -0.4% m/m vs -1.5% m/m as reported. Building materials and electronics reported big declines while clothing and personal care were positive. Consumers are dialling down on purchases of goods. Potentially they are switching their spending to services now that restrictions are loosened.

Fed has left its rate and monetary policy unchanged at their June meeting. QE will go on at the current pace of $120bn per month and stance on rates has been reiterated, they will remain at the current level “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.” FOMC dot plot has shown a more hawkish picture with 7 Fed officials seeing rates higher in 2022, up from 4 at March meeting and 13 of them seeing rates higher in 2023, up from 7 at March meeting. They are now predicting 2 rate hikes in 2023. Central tendencies for 2021 show GDP at 6.8% to 7.3% vs. 5.8% to 6.6% in March. The unemployment rate has been adjusted higher at 4.4% to 4.8% vs 4.2% to 4.7% in March. Inflation (PCE) is now seen much higher at 3.1% to 3.5% vs 2.2% to 2.4% in March with Core PCE at 2.9% vs 3.1% vs 2.0% to 2.3% in March.

Fed Chairman Powell stated that indicators of activity and employment continue to improve. He says that US is on a path for a very strong labor market in 1-2 years’ time. Current employment levels have been impacted by unemployment benefits (set to expire in September) and child care needs (will be eased once childcare centers reopen). Household spending and business investment are rising at a solid pace. Inflation has been “notably” higher and there is a possibility it could be persistent. Chairman added that “Inflation expectations have continued to move up”. There was a clear move from characterizing inflation as “transitory”. Powell seems to move his approach from data-based to more forward looking. USD gained over 100 pips against EUR and GBP on the news and pushed them below 1.20 and 1.40 levels respectively. Gold was also hammered toward the $1800 and it dropped below that level later in the week.

This week we will have PCE inflation and personal spending data. With Fed upgrading their projections for inflation we can expect PCE reading to come above 4%.

Important news for USD:

Friday :

  • PCE
  • Personal Spending

EUR

Industrial production in April came in at 0.8% m/m vs 0.4% m/m as expected and 39.3% y/y vs 37.4% y/y as expected. Additionally, readings for previous month have been upwardly revised, thus adding more to the already strong April reading. Durable goods were up 3.4% while capital goods were up 1.4%. Yearly reading is particularly high due to base effects. Disruptions within supply chains as well as increasing price pressures are posing concerns for the future of industrial production. Overall, another input positively contributing to the expected rebound in Q2 GDP. Final inflation numbers for May saw CPI unchanged from preliminary reading at 2% while core ticked slightly higher to 1% from 0.9% as preliminary reported. With core reading so muted there will no pressure on ECB to change its course. ECB officials have already reiterated that it would be premature to end the PEPP program.

This week we will have preliminary June PMI readings.

Important news for EUR:

Wednesday :

  • Markit Manufacturing PMI (EU, Germany, France)
  • Markit Services PMI (EU, Germany, France)
  • Markit Composite PMI (EU, Germany, France)

GBP

Employment data showed claims drop -92.6k in May vs -15.1k in April. Claimant count rate dropped to 6.2% from 7.2% the previous month. ILO unemployment data for April ticked down to 4.7% from 4.8% while three-month employment change rose 113k (expectations were for a 135k rise). Wages were also higher with both regular and ex-bonus weekly readings coming in at 5.6% 3m/y. A strong report showing the labor market moving in the right direction. An additional positive is that sectors that were suffering most through the pandemic, hospitality, are showing signs of job recovery.

Inflation is starting to pick up in May. Headline number came in at 2.1% y/y vs 1.8% y/y as expected with core reading coming in at 2% y/y vs 1.5% y/y as expected. The reading is influenced by base effects as well as higher input prices. Rising prices for clothing, recreational goods, fuel as well as for meals and drinks also contributed to higher inflation. Retail sales missed expectations, but are still well above pre-pandemic. Headline number came in at -1.4% m/m vs 1.5% m/m as expected while ex autos, fuel category came in at -2.1% m/m vs 1.4% m/m as expected. Food stores were the main drag on the reading. The reading was also influenced by the incoming shift from goods in physical stores toward services.

Prime Minister Johnson stated that the government’s concern regarding new Delta variant of the virus and decided to delay end of lockdown for four weeks, until July 19. He expressed his confidence that lockdown will not be prolonged after July 19 with possibility that if virus developments move in positive direction it could lead to earlier end. News reports see that earlier end on July 5.

This week we will have preliminary June PMI readings as well as BOE meeting. No changes in rate and policy are expected at this meeting. Inflation did rise above 2%, but the bank should tolerate it until it goes into 3-3.5% range.

Important news for GBP:

Wednesday :

  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

Thursday :

  • BOE Interest Rate Decision

AUD

Australia printed a massive employment report. Employment change came in at 115.2k vs 30k as expected. The unemployment rate plunged to 5.1% from 5.5% the previous month, expectations were for it to remain at 5.5%. Additionally, the drop in the unemployment rate was achieved on the back of rising participation rate which came in at 66.2% vs 66% in April. Finally, as the icing on the cake, 97.5k were full-time jobs. Employment has now moved above pre-pandemic levels (860k jobs lost and around one million gained). Should this translate to higher wage growth it will create inflationary pressures and propel RBA to act sooner than they expected. RBA targets the unemployment rate at 4.5% and wage growth in the range of 3-3.5%. The underemployment rate has fallen to 7.4% indicating that workers are finding jobs they want, which potentially could lead to the shortage in qualified workers and in turn lead to rising wages as employers will have to pay more to entice workers.

Data from China again missed expectations. Retail sales came in at 12.4% y/y vs 14% y/y as expected while industrial production came in at 8.8% y/y vs 9.2% y/y as expected. Car sales were the biggest drag on the retail sales and main cause for the miss. Misses are concerning but numbers are rather high indicating that China is well on its recovery path. Global supply chain disruptions and increasing commodity prices are presenting big problems for the economy.

NZD

Q1 GDP showed strength of New Zealand economy by coming in at 1.6% q/q vs 0.5% q/q as expected. Rebound in activity was praised and it forced some analysts (ANZ) to move their projections for a rate hike toward February of 2022. GDT price index came in at -1.3%, thus making it fifth consecutive auction of falling prices. Despite great GDP data USD strength proved too much for Kiwi as NZDUSD dropped below the 0.70 level.

CAD

Manufacturing sales in April came in at -2.1% m/m vs -1.1% m/m as expected. Sales were down in 11 out of 21 industries and were led by transport equipment and petroleum as well as coal products. The reimposed lockdowns in April had an adverse effect on sales with them falling almost double as expected while March reading was upwardly revised. Inflation continued to increase and it came in at 3.6% y/y vs 3.5% y/y as expected and up from 3.4% y/y the previous month. Main contributors to the rise in prices were prices for shelter and durable goods. Core measures also continued to increase with median and trimmed versions above 2% and common core reading getting close to it at 1.8% y/y.

BOC Governor Macklem stated his satisfaction with economic recovery so far adding that complete recovery will take some time. However, stimulus is still needed as large parts of the economy remain weak. Incoming inflation numbers reflect base effects. The bank is aware of recent CAD strength and has taken it into consideration as it could cut exports, particularly exports of services.

JPY

BOJ left the rate unchanged at -0.1% as was widely expected. Economy is hit hard by the pandemic but slowly picking up. That is why the bank decided to extend pandemic relief program after September of 2021 until March of 2022. Exports and output are showing steady increases while consumption is stagnating. Governor Kuroda stated their readiness to ease monetary policy further if need arises adding that there is need to continue with monetary easing to achieve a 2% inflation target. With national inflation printing -0.1% y/y in May, that target will not be reached any time soon. Prime Minister Yoshihide Suga stated that state of emergency in Tokyo will end on June 20. State of emergency will also end for other prefectures as start of Olympic Games (July 23) draws nearer.

CHF

SNB has left the policy rate unchanged at -0.75% as was widely expected. Standard statements such as Swiss franc remains highly valued and bank’s readiness to intervene in the FX market if needed were flaunted. Inflation for 2021 is now seen averaging at 0.4% vs 0.2% as previously expected while GDP is seen at 3.5%. SNB total sight deposits for the week ending June 11 came in at CHF711bn vs CHF710.8bn the previous week.

