The Week Ahead – Economic Data, Monetary Policy, and COVID-19 in Focus

On the Macro

It’s quieter week ahead on the economic calendar, with 51 stats in focus in the week ending 6th August. In the week prior, 71 stats had also been in focus.

For the Dollar:

From the private sector, ISM Manufacturing and Non-Manufacturing PMIs for July will be in focus.

Expect the Non-Manufacturing PMI due out on Wednesday to have the greatest impact.

On the labor market front, ADP nonfarm employment change and weekly jobless claims figures on Wednesday and Thursday will also influence.

Nonfarm payrolls at the end of the week, however, will be the key stat of the week.

In the week ending 30th July, the Dollar Spot Index fell by 0.79% to 92.174.

For the EUR:

It’s a busy week on the economic data front.

Private sector PMIs for Italy and Spain together with finalized numbers for France, Germany, and the Eurozone will influence.

Expect Italy and the Eurozone’s PMIs to be key in the week.

German and Eurozone retail sales figures will also influence, with consumption key to a sustainable economic recovery.

For the week, the EUR rose by 0.84% to $1.1870.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar.

Finalized private sector PMIs for July are due out on Monday and Wednesday.

Expect any revisions to the services PMI to have a greater impact in the week.

Construction PMIs also due out, should have a muted impact, however.

While the finalized numbers will influence, the Bank of England monetary policy decision on Thursday will be the main event.

Last week, the IMF talked up the outlook for the British economy. It now rests in the hands of the BoE.

The Pound ended the week up by 1.13% to $1.3904.

For the Loonie:

It’s a busier week ahead on the economic calendar.

Trade data on Thursday and employment change figures on Friday will be the key numbers.

While trade figures will influence, expect the employment change figures to have a greater impact.

The Loonie ended the week up 0.71% to C$1.2475 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Manufacturing sector data, building permits, retail sales, and trade data will be in focus.

Retail sales and trade data, due out on Wednesday and Thursday, will be the key stats of the week.

On the monetary policy front, however, the RBA monetary policy decision on Tuesday will be the main event.

The Aussie Dollar ended the week down by 0.30% to $0.7344.

For the Kiwi Dollar:

It’s a quiet week ahead. Mid-week, employment change figures will draw interest ahead of inflation expectation numbers on Friday.

With little else for the markets to consider in the week, expect both sets of numbers to provide direction. The markets are expecting a further pickup in inflationary pressures…

The Kiwi Dollar ended the week flat at $0.6974.

For the Japanese Yen:

Finalized private sector PMIs and Tokyo inflation figures will be in focus in the 1st half of the week.

Expect any revision to the PMIs to be of greater influence.

Late in the week, household spending figures will also draw interest.

The Japanese Yen rose by 0.75% to ¥109.720 against the U.S Dollar.

Out of China

It’s a busier day, with private sector PMIs to provide the markets with direction.

Following NBS numbers from the weekend, the market’s preferred Caixin manufacturing PMI will set the tone. Over the weekend, the NBS Manufacturing PMI fell from 50.9 to 50.4…

With service sector activity a greater component of the economy, Wednesday’s services PMI will also influence, however.

The Chinese Yuan ended the week up by 0.31% to CNY6.4614 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. News updates from the Middle East will also need continued monitoring…

The Weekly Wrap – A Dovish FED and Weak Stats Left the Greenback in the Red

The Stats

It was a busy week on the economic calendar, in the week ending 30th July.

A total of 71 stats were monitored, which was up from 33 stats in the week prior.

Of the 71 stats, 37 came in ahead forecasts, with 30 economic indicators coming up short of forecasts. There were 4 stats that were in line with forecasts in the week.

Looking at the numbers, 42 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 27 reflected a deterioration from previous.

For the Greenback, disappointing economic data and a dovish FED left the Dollar in the red. The Dollar Spot Index fell by 0.79% to 92.174. In the previous week, the Dollar had risen by 0.24% to 92.906.

Out of the U.S

Consumer sentiment and durable goods orders drew attention early in the week.

In June, durable goods orders ex transportation rose by 0.3%, following a 0.5% increase in May.

More significantly was a pickup in consumer confidence in July. The CB Consumer Confidence Index rose from 128.9 to 129.1. Economists had forecast a decline to 126.0.

On Thursday, jobless claims and 2nd quarter GDP numbers were in focus. The stats were skewed to the negative, however.

In the 2nd quarter, the U.S economy grew by 6.5%. This fell well short of a forecasted growth of 8.5%.

Jobless claims also fell short of expectations, with initial jobless claims falling from 424k to 400k. Economists had forecast a decline to 370k.

At the end of the week, personal spending and inflation figures came in ahead of forecasts, however.

Personal spending rose by 1.0% in June, with the annual rate of inflation seeing a pickup from 3.4% to 3.5%.

While the stats were material, the FED monetary policy and press conference were the main events of the week.

In line with market expectations, the FED left policy unchanged. The FED Chair also looked to assure the markets that there would be no near-term moves, the guidance considered dovish.

Out of the UK

It was a particularly quiet week. There were no major stats for the markets to consider in the week.

The lack of stats left the Pound in the hands of IMF economic growth forecasts, which delivered Pound support.

In the week, the Pound rose by 1.13% to end the week at $1.3904. In the week prior, the Pound had fallen by 0.14% to $1.3748.

The FTSE100 ended the week up by 0.07%, following a 0.28% gain from the previous week.

Out of the Eurozone

Through much of the week, the German economy was in focus.

Business and consumer sentiment figures delivered mixed results. While business sentiment waned in July, consumer confidence remained unchanged, in spite of the reopening of economies.

Unemployment figures from Germany were upbeat. The unemployment fell from 5.9% to 5.7% in July.

Inflationary pressures continued to surge, however, with Germany’s annual rate of inflation accelerating in July to 3.8%.

At the end of the week, 1st estimate GDP numbers and prelim inflation figures were the key stats of the week.

Quarter-on-quarter, the French economy grew by 0.9% versus a forecasted 0.7% in the 2nd quarter.

Germany saw growth of 1.5%, falling short of a forecasted 1.9%. In the 1st quarter, the economy had contracted by 2.1%.

