The U.S. dollar has been traded severely lower last week, on the back of the much lower than expected U.S. economic growth that recedes chances for a rate hike. The world’s largest economy grew at an annual rate of 1.2% in the three months to June, far below forecasts of 2.6% while growth for the first quarter was revised down from 1.1% to 0.8%.
The business investment for the same period contracted 9.7% and the business inventories fell by $8.1bn, the first drop since Q3 of 2011. On the other hand, consumer spending surged 4.2% at the fastest pace since Q4 of 2014. Euro has been traded virtually unchanged against the rest of the majors as the second quarter preliminary GDP met expectations of 1.6% annually, while the first estimate for July’s annual inflation rate showed a meagre increase to 0.2% versus 0.1% before.
Going to UK, all the GBP traders are tuned for Thursday’s BoE policy meeting. The last statements of the BoE Governor Mark Carney raises odds that central bank will ease its monetary policy. The week ahead we have three main releases that will determine the market. The RBA interest rate decision later in the day, the BoE policy meeting on Thursday which is widely expected to apply more stimulus and the U.S. non-farm payrolls report on Friday.
Monday is a Markit day. We start the week with final July’s manufacturing PMI for various countries. No changes are expected to German and Eurozone’s estimated figures released earlier while in UK, it’s expected an improvement to 49.6 versus 49.1 before. Note that figure above 50 shows expansion while below 50 shows contraction. In U.S., the ISM manufacturing PMI is expected to rise slightly to 53.3 from 53.2 before. The construction spending is also anticipated to have increased 0.5% in June from a decline of 0.8% the month before.
Overnight, Australian building permits are estimated to show a growth of 0.5% in June from a drop of 5.2% the month before. The trade balance for the same country will be released well. The Reserve Bank of Australia will release its interest rate decision accompanies with a rate statement. The central bank is widely expected to decrease its benchmark interest rate to 1.5% from 1.75% has been since May. Meanwhile, the Reserve Bank of New Zealand will publish its inflation expectations for the third quarter.
On Tuesday morning, the UK construction PMI for July is forecasted to reveal more weakness in the sector. The figure is predicted to drop at 44 from 46 before.
Eurozone producer price index for June is also expected to reveal a decreased increase of 0.4% mom in June from 0.6% the previous month. After the European noon, the U.S. personal consumption expenditures prices for June are expected to be released. June’s consumer confidence is forecasted to increase to 93.7 from 92.6 in May. The U.S. personal spending is predicted to show a slashed growth of 0.3% in June versus 0.4% before, while personal income is expected to have risen by 0.3% compared to an increase of 0.2% prior. Later in the day, the weekly crude oil inventories change will be released. In New Zealand, the Fonterra Dairy Auction will take place.
On Wednesday, the final services PMI indicators will complete the Markit releases for July. No changes are expected to Eurozone’s, Germany’s and UK’s final values compared the previous estimates. Eurozone’s retail sales are forecasted to have remained flat in June versus an increase of 0.4% last month. Afterwards, the attention will be turned to U.S. The ADP employment change will be closely eyed, two days ahead of the Non-farm payroll report for June. The analysts expect the U.S. private sector to have added 168k jobs in July versus 172 before. The ISM Non-manufacturing PMI is also expected to pick up at 56.7 versus 56.5 the previous figure.
On Thursday, traders will keep a tab on Eurozone’s economic bulletin. However, the spotlight of the day is the BoE interest rate decision. In the last policy meeting on July 14, the policymakers voted unanimously to keep the asset purchase programme at £375 and 8-1 to maintain the benchmark interest rate at 0.5%, despite the analysts’ expectations for a 25bp decrease. The central bank said that it was waiting for more post-Brexit economic data before taking action and July’s minutes signaled that policy loosening will take action in August. The market expectations are the central bank to leave the asset purchase program unchanged and vote 8-1 to decrease the main interest rate by 25bp to 0.25%. The Bank releases its August Inflation Report at the same time as the policy decision, which will provide more information on the impact of the EU referendum.
Friday is an NFP day! Following the positive surprise of the last release of a sharp increase at 287k of the jobs added, the market expects the U.S. economy to have gained 170k non-farm jobs in June. The unemployment rate is predicted to decrease back at 4.8% versus 4.9% in May. In addition, the average hourly earnings for June are expected to have risen 0.2% compared to the increase of 0.1% the month before. In Canada, the July’s unemployment report and Ivey purchasing managers index are coming out.