Forex Major Currencies Outlook (June 28 – July 2)

NFP and preliminary June inflation data dominate the week. The week ahead of us marks the end of Q2 so there may be bigger market moves as money managers rebalance their portfolios. Caution is advised.

USD

PCE inflation data in May came in line with expectations. Headline at 3.9% y/y and core at 3.4%. Although both readings were higher than previous month they show that inflation is not running out of control, no need for Fed to act faster than intended and consequently weaker USD. Personal income fell less than expected (-2% vs -2.5%) while personal spending remained flat. Flatness of spending can cause concern, however previous month’s reading was upwardly revised to 0.9% from 0.5% thus mitigating the weakness. Durable goods in May came in at 2.3% m/m vs 2.8% m/m as expected. Capital goods, a good proxy for capex, came in at -0.1% m/m vs 0.6% m/m as expected. Capital goods reading was partially offset by the upward revision to April’s reading (2.7% from 2.2%). Supply chain disruptions negatively impacted readings.

Fed Chairman Powell testified in front of the congress and played down market expectations for rate hikes. He stated that Fed will not prematurely raise rates. They are confident that inflation will wane over time and incoming data confirms their assessment. Fed’s Kaplan, a hawk, stated that he sees a rate hike in 2022 and expects PCE for 2021 to be at 3.4%, then dropping to 2.4% in 2022. Fed’s Williams, a more neutral member, stated that in his view inflation will come down to around 2% in 2022 and 2023. Bipartisan deal on infrastructure deal has been reached. Now it has to go through senate for voting, but cracks already start to appear thus decreasing chances of it being legislated.

This week we will have ISM manufacturing data as well as NFP data for June. Headline NFP number is expected to be around 600k with unemployment rate ticking down to 5.7%. Wages are now getting more attention for clues regarding potential wage inflation.

Important news for USD:

Thursday:

  • ISM Manufacturing PMI

Friday:

  • Nonfarm Payrolls
  • Unemployment Rate
  • Average Hourly Earnings

EUR

Preliminary PMI data for Eurozone in June showed manufacturing PMI stay unchanged at 63.1 due to small increase in German reading combined with a small decrease in French reading. Services, on the other hand, matched expectations but showed a big improvement from May reading coming in at 58 vs 55.2 the previous month. Again, German reading showed a big beat over expectations while French reading missed them. Ultimately, composite reading improved to 59.2 from 57.1 in May. Highly elevated numbers show that the Eurozone had a great rebound in Q2, even accelerating towards the end of it and is entering on a strong note into Q3.

Preliminary consumer confidence in June came in at -3.3 vs -3.1 as expected. A slight miss can be overlooked since confidence is moving in the right direction, strengthening from -5.1 in May. Additionally, current reading is above pre-pandemic reading indicating that consumers are very optimistic regrading reopening which in turn will give strength to the economy at least until the end of 2021. German Ifo data for June continued to rise strongly, beating expectations. Business climate is now at 101.8, well above pre-pandemic levels. Current situation and expectations are also above pre-pandemic levels indicating growing optimism regarding economy within German companies.

This week we will have preliminary inflation data for June.

Important news for EUR:

Wednesday:

  • CPI

GBP

Preliminary PMI data in June showed a small declines compared to May reading, however they are above the 60 level for the third straight month. Manufacturing came in at 64.2 vs 65.6 in May while services slightly dipped to 62.8 from 62.9 the previous month. Composite reading printed 61.7 vs 62.9 the previous month. With all three of Q2 months printing readings of over 60 it is easy to predict and expect very strong Q2 GDP reading, perhaps even above the 5% mark.

BOE has left its rate and asset purchase program unchanged as was widely expected. In the accompanying statement they have characterized inflation as transitory adding that inflation expectations remain well anchored. They expressed their concerns about the number of people willing to go back to work after furlough scheme expires in September. GDP for Q2 was revised up by 1.5% from May’s report due to easing of restrictions and their positive effect on the economy. Overall, bank’s message oozed with cautious optimism. Markets are pricing two rate hikes by the H1 of 2023.

AUD

Markit came out with preliminary PMI data for the month of June and they showed declines when compared to the previous month. Manufacturing was at 58.4 vs 60.4 in May. Services were at 56 vs 58 in May while composite dropped to 56.1 from 58 the previous month. All three readings are well into the expansion territory which bodes well for the economy. Markit noted strong rebound from the pandemic induced crisis, although firms are “slightly less optimistic with regards to output in the next 12 months amid the uncertain virus and supply situation."

This week we will have official and caixin manufacturing PMI data for the month of June.

Important news for AUD:

Wednesday:

  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)

Thursday:

  • Caixin Manufacturing PMI (China)

NZD

NZDUSD had a bounceback of more than 150 pips during the week. Westpac’s quarterly Employment Confidence Index rose by 4.4 from March to 103.9. Westpac notes that confidence about labour market conditions is now greater than pre-pandemic levels. Trade surplus in May increased to NZD469m from NZD388m the previous month. NZDJPY longs were the best performing trade of the week.

CAD

Retail sales in April came in at -5.7% m/m vs -4.9% m/m. April was the month when harsh lockdown restrictions were imposed and it manifested in big drop in consumption. Preliminary reading for May shows retail sales at -3.2% m/m. We can expect a pick up in consumption to show up in June reading as country reopens.

JPY

Preliminary PMI data for June shows manufacturing at 51.5 vs 53 the previous month. This is a second month of declines in manufacturing caused by supply chain disruptions. Positive from this is that reading is still in expansion territory. Services rebounded slightly to 47.2 from 46.5 in May but they could not attribute enough to the rise in composite PMI which fell to 47.8 from 48.8 the previous month. Markit notes that new orders continued to decline while employment continued to expand despite slowdown in demand. All three inflation data points for Tokyo area in came in flat. This makes it the first non-negative reading for headline inflation since September and since July for ex fresh food category.

CHF

SNB total sight deposits for the week ending June 18 came in at CHF712.2bn vs CHF711bn the previous week. As the Swissy gains strength and EURCHF moves away from the 1.10 level, SNB decided to raise their activity in the market.

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Forex Major Currencies Outlook (July 5 – July 9)

RBA meeting will draw the most attention in the week that will also see FOMC minutes, employment data from Canada and inflation data from China. Please note that Monday is a holiday in the US, some markets will be closed leading to lower liquidity in the markets. Caution in trading is advised.

USD

Consumer confidence measured by The Conference Board rose to 127 in June from upwardly revised 120 in May. Consumers are positively assessing job market conditions and are expecting incomes to rise over the next six months. With many states being fully re-opened consumer confidence is booming and hurrying to catch the pre-pandemic levels.

ISM manufacturing PMI in June came in at 60.6, down from 61.2 in May. This is the fifth consecutive month that reading is above the 60-level indicating a very strong manufacturing sector. Production index rose above the 60 level and new orders keep at immensely strong 66, indicating increased demand for manufacturing products, but the sector has troubles keeping up with the demand. Employment index surprised unpleasantly by coming in below 50 level, albeit at 49.9 indicating struggle for employers to find workers which in turn could lead to employers offering higher wages in order to entice workers. Additionally, prices paid index rose to 92.1, meaning that 92.1% of surveyed saw input prices increase.

NFP headline number for June came in at 850k, stronger than 700k as expected and up from 583k in May. Surprisingly the unemployment rate ticked higher to 5.9% from 5.8 the previous month while participation rate stayed the same at 61.6%. An encouraging sign is that underemployment rate fell again, this time it is single-digit 9.8% from 10.2% in May. This is the first time the rate is below 10% since March of 2020. Wages continued to increase but at the slower pace than expected. They came in at 0.3% m/m and 3.6% y/y. Additionally, wage growth in May was revised down.

This week we will have ISM Non-Manufacturing PMI as well as minutes from the last FOMC meeting.