For the Eurozone, the economy grew by 2.0%, coming in ahead of a forecasted 1.5%. The economy had contracted by 0.3% in the previous quarter.

Inflation also ticked up, aligned with member state numbers. According to prelim figures, the Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July, rising above the ECB’s 2% target.

For the week, the EUR rose by 0.84% to $1.1870. In the week prior, the EUR had fallen by 0.30% to $1.1771.

The DAX30 fell by 0.67%, while the CAC40 and the EuroStoxx600 ended the week up by 0.67% and by 0.05% respectively.

For the Loonie

It was a relatively quiet week on the economic data front.

Inflation and GDP numbers were the key stats of the week.

In June, the annual rate of inflation softened from 2.8% to 2.7%, bucking the trend seen across key economies.

The Canadian economy also continued to struggle in May, with the economy contracting by 0.3%. The economy had contracted by 0.5% in April.

In the week ending 30th July, the Loonie rose by 0.71% to C$1.2475. In the week prior, the Loonie had risen by 0.39% to C$1.2564.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

While the Aussie Dollar fell by 0.30% to $0.7344, the Kiwi Dollar ended the week flat at $0.6974.

For the Aussie Dollar

Inflation was the main area of focus. The stats were mixed, however, pegging the Aussie Dollar back.

In the 2nd quarter, the annual rate of inflation surged from 1.1% to 3.8%. The trimmed mean rate of inflation picked up from 1.1% to 1.6%, however.

Wholesale inflation also saw a pickup but at a softer pace than anticipated.

Australia’s annual wholesale rate of inflation ticked up from 0.2% to 2.2%. Economists had forecast a rate of 3.5%.

For the Kiwi Dollar

It was a busier week, with trade and consumer and business confidence in focus.

Trade data disappointed, with the trade surplus narrowing from NZ$498m to NZ$261m in June. The narrowing stemmed from a more marked increase in imports, however, rather than a fall exports, which limited the damage.

Business and consumer confidence figures were also skewed to the negative. The ANZ Business Confidence Index fell from -0.60 to -3.80, with the ANZ Consumer Confidence Index falling from 114 to 113.1.

The week numbers were not enough to sink the Kiwi.

For the Japanese Yen

It was another relatively busy week.

Early in the week, private sector PMIs were in focus. Later in the week industrial production and retail sales also drew attention on Friday.

While prelim private sector PMIs softened slightly in July, industrial production and retail sales impressed.

Industrial production jumped by 6.2% in June, reversing a 6.5% slide from May. More significantly, retail sales increased by 3.1%, reversing a 0.4% decline from May.

The Japanese Yen rose by 0.75% to ¥109.72 against the U.S Dollar. In the week prior, the Yen had fallen by 0.44% to ¥110.550.

Out of China

It was a quiet week on the economic data front. There were no major stats from China for the markets to consider.

In the week ending 30th July, the Chinese Yuan rose by 0.31% to CNY6.4614. In the week prior, the Yuan had ended the week down by 0.03% to CNY6.4813.

The CSI300 and the Hang Seng ended the week down by 4.98% and by 5.46% respectively.

Fed Day

The China-inspired losses saw the MSCI Asia Pacific Index fall to new lows for the year today, though Hong Kong’s Hang Seng posted a 1.3% gain. Europe’s Dow Jones Stoxx 600 is posting the first gain of the week, led by information technology, real estate, and consumer discretionary. Despite strong bank earnings, financials are matching the market, not outperforming it. US futures are oscillating around little changed levels.

The US 10-year benchmark yield is firm at 1.25%, while European yields are mostly slightly softer but sufficient to take German, French, Dutch, and Greek yields to new 3-4 month lows. The Antipodean currencies and yen are the heaviest against the US dollar, with the Canadian dollar the only major currency gaining on the greenback through the European morning. Emerging market currencies are mixed, leaving the JP Morgan EM FX index little changed.

The Chinese yuan gained for the first time in five sessions. API estimated a 4.7 mln barrel drop in US oil stocks and a large (6.2 mln barrel) drawdown in gasoline inventories, which, if confirmed, would be the largest since March. September WTI is around 1% higher today. Gold continues to move broadly sideways and is straddling the $1800-level today.

Iron ore and steel rebar futures fell in Shanghai, while copper is recovering from yesterday’s decline, which snapped a five-day advance. September lumber dropped 6.7% yesterday to bring this week’s decline to about 8.3% after jumping 18% last week on Canada’s wildfires. The CRB Index fell 0.6% yesterday to end is five-day, 6.8% advance.

Asia Pacific

Investors are continuing to try to make sense of Beijing’s aggressive moves that appear to be a broad offensive that can only result in a slowing if not reversing of past efforts to integrate into global capital markets. The ultimate goal is not clear. Beijing had appeared to be willing to use the capital inflows to ease restrictions on capital outflows. Some even speculated that this would gradually allow the yuan to be convertible.

Although we disagreed, many observers see that introducing the digital yuan as early as next year’s Olympics would challenge the US dollar’s role. The recent actions appear to deal a blow to such speculation. Lastly, there is some thought that the PBOC could ease policy again (following the recent cut in reserve requirements) to lend support to the stock market, if needed.

Australia’s Q2 CPI came in slightly above forecasts with a 0.8% rise after 0.6% in Q1. The year-over-year pace jumped to 3.8% from 1.1%. The underlying measures were as expected, with a 1.6% year rise (from 1.1%) for the trimmed mean and a 1.7% (from 1.3%) weighted median. Still, the data is unlikely to stand in the way of the RBA announcing increased bond purchases at next week’s meeting (August 3). The lockdown in Sydney and social restrictions elsewhere are threatening the economy.

Keep an eye on Japanese weekly portfolio flows that are released first thing tomorrow in Tokyo. In the previous week, ending July 9, foreigners appear to have bought a recorded amount of Japanese bonds (JPY2.57 trillion or ~$23.3 bln). To put the figure in perspective, the previous four-week average was around JPY546 bln. For their part, Japanese investors have sold foreign bonds for the past three weeks, and the average weekly sale of JPY804 bln is the most since early March. On the other hand, equity portfolio flows have been minor.