Important news for USD:

Tuesday :

  • ISM Non-Manufacturing PMI

Wednesday :

  • FOMC Minutes

EUR

Economic sentiment data for the Eurozone in June continued to improve and pass pre-pandemic levels. Economic sentiment came in at 117.9 and marked highest reading since 2000, indicating overwhelming optimism regarding post-pandemic recovery. Final consumer confidence came in at -3.3 as preliminary reported confirming the best level since November 2018. Preliminary inflation data for June came in as expected with headline number at 1.9% y/y and core number at 0.9% y/y. Inflation eased from the 2% and 1% the previous month, however this seems to be just a small bump rather than reversal of rising trend. German VAT will come into full force the following month and it will push prices higher.

ECB executive board member Fabio Panetta stated that risk of second-round inflation effects remains limited and added that there needs to be confidence that monetary and fiscal policy support will not be withdrawn prematurely. ECB policy maker Holzmann stated that bank will have a better view of PEPP in September indicating that we could see some changes at their meeting in September.

GBP

Final Q1 GDP reading came in at -1.6% q/q vs -1.5% q/q as preliminary reported. Private consumption was weaker than preliminarily reported while business investment was stronger. Additionally, net exports were a positive contributor to GDP.

Newly appointed UK health secretary Javid, former Chancellor of Exchequer, stated that currently there are no reasons to prolong full reopening past July 19. By that time millions more people will receive a vaccine.

This week we will have GDP data for the month of May.

Important news for GBP:

Friday :

  • GDP

AUD

Official PMI data from China for the month of June came in weaker compared to previous month, but the drop was smaller than expected. Manufacturing was at 50.9 vs 50.8 as expected, services were at 53.5 vs 52.9 as expected which dragged down composite to 52.9 from 54.2 in May. Covid related issues led to a drop in factory output and new export orders. In combination with lowering of input prices by Chinese government intervention to prevent commodity price speculation it led to a small drop in manufacturing reading. Covid outbreaks within China also had detrimental effect on the services reading as logistics and hospitality were hit hard. Caixin manufacturing PMI came in at 51.3, down from 52 in May but still in expansion. The reading has been in expansion since April of 2020, that is 14 consecutive months. The report shows easing price pressures, rising employment in the sector as well as stable domestic and overseas demand. Industrial profits in China for May came in at an impressive 36.4% y/y.

This week we will have RBA meeting. No changes in the rate are expected but we could see the bank abandoning November 2024 as 3y bond due to a strong employment report in May. We will have inflation data from China.

Important news for AUD:

Tuesday :

  • RBA Interest Rate Decision

Friday :

  • CPI (China)

NZD

RBNZ statement from their latest meeting showed that bank is satisfied with the way the economic recovery is going on. They see the economy now returning to pre-pandemic levels. Bank members noted that the recovery is still vulnerable and that continued monetary and fiscal policy is needed. Their message on normalizing policy was rather convoluted and not revealing much, stating that “As long as COVID-19 is contained and the global and economic recovery is sustained, eventually economic policy settings can be expected to normalize over the medium term.” ANZ survey showed business confidence in June dropping to -0.6 from 1.8 in May with almost 85% of retailers planning to raise their prices in the next three months, thus putting immense pressure on prices.

CAD

GDP in April came in at -0.3% m/m vs -0.8% m/m as expected. A drop that was much smaller than expected during the harsh lockdown. Preliminary GDP for May is expected to also come at -0.3% m/m. Economic activity is now at about 1% lower than it was in February of 2020 when the pandemic broke out.

This week we will have employment data.

Important news for CAD:

Friday :

  • Employment Change
  • Unemployment Rate

JPY

The unemployment rate in May continued to climb coming in at 3%, up from 2.8% in April. Although the, trend is negative, almost every country in the world would love to have such low unemployment numbers. Consumption, on the other hand, is not something for envy. In May it came in at -0.4% m/m and 8.2% y/y. This is the second consecutive month of drops and it is highly influenced by state of emergency situation that was imposed across Japan in that time period.

CHF

SNB total sight deposits for the week ending June 25 came in at CHF712.5bn vs CHF712.2bn the previous week. With EURCHF sitting comfortably above the 1.095 level SNB is staying away from intervening in the markets. Headline inflation in June remained at 0.6% y/y as in May while core inflation ticket up to 0.3% y/y from 0.2% y/y the previous month. With such low-price pressures, SNB can hold back and wait to see what ECB will do before deciding to act.

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Forex Major Currencies Outlook (July 12 – July 16)

BOC, RBNZ and BOJ all meet this week and the markets have big expectations for the first two meetings. US inflation and consumption data coupled with GDP data from China will also attract attention.

USD

ISM Services PMI for the month of June came in at 60.1 vs 63.5 as expected and down from 64 in May. This is a big miss led by a drop in the production index of over 6 points. The employment index, same as with last week’s manufacturing report, slid below the 50 level to 49.3. As long as there are unemployment benefits coupled with the need for parents to stay at home in order to take care of their children, we will see issues with employment. A brighter picture should be from September on when unemployment benefits expire and schools reopen. New orders dropped slightly while new export orders showed significant decline, barely hanging in expansion territory at 50.7. Overall, the reading at 60.1 is very encouraging and it is still among the highest recorded.

FOMC Minutes from the latest June meeting showed various participants expecting conditions necessary for reduction of the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of economic data, indicating that reduction in QE could come by the end of the year. Many participants felt that economy was still ‘far’ from achieving maximum employment goal while majority of them concluded that risks to inflation projections are tilted to the upside.

This week we will have inflation and consumption data.

Important news for USD:

Tuesday :

  • CPI

Friday :

  • Retail Sales

EUR

Final services PMI reading for June came in at 58.3 vs 58 as preliminarily reported. There was a positive revision to French reading and a negative revision to German reading. The composite is held high at the 59.5 level with German reading hanging above the 60 level. We can see strength from Q2 moving into Q3 as PMI readings will stay elevated in the coming quarter. Markit notes that: “Business is booming in the eurozone’s service sector, with output growing at a rate unsurpassed over the past 15 years. A wave of optimism that the worst of the pandemic is behind us has meanwhile propelled the firms’ expectations of growth to the highest for 21 years, boding well for the upturn to gain further strength in coming months. Firms are increasingly struggling to meet surging demand, however, in part due to labour supply shortages, meaning greater pricing power and underscoring how the recent rise in inflationary pressures is by no means confined to the manufacturing sector.”

German ZEW survey for July showed current conditions returning to positive for the first time in 2 years with the 21.9 reading reflecting optimism surrounding reopening. Concerns are located in the expectations category which fell to 63.3 from 79.8 in June for Germany and to 61.2 from 81.3 the previous month for the Eurozone. European Commission put out new projections for GDP and inflation. GDP was upgraded to 4.8% in 2021 and 4.5% in 2022 while inflation is now seen at 1.9% in 2021 and 1.4% in 2022. They see upside risks to inflation and characterize overall risks to the economy as balanced.

Results of ECB’s 18-month long strategy review show the bank abandoning its “close to but below 2%” inflation target and adopting new symmetric 2% inflation target over medium-term. HICP remains the appropriate price measure. The ECB has explicitly recommended including OOH (owner-occupied housing) in HICP calculation over time. New strategy will be applied from the July meeting which is to be held on July 22. ECB president Lagarde stated that a new “more narrative based” statement will replace introductory statement at ECB press conference.

GBP

Both services and composite PMI improved from their preliminary 61.7 reading to 62.4 and 62.2 respectively. UK economy is still going on strong with all three PMI readings printing above 60 for the third consecutive month once again confirming a strong growth in Q2. Markit noted that backlogs of orders increased at the fastest pace in the history of the survey which spans since 1996. Worker shortages combined with supply delays were the main constraints on growth. Input prices remain highly elevated across all service sectors indicating mounting price pressures (inflation). GDP in May increased by 0.8% m/m vs 1.5% m/m as expected. That is a big miss and it pushed GBPUSD pair down, however it is a fourth consecutive monthly increase and it puts Q2 GDP on the right path. Additional positive is that consumer services activity showed a continued strong rebound due to the ongoing reopening.

Prime Minister Johnson announced that lockdown restrictions will be lifted on July 19, the so-called “Freedom Day”. He added that pandemic is far from over and that cases are rising, however the question he asked was along the lines of “if not now, when?”. People will not be mandated to wear face masks and will no longer be instructed to work from home.