The dollar is consolidating in about a quarter of a yen below JPY110.00 so far today. The greenback has been recovering since dipping briefly below JPY109.60 near midday in NY yesterday. A move above JPY110.00 could see JPY110.20, but the subdued session will likely continue until the FOMC statement. The Australian dollar is stagnant. It remains within the range set on Monday (`$0.7330-$0.7390). There is an option for A$710 mln at $0.7390 that expires today and another for about A$515 mln at $0.7400 that expires tomorrow.

The dollar spiked to CNY6.5125 yesterday, its highest level in three months, and broke out of the CNY6.45-CNY6.50 month-old range. However, it was pushed back into the range today as the yuan rose for the first time in five sessions. The PBOC set the dollar’s reference rate at CNY6.4929, slightly lower than the median expectation picked up in Bloomberg’s forecast (CNY6.4935).

Europe

The UK and the EU are still at odds over the Northern Ireland Protocol. However, the EC moved to de-escalate the situation. Rather than push forward with its threat of imminent legal action as the end of the month should mark a new phase of enforcement, it appears to have granted a grace period of the summer to find an amicable solution.

Germany’s August GfK consumer confidence survey was unexpectedly weak. Rather than rising to 1.0 as economists projected, it remained at -0.3. The disastrous floods seem to be the main culprit. Tomorrow, Germany reports July CPI figures and employment data. The EU harmonized measure of CPI is expected to rise to 2.9% from 2.1% in June. Unemployment may have ticked down to 5.8% from 5.9%. It was at 5.0% steadily in H2 19.

The week’s highlight for the eurozone comes on Friday with the aggregate CPI (there seems to be upside risks to the 2.0% median forecast in Bloomberg’s survey) and the first look at Q2 GDP.

In the UK, Nationwide reported its house price index fell 0.5% in July. It is the first decline since March and the largest fall since last June. The year-over-year rate moderated to 10.5% from 13.4% in June. A tax break is winding down. On July 1, the stamp-duty threshold on new purchases was halved to GBP250k, adding GBP12.5k to the average home bought in London. Starting October 1, the threshold will return to GBP125k.

The euro is trading quietly in the upper end of yesterday’s range that saw it reach $1.1840, its highest level since mid-July. It has held above $1.18 so far today, and if sustained, will be the first session since July 12 that it has not traded with a $1.17-handle. There is a billion-euro option at $1.18 that expires today and another at $1.1820, and a third at $1.1850.

Tomorrow, there is a 1.36 bln euro option struck at $1.1850 that will also expire. It suggests that the area will likely be sticky. Sterling is firm but holding below $1.39 that it approached yesterday. An option for almost GBP400 mln is struck at $1.3925 that expires today. Tomorrow there is an option for almost GBP410 mln at $1.3900 that also will be cut. Initial support is seen near $1.3860 and then $1.3820.

America

Following Monday’s unexpected decline in June’s new home sales (-6.6%) and a downward revision to the May series (-7.8% rather than -5.9%), the US reported weaker than expected June durable goods orders, mitigated in part by the upward revisions to the May data. Separately, house price increases accelerated in May.

Today’s reports of the advance goods trade balance and retail and wholesale inventories will give economists the last opportunity to adjust the Q2 GDP forecasts ahead of tomorrow’s report. The median forecast in Bloomberg’s survey sees 8.5% annualized growth in Q2 after a 6.4% pace in Q1. The price deflator is expected to accelerate to 5.4% from 4.3%.

The outcome of the FOMC meeting is center stage today. No change in policy is expected, though some members seem to want to adjust the asset purchases immediately with special attention to the mortgage-backed securities. This seems unlikely. However, Powell is unlikely to push against expectations that an announcement could be made at the next FOMC meeting in September.

By pledging to give the market a clear advance warning, it would seem to need to say something relatively soon to keep its options open for an adjustment in the pace and possibly the composition of its purchase by the end of the year. Powell could deter dissents by striking a compromise by replacing the agency bonds purchases with more Treasuries, but this too seems unlikely. The FOMC statement is unlikely to deviate much from the last one, and the Fed is unlikely to see the rising Delta covid cases as substantially impacting its economic outlook.

Canada reports June CPI figures. The year-over-year rate is expected to ease (3.2% from 3.6%) for the first time this year. Canada has three core measures, two of which may have also softened (median and trim iterations). At the end of the week, Canada will report May’s monthly GDP. It is expected to have matched April’s 0.3% contraction, but the data seems dated.

Mexico’s June trade surplus was much smaller than expected ($762 mln vs. median Bloomberg survey forecast for $2 bln). Partly, it appears that domestic demand is improving, and this will likely be seen in the Q2 GDP report due at the end of the week. The median forecast anticipated a 1.8% expansion in the quarter after a 0.8% pace in Q1.

The US dollar is encountering selling pressure near CAD1.26 for the fifth consecutive session. Key support is seen near CAD1.2525, though there is an option for almost $390 mln at CAD1.2550 that expires today. Momentum indicators like the MACD and Slow Stochastic are trending lower, and the greenback’s recovery from the multi-year low set on June 1 near CAD1.20 looks over or nearly so.

The US dollar is trading near seven-day lows against the Mexican peso (~MXN19.9330). Chart support is seen in the MXN19.80-MXN19.82 band. Nearby resistance is pegged near MXN20.03.

This article was written by Marc Chandler, MarctoMarket.

China Sends Ripples Across the Markets

Hong Kong shares are bearing the brunt. The Hang Seng has fallen by 10% in the three sessions, including today. The Shanghai Composite is off nearly 5.5% in the same period. A few of the other larger markets in the region, including Japan, South Korea, and Australia, posted small gains. Moody’s affirmation of a stable credit outlook helped lift Philippines’ stocks by 2.4%, the most in a couple of months and recouped most of Monday’s slide.

Europe’s Dow Jones Stoxx 600 is off around 0.5%, led by financials and energy. US futures are trading with a heavier bias. Benchmark bond yields are lower. The 10-year Treasury yield is hovering near 1.25%, off more than three basis points. European yields are 1-2 bp lower. The dollar is bid. The yen continues to be resilient. Emerging market currencies are retreating as an expression of the risk-off mood. The JP Morgan Emerging Market Currency Index is off 02%.

Industrial metals have been knocked back by reports suggesting China is considering new export tariffs on steel. Oil is sidelined, and the September WTI contract is little changed, around $72 a barrel. Gold is not drawing much of a bid. A stronger dollar may offset the lower yields as a consideration. If the yellow metal does not recover, it may close below $1800 for the first time in three weeks.

Asia Pacific

Beijing is fighting a two-front battle. Domestically, the new drive that began last year with the Ant IPO and crackdown on Alibaba has broadened. Stronger regulatory efforts, anti-trust, and IPOs in foreign markets, and now private education companies are killing the proverbial goose that lays the golden egg by underscoring international investors’ concerns about investing in China.

The capital inflows were to create conditions under which Beijing could ease capital outflow restrictions. The other front of the battle is in foreign policy. Yesterday’s high-level meetings with the US appeared to have failed to break new ground. While reports suggest that there is still scope for Biden and Xi to meet in October, with the March and July contentious meetings, the chances of an agreement seem remote.

Reports today suggest China is considering a 10-25% tariff on steel exports starting in Q3 to rein in the sector. This is separate from its regulatory initiatives. This seems more in the containing commodity prices and rationalizing the steel sector. It appeared to have an immediate effect of sending iron ore and steel rebar prices lower. However, nickel, which is needed in the new batteries, proved resilient and is at new multi-year highs. Separately, China reported industrial profits moderated to 20% year-over-year from more than 36% in May.

South Korea reported slightly softer than expected growth in Q2. GDP rose by 0.7% on the quarter after a 1.7% pace in Q1. This is broadly consistent with what had been perceived as a maturing of the Asia economic recovery. The government was quick to reaffirm its expectation for 4% growth this year, indicating that today’s report will have no impact on monetary policy. The central bank meets in late August. The market has fully discounted a 25 hike in the next three months. Separately, South Korea and North Korea agreed to re-establish formal relations, including the hotline.

A record number of covid cases in Tokyo has not offset the flow into the yen today. For the first time in four sessions, the dollar slipped below JPY110.00. Initial support is seen in the JPY109.80 area, but recall last week’s low was slightly above JPY109.00. It appears that the same considerations that weigh on US Treasury yields boost the demand for the yen. Covid cases in Sydney are still rising, and the risk-off is pushing the Australian dollar lower.

It has meet resistance in the last three sessions in front of $0.7400, and expiring options are set at $0.7380 today and $0.7390 tomorrow. On the downside, yesterday’s low near $0.7330 is holding, and a break could see a test last week’s lows (~$0.7290-$0.7300). The nearly 0.25% rise in the dollar against the Chinese yuan is the largest in almost a week and a half.

The greenback spiked to CNY6.5125 earlier, which is the highest level since April. The 200-day moving average is found by CNY6.5170. The greenback has not traded above this moving average since last July. The PBOC set the dollar’s reference rate at CNY6.4734, a bit softer than the median projection in Bloomberg’s survey for CNY6.4741.

Europe

Interest in the eurozone’s money supply figures has waned, perhaps as a result of the ECB’s asset purchases and negative interest loans. June M3 rose 8.3% year-over-year, largely in line with estimates. However, it is the underlying lending figures that draw more interest. Loans to households rose 4% after a 3.9% pace in May, while loans to companies rose 1.9%, matching the previous month’s rise. The economic highlights of the week still lie ahead. At the end of the week, the preliminary July CPI and Q2 GDP will be reported.

We see upside risk to the Bloomberg median forecast for 2.0% CPI. The median forecast calls for a 1.5% increase in the GDP quarter-over-quarter.

Hungary hiked its key rate by 30 bp in June to 0.90%. It is expected to follow up with another 20 bp hike today. The overnight deposit rate has stood at minus 5 bp since March 2019, when it was lifted from -15 bp, where it had been since August 2017. Inflation runs above 5%, the highest in nine years, and the core measure is at 16-year highs. As a result, Hungary may lift the deposit rate out of negative territory today to 10 bp.

The euro is trading inside yesterday’s range (~$1.1765-$1.1815). The 20-day moving average is slightly below $1.1820, and the euro has not traded above it since June 11 and has not closed above it since June 7. Although a base has been carved out in the $1.1750-$1.1760 area, the single currency has not been able to distance itself from it.

A break target the year’s low set at the end of March near $1.1700. Reports of falling covid cases in the UK may have helped spur sterling’s gains yesterday to a six-day high near $1.3835. Recall last week’s low was close to $1.3570. However, the recovery stalled, and sterling is consolidating today, straddling the $1.38 level. A break of the $1.3765 area could signal a move into a support band in the $1.3700-$1.3730 area.

America

The US 10-year TIP yield is at a record low today, near minus 1.14%, which seems incredible given that the US is expected to report Q2 GDP around 8.5% at an annualized clip and a deflator of almost 5.5%. The decline in the real yield yesterday was cited as a key force behind the greenback’s heavier today. Meanwhile, states that have had low vaccination rates are seeing strong spikes in the virus. The latest figures show about 60% of the 18+ cohort have been fully vaccinated, and 69% have been given one of two shots.

That means a little more than 49% of the population is fully vaccinated, which has been fairly stable. Ironically, even as the US secures more vaccines, a sizeable minority does not want it. Meanwhile, efforts to reach a bipartisan deal on infrastructure are still being stymied.

The US reports June durable goods orders today. The headline (~2.1%) will be lifted by aircraft, without which a modest gain (~0.8%) is expected. Shipments of non-defense and non-aircraft goods may have slowed to 0.8% from 1.1%. However, more attention may be on house price reports today. The FHFA reports its monthly house price index. It has been rising by more than 1% a month since last June without exception.

In April, it rose the fastest over this period, posted a 1.8% month-over-month increase. S&P CoreLogic Case Shiller index of house prices in the largest 20-cities and nationwide are expected to have accelerated in May. This comes as the FOMC’s two-day meeting begins, and several officials share our concerns about the optics, if not the impact of the central bank continuing to buy mortgage-backed securities. The Conference Board’s July consumer confidence measure is expected to soften from elevated levels. Lastly, note that Alphabet, Apple, Microsoft, among others, report earnings today.