This week we will have inflation and employment data.

Important news for GBP:

Wednesday :

  • CPI.

Thursday :

  • Claimant Count Change
  • Unemployment Rate

AUD

RBA has left cash rate unchanged at 0.10% as was widely expected with 3-year bond yields still capped at 0.10%. April 2024 bond has been retained as the targeted bond. The bank members stated that bond purchases will continue after current program is completed in September. They have also acknowledged that economic recovery is stronger than previously expected and that labour market continued to improve at the faster pace. The response to improved outlook will be done by adjusting weekly amount of bonds purchased from AUD5bn to AUD4bn and further assessment of economic situation will be done in November. The tone of the statement was dovish and it was amplified by the statement from governor Lowe that RBA will not hike rates before 2024. Further on, Lowe added that QE will likely be needed in the future business cycles. AUD managed to rise due to the reduction in bond purchases, which can be interpreted as positive sign for the economy, but will find itself under pressure from other currencies in the future, most notably NZD for which there are already calls for rate hike in November.

Caixin services heavily missed expectations by coming in at 50.3 vs 55.7 as expected. This has pulled composite reading to 50.6 from 53.1 in May. Services printed their lowest reading in 14 months. The reading still holds above the 50 level, however drops in new orders were significant as South China was hit hard with new virus outbreak. Inflation data for June showed CPI ease to 1.1% y/y from 1.3% y/y in May due to a drop in food prices (-1.7% y/y), especially pork prices (-38.5% y/y), with PPI rising 8.8% y/y vs 9% y/y the previous month. This is the first time in 2021 that PPI is not rising at a faster pace than previous month. Chinese government stated that it will cut Reserve Requirement Ratio (RRR) for SMEs and then made a broad-based rate cut of 50bp. The decision will come into effect on July 15.

This week we will have employment data from Australia as well as trade balance, GDP, consumption and production data from China.

Important news for AUD:

Tuesday :

  • Trade Balance (China)

Thursday :

  • Employment Change
  • Unemployment Rate
  • GDP (China)
  • Retail Sales (China)
  • Industrial Production (China)

NZD

Quarterly Survey of Business Optimism showed a business confidence at 7% in Q2 vs -13% in the previous quarter. This huge improvement led a majority of local banks to cite it as the main reason for their call for RBNZ rate hike in November of this year. Market pricing for the rate hike is above 80%. NZDUSD was pushed higher on the rate hike optimism. With RBA leaving policy unchanged and RBA governor Lowe stating that rate hikes will not come before 2024 AUDNZD short seems like a better trade.

This week we will have RBNZ meeting and inflation data for Q2. No changes to rate are expected but we should see RBNZ to formally announce date when they will stop with QE.

Important news for NZD:

Wednesday :

  • RBNZ Interest Rate Decision

Friday :

  • CPI

CAD

Employment report for June showed some very encouraging data. Employment change came in at 230.7k vs 195k as expected. The unemployment rate fell to 7.8% from 8.2% in May. Participation rate was the number one star as it rose to 65.2% from 64.6% the previous month. The level is highest since March of 2020, beginning of pandemic in Canada. Parts of Canada are still under lockdown but easing of restriction is expected to come soon which should lead to additional strong employment reports. One big concern with the report is that full-time employment fell -33.2k and all of the gains were recorded in part-time employment (263.9k). Overall, we can expect a more upbeat tone regarding the labour market coming from the BOC.

This week we will have BOC meeting. No changes to rate are expected but we should see asset purchases being reduced by additional CAD1bn per week.

Important news for CAD:

Wednesday :

  • BOC Interest Rate Decision

JPY

Final services PMI number for June improved to 48 from 47.2 as preliminarily reported. Composite was thus pushed to 48.9, a tick up from 48.8 in May. Services reading remains in contraction territory for the 17th consecutive month. Although state of emergency has been lifted in many prefectures we can expect reading to stay below the 50 level due to negative signs from new business and employment indexes. Household consumption in May came in at 11.6% y/y while labour earnings rose 1.9% y/y, thus making it the biggest increase in over 3 years. Both readings were impacted by the base effects from the last year.

Prime Minister Yoshihide Suga declared a state of emergency for Tokyo area. The new state of emergency will run through August 22. The Olympic Games are set to start on July 23 and will have even more limited live audience than previously calculated with. Additional state of emergency will further impair the economy, especially services sector where, as we stated, negative signs are mounting.

This week we will have BOJ meeting. No changes to rate are expected but we should see BOJ lower their growth projections.

Important news for JPY:

Friday :

  • BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending June 2 came in at CHF712.1bn vs CHF712.5bn the previous week. A small decline in the deposits indicating SNB’s absence, for the moment, from the markets. Seasonally adjusted unemployment rate ticked higher to 3.1% in June.

Forex Major Currencies Outlook (July 19 – July 23)

ECB meeting will be the highlight of the week followed by preliminary PMI data from Europe and the UK.

USD

Inflation in June surprised to the upside and continued its trend. Headline number came in at 5.4% y/y vs 4.9% y/y as expected and up from 5% y/y in May. Core reading came in at 4.5% y/y vs 4% y/y as expected and up from 3.8% y/y the previous month. Prices of used cars were the biggest contributors showing a devastating impact that chip shortages have on a car industry. Core inflation is now at highest levels since 1991 and indicates economy running hot. USD has gained over 50 pips across the markets. The reading should prompt Fed to react and begin tapering QE to fight the overheating economy. Expectations are for the first hints to be shown at the Jackson Hole meeting in August. On the other hand, with used car prices contributing almost a third of the overall inflation reading, Fed could continue with its inflation is transitory narrative and avoid tapering. Without prices of used cars headline inflation would be almost 2% lower.

Retail sales in May posted a positive surprise. The headline reading came in at 0.6% m/m vs -0.4% m/m as expected. Control group, it goes into GDP calculation, came in at 1.1% m/m vs 0.4% m/m as expected while ex-autos category came in at 1.3% m/m vs 0.4% m/m as expected. When we dig deeper into the report we see that food services and drinking places rose 2.3% m/m indicating that consumers are going out after reopening and spending their savings. Electronics rose 3.3% m/m and clothing rose 2.5% m/m while vehicle sales showed a drop of 2% m/m.

In a prepared statement Fed Chairman Powell stated that economy needs continued support until “substantial further progress” is reached, which is still a ways off. On the inflation front he stated that inflation will remain elevated in the coming months but expects it to ease (continuing to characterize it as transitory). He seems unmoved by the recent inflationary readings which he characterized as “uncomfortably high”.

EUR

ECB President Lagarde stated that after bond purchases end on March 2022 a new form of bond-buying support program could be introduced adding that policy guidance will be revisited at July 22 meeting. Industrial production in May dropped significantly as it came in at -1% m/m vs -0.3% m/m as expected showcasing the difficulties enhanced by chip shortages and supply chain disruptions.

This week we will have ECB meeting and preliminary July PMIs. ECB should come out with a change in language, but not a change in policy.

Important news for EUR:

Thursday :

  • ECB Interest Rate Decision

Friday :

  • Markit Manufacturing PMI (EU, Germany, France)
  • Markit Services PMI (EU, Germany, France)
  • Markit Composite PMI (EU, Germany, France)

GBP

Headline inflation data in June rose to 2.5% y/y vs 2.2% y/y as expected with core reading coming in at 2.3% y/y vs 2% y/y as expected. Transport prices were the biggest contributor to the rising prices with base effects being seen in the rise of prices in food, second-hand cars, eating and drinking out, etc. (all increases related to reopening). Inflation remains above the BOE target and BOE policy maker Cunliffe stated that it is hard to assess inflation rate during these unprecedented times. They will try to get a better read of supply and demand for August forecasts and then reassess inflation rate.

Claimant claims change in June continued to decline and came in at -114.8k vs -92.6 in May thus putting claimant count rate at 5.8%, down from 6% in May. ILO unemployment rate in May ticked up to 4.8% from 4.7% the previous month as employment change showed an increase of 25k. Wages are showing healthy rise with average weekly earnings rising 7.3% 3m/y. However, regarding wages ONS sounds a warning stating that “this growth is affected by compositional and base effects, interpretation should be taken with caution”. BOE policy maker Saunders stated that activity recovered a bit faster than it was expected in May which opens up a possibility to withdraw stimulus include by either ending QE in the next month or two and/or further policy action next year. The pound loved these comments and it shoot higher over 50 pips across the markets.

This week we will have consumption data and preliminary July PMIs.

Important news for GBP:

Friday :

  • Retail Sales
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

AUD

Employment report for June showed employment rising by 29.1k vs 30k as expected. The unemployment rate was the highlight of the report as it fell to 4.9% from 5.1% in May, thus falling to lowest level in a decade. The participation rate remained at 66.2% and all of the gains in employment came from full-time employment which rose 51.6k. Employment is moving in the desired direction, however newly imposed lockdown in state of Victoria will dampen the impact on economy and leave RBA in the wait mode. RBA also sees full employment at much lower unemployment rate and they hope that when the unemployment rate falls to those levels it will lead to rise in wages.

Trade data from China showed a surplus of $51.53bn vs $44.2bn as expected. A huge beat was accomplished by exports rising 32.2% y/y an improvement to May reading. On the other hand, imports rose 36.7% y/y but were down from the previous month. Trade surplus with the US is $164.92bn for the first six months of the year with surplus rising to $32.58bn in June from $31.78 in May. Q2 GDP came in at 1.3% q/q vs 1.2% q/q and 7.9% y/y vs 8% y/y as expected. Industrial production in June came in at 8.3% y/y vs 7.8% y/y while retail sales came in at 12.1% y/y vs 10.8% y/y. Industrial production was dragged by the issues surrounding automobile industry, while car sales had biggest drag on consumption.

This week we will have Minutes from the latest RBA meeting.

Important news for AUD:

Tuesday :

  • RBA Meeting Minutes

NZD

RBNZ has left the overnight cash rate unchanged at 0.25% as was widely expected but made tweaks to its monetary policy. Their Large Scale Asset Purchases (LSAP) program will be stopped on July 23. Economic conditions shown by the Quarterly Survey of Business Optimism were strong enough to warrant reduction in stimulus. The move makes RBNZ first major central bank to reduce pandemic-induced stimulus. The bank members have stated that economy is still not strong enough to go entirely without stimulus and that ongoing stimulus is necessary. Removal of stimulus was a very hawkish move and it led to overall NZD strength, The decision prompted local banks to move their rate hike projections to August meeting (August 18).

Q2 inflation data came in at 1.3% q/q vs 0.8% q/q as expected and 3.3% y/y vs 2.8% y/y as expected. Additionally, core reading, which RBNZ targets into 1-3% range came in at 2.2% y/y vs 2% y/y previously. We are moving closer to the upper band which is yet another data point to nudge RBNZ toward the hike. A very important dataset for the August rate hike will be employment report on August 4.

CAD

BOC continued on its path of normalising monetary policy and slashed QE purchases by CAD1bn to CAD2bn/week at their July meeting. The decision to lower the purchases is a reflection of increased confidence in the strength of Canadian economy. Rates have remained at 0.25% as was expected. Inflation is expected to stay at or above 3% until the year end. Downside risks have diminished a bit and they still see output gap closing in H2 2022, although uncertainty around this is now higher. New projections see 2021 GDP around 6% vs 6.5% in April and at 4.25% for 2022 vs 3.7% in April. BOC governor Macklem stated that economy has proven to be “impressively resilient” adding that if the tempo continues current amount of QE will not be needed and reduction of QE program will continue to be gradual. Consumption is expected to lead the recovery and there is still around 500k jobs to recoup. Potential dates for QE reduction are October meeting and then completion of QE program in January of 2022.

JPY

BOJ provided no changes to its monetary policy. It has left short-term interest rate at -0.10% and targeted yield on 10yr remains around 0%. Growth projection for the fiscal year 2021/2022 has been revised down to 3.8% from 4% in April due to uncertainties surrounding pandemic developments. Newly imposed state of emergency will additionally have a negative impact on GDP and expected positive impact from hosting Olympic Games will be heavily dampened. Still, they upgraded their projection for 2022/2023 GDP to 2.7% from 2.4% in April. Inflation is seen rising to to 0.6% y/y in fiscal year 2021, that is up from 0.1% y/y in April. For fiscal year 2022 inflation is seen at 0.9% y/y and 1% for fiscal year 2023.

CHF

SNB total sight deposits for the week ending July 9 came in at CHF711.7bn vs CHF712.1bn the previous week. A small decline in the sight deposits as SNB stands on the sidelines satisfied with how markets are treating Swissy, although EURCHF has fallen to the 1.085 level.

Forex Major Currencies Outlook (July 26 – July 30)

FOMC meeting combined with preliminary Q2 GDP data from the US and the EU followed by inflation data from the US, the EU, Canada and Australia will bring the most attention in the week ahead of us.

USD

Housing starts for June came in at 1643k vs 1590k as expected, easily beating expectations but building permits came in at 1598k vs 1700k as expected. With building permits falling for the third straight month, indicating lower supply going forward, housing prices will be able to continue their rise. Existing home prices in June came in at 5.86m, up from 5.78m the previous month. Another input indicating strong demand for houses, on the back of low mortgage rates and the fact that more people work from home, will also contribute to rising housing prices.

This week we will have preliminary Q2 GDP reading, Fed’s preferred PCE inflation data as well as FOMC meeting. FOMC meeting is expected to be a non-event as investors are waiting for the Jackson Hole conference in August.

Important news for USD:

Wednesday :

  • Fed Interest Rate Decision

Thursday :

  • GDP

Friday :

  • PCE

EUR

ECB has made no changes to their rates, APP and PEPP programs as was widely expected. They statement shows: “the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.” Basically, the rates will stay low for a long time. They indicate that they see inflation as transitory, are willing to accept inflation overshooting 2% for some time, that economic conditions are still too frail and that continuation of monetary stimulus is appropriate. Overall, a dovish message from the ECB.

ECB president Lagarde stated that risks for growth remain broadly balanced. Manufacturing is expected to stay strong. Delta variant posts big uncertainties and will have negative impact on growth, especially in the services sector. Recovery would go faster if people would spend more of the funds saved during the pandemic. Current rises in price have been due to rises in energy prices, base effects and reintroduction of German VAT.

Preliminary PMI data for July showed manufacturing PMI come in at 62.6 vs 62.5 as expected. Services rose to 60.4 vs 59.5 as expected and improved from 58.3 in June while composite came in at 60.6 vs 60 as expected. Composite reading is at the highest level since 2000. Supply chain disruptions have caused a small drop in the manufacturing reading (was 63.4 in June). Services sector is booming due to the loosening of restrictions with German services posting highest reading on record and pulling composite also to the new highs. French readings have been weaker than expected across all measures but were more than compensated by strong German readings. The report shows caution due to the Delta variant of the virus, however the economy started Q3 on a very strong note and that strength should continue throughout entire Q3.

This week we will have preliminary Q2 GDP reading as well as preliminary inflation data for the month of July.

Important news for EUR:

Friday :

  • GDP
  • CPI

GBP

UK health minister Sajid Javid tested positive on covid, new Delta variant of it. UK faces almost 50 000 cases per day and there are calls for hundreds of thousands to self-isolate. July 19, the so-called “Freedom Day”, went with little celebration as new virus variant causes people to remain cautious. The US has advised its citizens to avoid travelling to the UK because of the concerns regarding virus developments. Retail sales in June came in at 0.5% m/m vs 0.4% m/m. A return to positive readings after last month’s drop with ONS noting that rise in retail sales could be attributed to EURO 2020 where England went all the way to the finals before losing to Italy in the penalty shootout. Preliminary PMI data for July missed expectations by a wide margin with all three readings dropping from their June levels. Manufacturing managed to stay above the 60-level coming in at 60.4 while services dropped to 58.7 from 62.4 in June pulling with them composite reading to 57.7 from 62.2 the previous month. New orders and business activity experienced drops which causes concerns about the Q3 GDP, it will most likely slow down. Ultimately, we must not forget that numbers close to the 60 level represent a very healthy and expanding economy.