Canada reports June CPI figures tomorrow, and the year-over-year rate may decline (3.2% from 3.6%) for the first time this year. Mexico reports June’s trade balance. A $2 bln surplus is expected, which would be the largest for Q2. Last year, the monthly trade surplus averaged $2.8 bln a month, up from $446 mln in 2019 and a $1.1 bln deficit in 2018. In the first five months of 2021, the average monthly surplus has fallen to $66.5 mln. Separately, we note that the dispute over measuring domestic content for autos and auto parts under the USMCA has not been resolved.

The US dollar is firm against the Canadian dollar but within the recent range (~CAD1.2525-CAD1.2610). There is an option for $550 mln at CAD1.26 that expires today. The 20-day moving average is near CAD1.2515, and the greenback has not traded below it since mid-June. On the upside, the 200-day moving average is around CAD1.2610. A move above it would target the CAD1.2680 area initially. The greenback is also confined to yesterday’s range against the Mexican peso (`MXN19.99-MXN20.1650). The risk-off mood warns of the risk of a stronger US dollar. Last week’s high was near MXN20.25.

This article was written by Marc Chandler, MarctoMarket.

Stretched Dollar Remains Firm

Sterling fell to new six-month lows while the euro recorded its lowest level since late March, and the Australian dollar fell to new lows for the year. Led by a 2% fall in the South African rand, with the bulk of the sell-off coming after the central bank kept policy rates unchanged, which is now lower on the year, most emerging market currencies weakened. The Russian rouble was the strongest in that space, though the lion’s share of the gains came before the central bank hiked its key rate by 100 bp to 6.5% ahead of the weekend.

The dollar had seemed to track short-term US interest rates until recently, and its strength has come in the face of softer rates. The implied yield of the December 2022 Eurodollar futures contract finished the week near 42 bp, down 13 bp over the past few weeks. The 10-year yield fell to about 1.125% before recovering to trade closer to 1.30% at the end of last week.

The dollar and interest rates are behaving as one would expect in a risk-off environment. The contagious Delta variant appears to be dampening activity economic activity in Australia, Japan, and parts of Europe. Several US states are recording multi-month highs in cases, and weekly initial jobless claims unexpectedly rose to their highest level in two months (in the week through July 16).

Floods in Germany, Belgium, and China could also impact economic activity and prices. Droughts in North America may boost food prices and boost natural gas prices as an alternative for a decline in hydroelectric output. A freeze in Brazil sent coffee prices sharply higher, while wildfires in Canada saw lumber prices rise dramatically (almost 22% over the past three sessions) after trending lower in recent weeks.

On the other hand, equities are harder to fit into the risk-off narrative. Most of the large Asia Pacific equity market fell, but Europe’s Dow Jones Stoxx 600 rallied and will take a four-day advance into next week. The benchmark is within striking distance of the record high it set earlier this month. The S&P 500 and NASDAQ advanced and have only fallen in two of the past eight weeks. They are both poised to set fresh recorded highs.

Dollar Index

The Dollar Index recorded a key reversal in the middle of last week. After rising to its best level in three months (~93.20), it reversed lower and settled below the previous day’s low. Follow-through selling the next day took it to 92.50 and the 20-day moving average. It recovered by stalled near 93.00 before the weekend. Neither the MACD nor the Slow Stochastic confirmed the new high, but the underlying tone remains constructive and buying on dips seems stronger than the selling pressure into rallies. Moreover, the five and 20-day moving averages cross-over has caught the major moves this year since February, and the five-day average is still above the 20-day.

The year’s high was set in late March near 93.45. A break above there could target the high from early last November near 94.30, and the 94.50 area corresponds to the (38.2%) retracement of the drop since the panic-driven high in March 2020 near 103.00.

Euro

The downside momentum of the euro seemed to pause in recent days ahead of $1.1750. However, the bounces have been brief and shallow. The momentum indicators have not confirmed the recent lows. The risk is for a test on the year’s low set in late March near $1.1700, and a break of it could signal a return to the low set near $1.16 on the night of the US election last November.

The ECB’s lower for longer forward guidance could attract funds into the asset markets, but the euro itself is unloved, and speculators in the futures market are still scaling out of a net long position. A move above $1.1830, where the 20-day average is found, would lift the tone. The euro has not closed above the 20-day moving average since early June.

Japanese Yen

The dollar began last week testing JPY109.00, its lowest level since late May as the US 10-year note yield slumped below 1.20%. By the end of the week, the yield was back near 1.30%, and the greenback was around JPY110.60. It settled above its 20-day moving average (~JPY110.40) for the first time in a couple of weeks. The MACD and Slow Stochastic have turned up from oversold territory. Overcoming chart resistance near JPY110.65 could see a push above JPY111.00. The year’s high was set earlier this month near JPY111.65.

British Pound

Sterling fell to five-month lows near $1.3570 on July 20, just shy of the (50%) retracement of the rally from last November, found near $1.3550. In the second half of the week, a recovery attempt stalled near $1.3785 in front of the 20-day moving average (~$1.38). This area presents an important technical hurdle, which overcoming would lift the tone. The momentum indicators look constructive as they try to turn higher. A move below $1.3680 warns of a return to the lows.

Canadian Dollar

The greenback reached 5.5-month highs against the Canadian dollar at the start of last week, near CAD1.28. It pulled back to the CAD1.2525 area before buyers re-emerged, and it consolidated mostly below CAD1.26. The MACD has turned down, as has the Slow Stochastic, without confirming the high. Still, a push back above the CAD1.2650 area could warn of another run at the highs. The 20-day moving average is near CAD1.25, and the US dollar has not closed below it since early June. Doing so now would likely confirm that a top is in place.

Australian Dollar

The elevated covid cases in Sydney and the weakest composite PMI (preliminary reading) since May 2020 (45.2) illustrate headwinds for the Australian economy. The minutes from last month’s RBA meeting showed that officials have a flexible stance toward bond purchases. It is likely to use that flexibility at its August 3 meeting to boost its bond purchases. Ahead of that, investors expect a jump in Australia’s Q2 CPI, with the headline rising above 3.5% year-over-year from 1.1% in Q1.