AUD

RBA Minutes from the July meeting saw reiteration of the message that no rate hike is expected before 2024. Rate will not be raised until actual inflation is sustainably within the 2-3% target range. Need for accommodative monetary policy remains. Recovery in the labour market is continuing faster than expected. However, since the July meeting, Sydney has re-entered another lockdown which will require additional policy adjustments, primarily around the QE taper, to be made at the August meeting. Some projections see the new lockdown having a cost of AUD10bn for the economy with potential for additional cities to go into lockdown mode. Preliminary Markit PMI for July start to show devastating impact of new lockdowns with services PMI plunging to 44.2 from 56.8 in June. Markit notes that firms have continued hiring despite the depressive readings which indicates that labour market is strong and that PMI could pick up quickly once the restrictions are lifted.

This week we will have Q2 inflation data from Australia as well as official July PMI data from China.

Important news for AUD:

Wednesday :

  • CPI

Saturday :

  • Manufacturing PMI (China)
  • Non-Manufacturing PMI (China)
  • Composite PMI (China)

NZD

GDT auction results showed a price drop of -2.9%. This is the seventh consecutive auction where prices have dropped and it is the eighth time prices drop in nine auctions. NZDUSD was pushed down by more than 100 pips during the week on the back of risk off sentiment in the markets caused by uncertainties regarding global recovery and reflation trade now that new Delta variant of the virus is ravaging countries.

CAD

There was a deal made over the weekend that will lead to output increase by 400k barrels per day each month starting from August until full capacity of 5.8 million barrels per day is restored. With the pace of 400k barrels per day each month full capacity should be reached in September-October period of 2022. OPEC+ countries will deliver a further 2 million barrels per day each month. Now that the supply side is less of the unknown and concerns about the Delta variant are rising risk off sentiment prevails in the markets leading to lower oil prices and consequently lower CAD. Headline retail sales in May came in at -2.1% m/m while ex autos category came in at -2% m/m. Both readings surpassed expectations and preliminary June reading shows a whopping 4.4% m/m increase vs -3.2% m/m as expected.

This week we will have inflation data.

Important news for CAD:

Wednesday :

  • CPI

JPY

National inflation data for June saw both headline and ex-fresh food reading rising to 0.2% y/y. This was the highest reading for the ex-fresh food inflation in 15 months. Rising energy prices have contributed to the rise in the reading. Still, oil prices are dropping so we can expect reversal of the reading already in July and there is a fact that BOJ targets inflation at 2% and Japan is nowhere near that level. Trade balance surplus in June rose to JPY383.2bn from deficit of JPY189.4bn in May on the back of surging exports. Exports came in at 48.6% y/y with exports of machinery jumping 42%, while transport equipment exports surged 68.1%, boosted by motor vehicles (102.8%), and cars (100.6%). Exports to most countries rose with most significant rises seen in exports to China (27.7%) and exports to US (85.5%). Imports rose 32.7% y/y, for a third consecutive month of rising imports indicating that domestic demand is holding on.

CHF

SNB total sight deposits for the week ending July 16 came in at CHF711.9bn vs CHF711.7bn the previous week. With EURCHF hovering around the 1.085 level SNB does not see it fit to intervene in the FX market. Trade balance in June improved to CHF5.53bn, however the larger surplus was achieved on the back of both falling exports and falling imports.

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Forex Major Currencies Outlook ( Aug 2 – Aug 6)

A very busy week ahead of us will see two central bank meetings (RBA and BOE) coupled with employment data from the US, Canada and New Zealand.

USD

FOMC meeting gave us no change in rate or QE program, they remained at 0-0.25% and $120bn/month respectively. The statement reiterated that inflation has risen “largely reflecting transitory factors”. One significant change in the statement is that “the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.” In previous statement”'substantial further progress” was said to be “still a ways off”. Chairman Powell stated in the press conference that labor market still “has a way to go”, millions of people that had jobs before pandemic are jobless, adding that household spending is rising at highly rapid pace. He added that timing of the taper will depend on the incoming data, reversing back to data dependent stance and that advance notice will be provided before any changes. In a Q&A session Powell stated that there is still ‘some ground to cover’ on labour market before goal of tapering is reached. He admitted that the meeting showed talks surrounding timing of the tapering.

Overall it was a dovish message from Fed with no clear signs of reducing their asset purchases, although it could be said that they have taken a small step toward a less accommodative policy. Investors have pushed the USD down and its decline continued until the end of the week. We can now see more talks about the tapering at the September meeting. Additional data will be available by then and new projections will be published at that meeting.

Advance reading of Q2 GDP came in at 6.5% annualized vs 8.5% annualized as expected. Although there was a big miss, the level of output has now surpassed pre-pandemic level. Personal consumption was once again the biggest contributor, rising 11.8% and contributing 7.78% to the GDP. Business investment came in at 8% vs 11.7% in Q1 and subtracted -0.57% from the GDP. GDP price index came in at 5.7% vs 5.4% as expected while core PCE came in at 6.1% vs 5.9% as expected. Net exports subtracted -0.44% from the GDP. Inventories subtracted -1.13% from the reading showing that due to the supply chain disruptions companies inventories are depleted. There is a great chance that this will reverse in Q3 as businesses rebuild their inventories, should be a positive contributor. Government spending subtracted -0.27% from the GDP.

Headline PCE inflation in June came in at 4% y/y, same as previous month. Core inflation came in at 3.5% y/y vs 3.7% y/y as expected, a tick from 3.4% y/y in May. Inflation rise is slowing down, or stagnating as in headline reading, which will confirm Fed’s view of transitory inflation. Energy prices as well as good prices were lower than in May indicating potential top in inflation reading. Personal income rose 0.1% vs 0.3% as expected while personal spending came in at 1% vs 0.7% as expected.

This week we will have ISM PMI data for July as well as NFP numbers on Friday. Headline number is expected to come over 900k with the unemployment rate ticking down to 5.8%. Wages will again be of great importance as a sign of potential wage-induced inflation.

Important news for USD:

Monday:

  • ISM Manufacturing PMI

Wednesday:

  • ISM Non-Manufacturing PMI

Friday:

  • Nonfarm Payrolls
  • Unemployment Rate

EUR

Results of Ifo survey for July show that German managers are happy with current situation but are starting to get more concerned about the future. Current situation reading improved to 100.4 from 99.7 in June and continued a six-month rising trend. Business climate and expectations came in at 100.8 and 101.2 respectively, down from 101.7 and 103.7 prints from previous month. Ifo notes that supply disruptions are darkening the picture of the future adding that tourism and consumer sectors are worried regarding another virus wave and devastating effect it can bring.

Eurozone sentiment data showed economic sentiment rise to 119, highest level in the history of the reading. Industrial sentiment rose to 14.6, also the highest level and it represents eighth consecutive month of rising sentiment. Services sentiment came in at 19.3, less than expected, but still a sixth consecutive rising month. Consumer confidence, on the other hand, dropped to -4.4, marking the first drop in six months. Still, it is at way higher levels than it was before the pandemic started. The data shows that strength from Q2 is continuing at the start of Q3.

Preliminary July inflation data came in at 2.2% y/y vs 2% y/y as expected on the back of German reading which jumped to 3.8% y/y. Higher oil prices and reintroduction of German VAT were the biggest contributors to inflation. French inflation reading came in at 1.2% y/y, down from 1.5% y/y in June while Eurozone’s core inflation came in at 0.7% y/y vs 0.8% y/y as expected and down from 0.9% y/y in June. With core inflation waning ECB will brush off the rise in headline reading as transitory. Q2 GDP for the Eurozone came in at 2% q/q vs 1.5% q/q as expected. All major economies showed higher than expected results, while German reading missed expectations. Q3 GDP should show continuation from Q2 and expectations are for it to come around 2%.

GBP

Covid cases have been dropping during the week. Positive data have caused GBP to strengthen, pushing GBPUSD toward the 1.40 level. Prime Minister Johnson stated that August 16 is “locked in” as date for the lifting of self-isolation restrictions. EU agreed to give a grace period to the UK for Northern Ireland Protocol over the summer, which in turn should add more the GBP strength.

This week we will have a BOE meeting. No changes to rate and the policy are expected since uncertainties regarding effects of Delta variant are dampening the economic recovery. Most members are afraid that too early withdrawal of stimulus could have negative impact on the economy.