The underlying measures will likely firm toward 1.5%-1.6% from 1.1%-1.13%. The Aussie posted a key reversal in the middle of the week by falling to new lows for the year (~$0.7290) and then recovered to finish above the previous day’s high. Sellers were lurking in front of $0.7400 and drove it back to $0.7350 ahead of the weekend. The pre-weekend price action was poor, and the close was near session lows. The next important support area is near $0.7300.

Mexican Peso

Although the dollar set four-day lows ahead of the weekend, it still managed to close high (0.5%) on the week for the third consecutive week. The JP Morgan Emerging Market Currency Index fell for the fourth consecutive week and the sixth weekly fall in the past seven weeks. The greenback peaked against the peso in the middle of the week, slightly above the 200-moving average (~MXN20.21). Initial support now is seen near MXN19.95 and a stronger shelf in the MXN19.80-MXN19.83 area.

The Slow Stochastic is trending higher and is approaching overbought territory. The MACD has flatlined near the trough. In the slightly bigger picture, the dollar has mostly been confined to a range set on June 24 (~MXN19.7150-MXN20.2150).

Chinese Yuan

The US dollar posted a minor gain of about 0.15% against the yuan ahead of the weekend to secure another weekly advance. The advance covers the last eight weeks without fail. While that is statistically true and no doubt has not been lost on official and private observers, it is also true that the greenback has been mostly in a CNY6.45-CNY6.50 range. Rather than see a depreciation of the yuan, it has gone essentially nowhere.

The dollar has not traded above the high set in late June near CNY6.4910 this month, though it was approached a couple of times. It is also true that the yuan’s 0.7% gain against the dollar this year make it one of the strongest emerging market currency so far this year and stronger than all the major currencies but the Canadian dollar (~1%). Moreover, by focusing on the eight-week decline of the yuan against the dollar, one misses the fact that the yuan is at five-year highs on a trade-weighted basis (CFETS).

This article was written by Marc Chandler, MarctoMarket.

The Week Ahead – Corporate Earnings, Economic Data, the FED, and COVID-19 in Focus

On the Macro

It’s busier week ahead on the economic calendar, with 71 stats in focus in the week ending 30th July. In the week prior, just 33 stats had also been in focus.

For the Dollar:

Core durable goods and consumer confidence figures will be in focus on Tuesday. While both sets of numbers are key, consumer confidence should have the greater influence.

On Thursday, 2nd quarter GDP numbers are due out alongside weekly jobless claims data.

While 2nd quarter GDP numbers will be the key driver, another increase in claims would overshadow any positive GDP numbers.

At the end of the week, personal spending and consumer sentiment figures will also draw attention.

In the week ending 23rd July, the Dollar Spot Index rose by 0.24% to 92.912.

For the EUR:

It’s a busy week on the economic data front.

Early in the week, the German economy will be back the spotlight.

German business and consumer sentiment and unemployment figures will be in focus in the 1st half of the week.

On Friday, the focus will then shift to 2nd quarter GDP numbers for France, Germany, and the Eurozone.

Throughout the week, member state and Eurozone prelim inflation figures for June will also draw attention.

For the week, the EUR fell by 0.30% to $1.1771.

For the Pound:

It’s a particularly quiet week ahead on the economic calendar.

Economic data is limited to housing sector data that should have a limited impact on the Pound.

A lack of stats will leave the Pound in the hands of COVID-19 news updates in the week.

The Pound ended the week down by 0.14% to $1.3748.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

Inflation figures are due out on Wednesday ahead of GDP numbers on Friday.

While both sets of numbers will influence, market risk sentiment and crude oil pries will remain the key driver. Rising COVID-19 cases continue to threaten to derail the global economic recovery and weigh on demand for crude oil.

The Loonie ended the week up 0.39% to C$1.2564 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Consumer and wholesale inflation figures are due out in the week.

While wholesale inflation will influence, expect consumer inflation figures to be key.

Away from the economic calendar, any new COVID-19 containment measures would further test Aussie Dollar support.

The Aussie Dollar ended the week down by 0.47% to $0.7366.

For the Kiwi Dollar:

It’s a quiet week ahead. Early in the week, stats are limited trade data. Late in the week, consumer confidence numbers will also be in focus.

While positive numbers will provide the Kiwi with support, market risk sentiment will influence.

Any further signs of a slowdown to the global economic recovery and expect the Kiwi Dollar to come under pressure.

The Kiwi Dollar ended the week down by 0.36% to $0.6974.

For the Japanese Yen:

Early in the week, private sector PMIs for July will be in focus.

Both sets of numbers will draw plenty of attention ahead of a busy 2nd half of the week.

At the end of the week, retail sales and prelim industrial production figures will have a greater impact on the markets.

The Japanese Yen fell by 0.44% to ¥110.550 against the U.S Dollar.

Out of China

It’s a particularly quiet week ahead, with no major stats to provide the markets with direction.

A lack of stats will leave chatter from Beijing in focus through the week.

At the end of the week, NBS private sector PMIs from China will come into view. The numbers are due out next weekend.

The Chinese Yuan ended the week down by 0.03% to CNY6.4813 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. Following the withdrawal of troops from Afghanistan, news updates from the Middle East will also need continued monitoring…

Corporate Earnings

Among the big names from the U.S include Apple Inc. (Tues), Microsoft Corp. (Tues), and Amazon.com Inc. (Thurs).

The Weekly Wrap – Another Win for the Greenback as COVID-19 Raises the Alarm

The Stats

It was a quieter week on the economic calendar, in the week ending 23rd July.

A total of 33 stats were monitored, which was down from 66 stats in the week prior.

Of the 33 stats, 15 came in ahead forecasts, with 18 economic indicators coming up short of forecasts. There were no stats that were in line with forecasts in the week.

Looking at the numbers, 14 of the stats reflected an upward trend from previous figures. Of the remaining 19 stats, all 19 reflected a deterioration from previous.

For the Greenback, market concerns over the resilience of the global economic recovery delivered Dollar support. Economic data from the U.S was mixed, however, limiting the upside. In the week ending 23rd July, the Dollar Spot Index rose by 0.24% to 92.912. In the previous week, the Dollar had risen by 0.60% to 92.687.

Out of the U.S

The markets had to wait until Thursday for the first set of key stats.

Jobless claim figures disappointed. In the week ending 16th July, initial jobless claims rose from 368k to 419k. Economists had forecast a decline to 340k.

At the end of the week, prelim private sector PMI numbers for July were also in focus.

The services PMI fell from 64.6 to 59.8, while the manufacturing PMI rose from 62.1 to 63.1.

As a result, the composite PMI slid from 63.7 to 59.7, with the all-important services PMI weighing heavily on the composite.

In the equity markets, the NASDAQ rallied by 2.84%, with the Dow and the S&P500 ending the week up by 1.06% and by 1.96% respectively.

Out of the UK

It was quieter week. On Thursday, CBI industrial trend orders disappointed, falling from 19 to 17. Economists had forecast a more modest decline to 18.

At the end of the week, retail sales and private sector PMI numbers were the key stats of the week, however.

In June, retail sales rose by 0.5% in June, partially reversing a 1.30% fall from May. Year-on-year, sales was up 9.7%, falling short of a forecasted 10.1% increase. In May, sales had been up by 24.6%.

Private sector PMIs were also disappointing. In July, the services PMI fell from 62.4 to 57.8, with the manufacturing PMI falling from 63.9 to 60.4.

As a result, the composite PMI fell from 62.2 to 57.7.

In the week, the Pound fell by 0.14% to end the week at $1.3748. In the week prior, the Pound had fallen by 0.96% to $1.3767.

The FTSE100 ended the week up by 0.28%, following a 1.60% loss from the previous week.

Out of the Eurozone

It was a quieter week.

Eurozone consumer confidence and French, German, and Eurozone private sector PMIs were in focus.

It was a mixed set of numbers, however.

Consumer confidence in the Eurozone waned in July, with the index falling from -3.3 to -4.4. Economists had forecast an increase to -2.6.

More significant, however, were the prelim PMI numbers for July.

The French manufacturing PMI fell from 59.0 to 58.1, with the services PMI falling from 57.8 to 57.0.

Economists had forecast PMIs of 57.9 and 58.7 respectively.

From Germany, the manufacturing PMI rose from 65.1 to 65.6, with the services PMI rising from 57.5 to 62.2.

Economists had forecast PMIs of 63.7 and 59.1 respectively.

The Eurozone

For the Eurozone, the manufacturing PMI fell from 63.4 to 62.6, while the services PMI rose from 58.3 to a 181-month high 60.4.

Economists had forecast PMIs of 62.5 and 59.6 respectively.

According to the prelim Markit Survey,

  • The composite PMI rose to a 252-month high in July, according to prelim figures.
  • Business activity accelerated for a 4th consecutive month, supported by a continued easing of COVID-19 restrictions.
  • Demand was on the rise, with new order growth for the private sector at its fastest since May 2000.
  • Firms hired staff for a 6th consecutive month, with the pace of hiring the 2nd steepest since Jan-2018.
  • Average selling prices for goods and services rose at a near-term record pace, reflecting supply constraints.

On the monetary policy front, the ECB left rates unchanged, which was in line with market expectations. ECB President Lagarde continued to deliver assurances to the markets, ultimately leading to a pullback in the EUR and supporting the European boerses on the day.

For the week, the EUR fell by 0.30% to $1.1771. In the week prior, the EUR had fallen by 0.59% to $1.1806.

The CAC40 rose by 1.68%, with the DAX30 and the EuroStoxx600 ending the week up by 0.83% and by 1.49% respectively.

For the Loonie

It was a particularly quiet week on the economic data front.

Retail sales figures were in focus on Friday.

In June, retail sales fell by 2.1%, following a 5.7% slide in May. Economists had forecast a 3.2% decline.

A sharp rebound in crude oil prices provided the Loonie with much-needed support, however.

Early in the week, the Loonie had visited $1.27 levels against the Greenback before finding support.

In the week ending 23rd July, the Loonie rose by 0.39% to C$1.2564. In the week prior, the Loonie had fallen by 1.33% to C$1.2613.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 23rd July, the Aussie Dollar fell by 0.47% to $0.7366, with the Kiwi Dollar down by 0.36% to $0.6974.

For the Aussie Dollar

It was a quieter week, with retail sales and RBA meeting minutes in focus.

Retail sales disappointed, falling by 1.8% in June. Economists had forecast a 0.6% decline following May’s 0.4% rise. The downside stemmed from a reintroduction of COVID-19 containment measures, as new cases spiked once more.

The RBA meeting minutes had a relatively muted impact on the Aussie Dollar early in the week.

COVID-19 and concerns over the sustainability of the economic recovery pegged the Aussie back.

For the Kiwi Dollar

It was a particularly quiet week, with no major stats to provide the Kiwi Dollar with direction.

For the Japanese Yen

It was another relatively busy week.

Early in the week, inflation figures were in focus ahead of trade data on Wednesday.

Inflationary pressures returned in June, with Japan’s annual rate of inflation rising from -0.1% to 0.2%. The core annual rate of inflation ticked up from 0.1% to 0.2%.

In spite of the modest pickup, there was limited impact on the Yen. The numbers are unlikely to shift the BoJ’s stance on monetary policy.

On Wednesday, trade data was upbeat, with Japan’s trade balance rising from a ¥189.4bn deficit to a ¥383.2bn surplus. Year-on-year, exports were up 48.6% in June. In May, exports had been up by 49.6%.

The Japanese Yen fell by 0.44% to ¥110.55 against the U.S Dollar. In the week prior, the Yen had risen by 0.06% to ¥110.070.

Out of China

It was a quiet week on the economic data front, with no major stats from China for the markets to consider.

On the monetary policy front, the PBoC left loan prime rates unchanged, which was in line with expectations.

In the week ending 23rd July, the Chinese Yuan ended the week down by 0.03% to CNY6.4813. In the week prior, the Yuan had ended the week flat at CNY6.4792.

The CSI300 and the Hang Seng ended the week down by 0.11% and by 2.44% respectively.