Important news for GBP:

Thursday :

  • BOE Interest Rate Decision

AUD

Inflation data for the Q2 showed headline number jumping to 3.8% y/y from 1.1% y/y in the previous quarter. This is the highest inflation reading since 2008 and it can be attributed to the base effects. On the quarterly basis inflation came in at 0.8% and main contributor were transportation costs, a combination of higher gasoline prices and not enough vehicles. Core reading came in at 1.6% y/y vs 1.1% y/y in Q1. With RBA targeting core reading in 2-3% range the reading will be brushed off and will not warrant any action from them, although headline number will raise more than a few eyebrows.

This week we will have an RBA meeting. There will be no changes in the rate, however expectations are that RBA will announce increase in bond purchases.

Important news for AUD:

Tuesday :

  • RBA Interest Rate Decision

NZD

Trade balance data for the month of June showed a surplus of NZD261m. Exports rose to the highest levels in almost a decade while imports posted rose to the level not seen November of 2019. NZDUSD had an up and down week, it started to lose ground and dropped over 60 pips, but then recovered all of those loses after the FOMC meeting and finished the week around 60 pips higher than at the start of the week.

This week we will have employment data. It will be a very important reading since RBNZ will decide on the future course of rate hikes based on employment data.

Important news for NZD:

Wednesday :

  • Employment Change
  • Unemployment Rate

CAD

Headline inflation in June came in at 3.1% y/y vs 3.2% y/y as expected and down from 3.6% y/y in May. Core readings were also down, common at 1.7% y/y and trimmed at 2.6% y/y, while median remained at 2.4% y/y. Statistics Canada noted that:”While shelter (+4.4%) and transportation (+5.6%) prices contributed the most to the all-items increase, prices rose at a slower pace in four of the eight major components on a year-over-year basis in June. The headline CPI grew at a slower pace compared with May due in part to a slowdown in price growth for goods. Growth slowed the most in the clothing and footwear component, mostly due to lower prices for women’s clothing.” If the May reading represented a peak in inflation then BOC may reconsider the speed of the tapering.

This week we will have employment data.

Important news for CAD:

Friday :

  • Employment Change
  • Unemployment Rate

JPY

Preliminary July PMI data showed manufacturing at 52.2 vs 52.4 in June, services at 46.4 vs 48 in June and composite at 47.7 vs 48.9 the previous month. Manufacturing held above the 50 level and indexes comprising the reading show weaker growth, while on the other hand services reading fell deeper into contraction, it is there for the 18 consecutive months, with output and new orders pointing to a stronger decline. The fourth state of emergency and ongoing covid-related situation is weighing heavily on the economy. There is a positive sentiment among surveyed that vaccination campaign will prove to be successful. Japan has extended state of emergency for Tokyo area until August 31 and announced new state of emergency for four new prefectures.

CHF

SNB total sight deposits for the week ending July 23 came in at CHF712.1bn vs CHF711.9bn the previous week. Although Swissy has been strengthening over the past week, pushing EURCHF toward the 1.08 level SNB is standing on the sidelines.

Forex Major Currencies Outlook ( Aug 9 Aug 13)

After a very eventful week the week ahead of us will be a quiet summer week with not much economic data. Inflation data from the US and preliminary Q2 GDP from the UK will be its highlights.

USD

ISM manufacturing PMI for July came in at 59.9, down from 60.6 print in June. Expectations were for it to rise to 60.8. New orders and new export orders reported small declines but are still at very high levels (64 and 55 respectively). Combined with rising backlog of orders and a drop in customer inventories it seems that supply chain disruptions are the main culprit to the sector. Employment index returned to expansion with 52.9 print while prices paid component dropped significantly to 85.7 from 92.1 the previous month. It is still at highly elevated levels.

ISM services PMI in July smashed expectations and posted a new record high by coming in at 64.1 vs 60.5 as expected. Previous month was 60.1. Business activity index at 67 indicates a booming in services related to reopening. Employment index returned to expansion with 53.8. New orders category continued to rise and is now at a very strong level of 63.7 with exports orders rising to 65.8 from 50.7 in June indicating strong external demand for US services. Prices paid component continued to rise, now moving over the 80 level indicating mounting price pressures.

Employment report for July showed stellar improvement across the data. Headline number came in at 943k vs 870k as expected with June reading being revised up to 938k. The unemployment rate dropped to 5.4% from 5.9% the previous month and expectations were for a drop to 5.7%. Participation rate rose to 61.7% thus giving more credibility to the drop in the unemployment rate. Underemployment fell to 9.2% from 9.8% in June indicating that more and more people are finding work that suits their desires. Finally, wages rose 0.4% m/m and 4% y/y thus adding more potential to the wage-induced inflation. With almost 1 million newly employed, with the unemployment plunging closer to 5% and wages rising Fed should be spurred into intensifying their taper talk. In turn this will add to USD strength.

This week we will have inflation data and expectations are for it to slow down.

Important news for USD:

Wednesday :

  • CPI

EUR

Finale manufacturing PMI in July was revised up to 62.8 from 62.6 as preliminary reported. German reading was revised to 65.9 from 65.6 as preliminary reported and 65.1 in June. German reading is moving closer to the high of 66.2 seen in April of this year. Final services printed 59.8 vs 60.4 as preliminary reported. Both German and French readings were revised down which contributed to the downgrade of services reading. Still, the reading is at a very high level indicating ongoing optimism after reopening.

GBP

BOE has left the rate unchanged at 0.10% with a unanimous vote. Total asset purchases remained unchanged at £895bn. The vote was 7:1. New projections show GDP expected to have risen by 5% in Q2 and around 3% in Q3. Projections show that GDP will reach pre-pandemic levels in Q4 of 2021. Bank members expect inflation to fall back close to 2% in the coming months. There was a change in forward guidance, stating that once bank rate rises to 0.50%, and if appropriate given economic circumstances, BOE intends to reduce stock of purchased assets. Previously the plan was to reduce purchases once the rate reaches 1.50%. The meeting did not provide sufficient information for a change in direction, it was a rather small step by BOE toward the tightening, so GBP continued on it is path, almost unchanged after the publication.

Final manufacturing PMI reading for July was unchanged at 60.4 while services reading showed an improvement to 59.6 from 57.8 as preliminary reported. Services reading helped lift composite reading to 59.2 from 57.7 as preliminary reported. “Pingdemic” is already causing shortages of labour as more and more people are called to self-isolate and it should bring down services reading for August.

This week we will have preliminary Q2 GDP data.

Important news for GBP:

Thursday :

  • GDP

AUD

RBA has left cash rate unchanged at 0.10% as expected but did not make any changes to their QE program. Their stance on tapering has not been changed which surprised the markets and propelled AUD higher with AUDUSD crossing the 0.74 level. They will purchase bonds at AUD5bn/week until early September and then lower them to AUD4bn/week until at least mid-November. Bond buying program will continue to be reviewed in light of economic and health situation. They reiterated that rate is not expected to rise until 2024 at least. Recent virus outbreak are interrupting recovery and expectations are for GDP decline in Q3. Members have noted that past experience shows that the ‘economy bounces back quickly’ after virus outbreaks are contained. They also added that:”the Bank’s central scenario is for the economy to grow by a little over 4 per cent over 2022 and by around 2½ per cent over 2023. This scenario is based on a significant share of the population being vaccinated by the end of this year and a gradual opening up of the international border from the middle of 2022.”

RBA Governor Lowe stated that economy bounced back faster than it was expected adding that the recovery in labour market has been the most impressive. Overall he was optimistic on the economy for the year, although he sees GDP dropping in Q3, with expectations for even stronger growth in the following year. He sees a gradual pick up in wages which will leave inflation pressures subdued adding that RBA is not targeting lower AUD, but that AUD is lower due to the necessary policies the bank is implementing. RBA sees unemployment at 5% by the of end 2021, 4.25% at the end of 2022 and 4% at the end of 2023. Core inflation is expected to be at 1.75% for 2021 and 2022 before rising to 2.25% in 2023 which will put it in bank’s target range of 2-3%.

Official manufacturing PMI from China dropped more than expected, to 50.4 from 50.9 the previous month. This is the fourth consecutive month of drops and lowest since February of 2020. Both new orders and new export orders indexes pencilled in declines with former coming in at 50.9 and latter at measly 47.7 indicating that demand for manufacturing products from China is waning, both domestically and internally. Non-manufacturing came in at 53.3 as expected, down from 53.5 in June due to a drop in construction but with a much brighter activity outlook than its manufacturing counterpart. Composite was dragged to 52.4 from 52.9 the previous month. Caixin manufacturing PMI, the one measuring activity of smaller, non-government owned companies, dropped to 50.3 from 51.3 in June. Caixin services smashed the expectations and came in at 54.9, a huge jump from 50.3 the previous month. Output, total new orders, new export orders and employment were all in expansionary territory. Markit notes that due to the recent virus outbreak we could see August readings come down.

This week we will have employment data from Australia and inflation data from China.

Important news for AUD:

Monday :

  • CPI (China)

Friday :

  • Employment Change
  • Unemployment Rate

NZD

Employment data for Q2 did not disappoint. Employment change came in at 1% q/q vs 0.6% q/q in Q1 and 1.7% y/y vs 0.3% y/y the previous quarter. The unemployment rate dropped to 4% from 4.7% in Q1 while participation rate ticked higher to 70.5% from 70.4% in the previous quarter. Additionally, the underutilisation rate dropped to 10.6% from 12.1% in Q1. A very strong report with the unemployment rate returning to level of Q2 2020 and wages rising will be the final piece in the interest rate puzzle needed for a rate hike. Markets are penciling first rate hike to come at RBNZ’s August 18 meeting.

CAD

Employment report for July started with a disappointment. Headline number came in at 94k vs 177k as expected. However, as we dig deeper into details we find more encouraging data. The unemployment rate dropped to 7.5% from 7.8% in June while participation rate remained at 65.2%. Wages rose 0.6% vs 0.1% the previous month. Majority of newly created jobs were full-time with full-time employment coming in at 83k and part-time employment coming in at 11k. Labor market conditions continue to improve which should help keep CAD underpinned, but currently CAD’s fortunes are more closely tied with oil prices.

JPY

Tokyo inflation data continues to hover around zero. Headline number came in at -0.1% y/y while ex-fresh food category printed a 0.1% y/y reading. This is the first time that ex-fresh food inflation posted a positive reading since July of 2020 and it was achieved on the back of rising energy prices. BOJ target of 2% is miles away and will not be reached any time soon. Final manufacturing PMI was improved to 53 while services was revised up to 47.4 pushing composite with it to 48.8. Markit noted that “lower demand led Japanese service providers to decrease staffing levels for the first time since December 2020.”

CHF

SNB total sight deposits for the week ending July 30 came in at CHF712.0bn vs CHF712.1bn the previous week. Inflation data for July show headline number coming in at 0.7% y/y as expected, up from 0.6% y/y in June but core reading slipped to 0.2% y/y from 0.3% y/y the previous month. Price pressures remain subdued compared to the Eurozone and especially when compared to the US.

Forex Major Currencies Outlook (Aug 16 – Aug 20)

After a quiet week, economic data returns with a bang. RBNZ meeting will be the highlight as expectations are for a 25 bp rate hike. Consumption data from the US and China, inflation data from the UK and Canada coupled with employment data from the UK and Australia as well as preliminary Q2 GDP data from Japan are all crammed into the week ahead of us.

USD

Headline inflation data in July came in at 5.4% y/y, same as in June indicating that inflation has peaked. Food, new vehicles and shelter were the biggest contributors to the inflation reading, showing that inflation pressures are coming from many sides. Core inflation has, on the other hand, eased to 4.3% y/y from 4.5% y/y the previous month. Slowdown in core inflation coupled with dovish remarks from several Fed members regarding timing of the taper have taken their toll on the USD as it started to lose ground.

Bipartisan infrastructure bill worth $1.2 trillion was passed by the US Senate with a 69-30 vote. The next step for the bill is to get approval in the House. The timing of the vote on infrastructure bill in the House is dubious as Democratic leader Pelosi stated that she wants to match the timing of this bill with an additional bill that will see $3.5 trillion to be spent on healthcare, climate change and other priorities. The infrastructure bill should add more to the GDP reading as well as put additional price pressures.

This week we will have consumption data.

Important news for USD:

Tuesday :

  • Retail Sales

EUR

ZEW survey for August showed current conditions for Germany in August improve to 29.3 from 21.9 in July. Optimism surrounding summer months and reopening is still felt among the investor as they assess the current conditions. On the other hand, expectations have plunged significantly coming in at 40.4 for German economy, it was 63.3 previously and 42.7 for the Eurozone economy, it was 61.2 in July. This is the third straight month of falling expectations. Expectations category shows growing concern among the investors regarding the impact of Delta virus variant with potential slowdown in China adding to the worries.

This week we will have second reading of Q2 GDP.

Important news for EUR:

Tuesday :

  • GDP

GBP

Preliminary reading showed Q2 GDP grew by 4.8% as expected, bouncing back from -1.6% contraction in Q1. Easing of covid restrictions led to the rise in activity and rebound in demand. Household consumption rose 7.3% vs -4.6% in Q1 with government spending coming in at 6.1% vs 1.5% the previous quarter. Business investment came in at 2.4% vs -10.7% in Q1 while net trade contributed negatively to the GDP as imports rose more than exports.

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday :

  • Claimant Count Change
  • Unemployment Rate

Wednesday :

  • CPI

Friday :

  • Retail Sales

AUD

July trade balance data from China showed increase in trade surplus to $56.58bn from $51.53 in June. However, both exports and imports missed expectations with exports showing a smaller miss. They came in at 19.3% y/y while imports were at 28.1% y/y. Trade surplus with the US widened to $35.4 from $32.58 the previous month. Inflation data came in higher than expected with CPI at 1% y/y and PPI at 9% y/y. Last month’s PPI came in at 8.8% y/y, lower than 9% y/y in May and some analysts presumed it represented a shift in rising input prices, however this month’s reading indicates that trend of rising input prices continues. There is a possibility though that it is plateauing and data from the coming months will provide us with answers.

This week we will have employment data from Australia as well as consumption and production data from China.

Important news for AUD:

Monday :

  • Retail Sales (China)
  • Industrial Production (China)

Thursday :

  • Employment Change
  • Unemployment Rate

NZD

Retail card spending in July was another data point contributing to the good economic picture coming from New Zealand. Retail card spending contributes almost 70% to the core retail sales and it came in at 0.6% m/m vs -4% m/m as expected with yearly figure rising to 4.7% from 4% in June.

This week we will have RBNZ meeting. Expectations are for the rate hike of 25bp, the first major central bank to raise rates since the pandemic began. Markets are pricing two rate hikes by the end of the year so if RBNZ strikes more cautious tone NZD may suffer.

Important news for NZD:

Wednesday :

  • RBNZ Interest Rate Decision

CAD

Federal elections have been called for September 20. Polls show that Prime Minister Trudeau’s Liberals are supported by about 36% of the voters which could secure a majority, due to the division among the other candidates. Trudeau has been leading a minority government for around two years. CAD has closely followed movements in the oil market and when oil prices began to recover it strengthened with USDCAD finishing down for the week.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday :

  • CPI

Friday :

  • Retail Sales

JPY

PPI for July came in at 1.1% m/m vs 0.5% m/m as expected and 5.6% y/y vs 5% y/y as expected. The prices rose in July at their fastest annual pace in 13 years. However, chances of it transferring to the CPI are slim as downward pressures prevail on consumer prices. JPY finished the week almost unchanged from where it started it as summer lull was prevailing.

This week we will have preliminary Q2 GDP reading and it may prove to be positive in the end.

Important news for JPY

Monday :

  • GDP

CHF

SNB total sight deposits for the week ending August 6 came in at CHF713.2bn vs CHF712.0bn the previous week. This is the biggest rise in deposits in a long time, potentially indicating that SNB is considering increasing their activity in the markets to combat the rising Swissy. The seasonally adjusted unemployment rate in July ticked down to 3% indicating stable labour market conditions.