Rates and Currencies Act like They are From Different Planets

The 10-year yield slipped four basis points on the week to 1.32%. The yield has risen in three of the past 15 weeks. It is tough to argue that it is a fluke. While it is holding above the 200-day moving average (~1.25%), the 30-year yield has spent the last two sessions below its 200-day moving average (~1.975). The implied yield of the December Eurodollar futures fell five basis points last week and is off near 15 bp over the past five weeks.

The dollar rose against all the major currencies but the Japanese yen, which eked out a negligible gain. The combination of economic data and central bank statement (and an end to asset purchases) spurred the market to price in an RBNZ rate hike as early as next month (August 17). Still, the Kiwi finished slightly lower on the week. Still, it joined the yen and Swiss franc, whose central banks are widely expected to be among the laggards in adjusting monetary policy, to be the only currencies that have risen here in July against the US dollar.

Perversely, the other two high-income countries in the front of the queue to adjust policy, Norway and Canada, have the poorest performing currencies this month (~-2.80% and -1.70%, respectively).

Dollar Index

The Dollar Index rose by about 0.6% last week. Still, it is up less than 0.30% in July after rising 2.9% in June. In recent days, it has held below the three-month high set on July 7, near 92.85. The MACD is slowly declining, while the Slow Stochastic has pulled back from overbought territory but is threatening to cross higher. The year’s high was set at the end of March near 93.45. A break of that March high would have bullish implications and it least signal at test on the 94.40-94.50 area. On the other hand, a move below 91.55 would suggest a high may be in place.

Euro

The euro fell to new three-month lows last week, slightly above $1.1770. The single currency has spent the last three sessions within the range set on July 13 (~$1.1770-$1.1875). Immediate resistance is seen in the $1.1840-$1.1850 area. Ahead of the ECB meeting on July 22, the risk is on the downside as the market prepares for a dovish forward guidance adjustment in light of its new symmetrical 2% inflation target. The MACD has not confirmed last week’s lows. The Slow Stochastic edged out of oversold territory but has moved sideways in the second half of last week. A convincing low does not appear to place, and the next important support area is seen closer to $1.17.

Japanese Yen

After matching a five-day high on July 14 (~JPY110.70), the dollar reversed lower, arguably with the drag of falling yields, and finished below the previous session’s low. The outside down day saw follow-through dollar selling the following day, but good bids were seen around JPY109.70. The greenback recovered a bit ahead of the week, as yields edged higher and settled slightly above JPY110.05.

Although the MACD and Slow Stochastic appear to be poised to turn higher, they haven’t yet. The correlation between US 10-year yield and oil prices over the past 30-day is near the highest since March 2019 (~0.52, rolling 30-day correlation of differences). A move above JPY110.85 could see the dollar rested the month and year high around JPY111.65. Below the JPY109.50 area, support is seen ahead of JPY109.00.

British Pound

Strong inflation and consumption figures spurred hawkish rhetoric from a couple of BOE officials and firmer short-term UK rates, but sterling still fell around 0.95% against the US dollar and lost about 0.35% against the euro. Indeed it posted a weekly close below $1.38 for the first time since April. Sterling closed poorly, and although it held above the recent lows in the $1.3730-$1.3740 area, it looks weak.

The cap near $1.39 looks stronger than support, and the 200-day moving average may beckon (~$1.3695). The Slow Stochastic has cycled to the middle of the range without a strong recovery in prices, and it looks to be poised to level out. The MACD moved gently off its lows but could turn down again.

Canadian Dollar

What a miserable two-week stretch for the Canadian dollar. It has fallen in eight of the ten sessions and has fallen by 2% over this run. The data has been firm, and the Bank of Canada did take another step toward slowing its bond purchases. The greenback covered the week’s range in two days. There were buyers for it on the pullback after the Bank of Canada’s announcement near CAD1.2425, and the following day it was flirting with the upper Bollinger Band (~CAD1.2610) and the 200-day moving average around (~CAD1.2625).

Above there, the CAD1.2700 marks the halfway point of the US dollar’s sell-off since last November’s election, but there appears to be little chart resistance ahead of the CAD1.2740-CAD1.2750 area. The MACD is stretched but continues to move higher. The Slow Stochastic has flatlined below last month’s high.

Australian Dollar

With a little more than a quarter of the population having received a single vaccine and a longer and tighter lockdown in parts of the country, the economic prospects have dimmed. They offer a stark contrast with New Zealand. The Australian dollar was sold to new lows for the year ahead of the weekend, as it slipped below $0.7400. We have recognized the risk of a move to $0.7380, which would complete the retracement (61.8%) of the rally since the US election last year. Below there may not be much support for another half of a cent. The MACD has is nearly a horizontal line in the trough, while the Slow Stochastic is moving sideways a little above the low set earlier this month.

Mexican Peso

The US dollar set the week’s range on July 13 (~MXN19.8150-MXN20.0820). It finished the week near the lower end of the range, but this represented only a small loss for the greenback (<0.15%). Still, it is the third decline in the past four weeks. The JP Morgan Emerging Market currency index eked out a minor gain last week (0.1%) to end a two-week decline. Although the peso is the only LATAM currency to rise so far here in July (0.4%), it was a poor performer last week in the region.

The Brazilian real came back into favor rising 2.8%, the Peruvian sol rose 1.6%, and the Colombian peso rose slightly more than 0.6%. The Chilean peso lost the most in the region (~1.25%) despite the central bank hiking rates and suggesting it may be the first of several. The momentum indicators are mixed. Broad sideways trading seems like the most likely near-term scenario. The MXN19.75 area offers support below MXN19.80.

Chinese Yuan

The yuan was virtually unchanged against the dollar last week, finishing slightly below CNY6.48. It leaves it off by about 0.33% here in July and up by nearly 0.75% year-to-date. Three-month implied volatility settled June a little above 5%. It began last week above 5% and finished at its lowest level since March 2020 (~3.93%).

The lower end of the near-term dollar range appears around CNY6.45, but it looks poised to test the upper-end that comes in around CNY6.49. The greenback has not traded above CNY6.50 for about three months. Although the firmness of June economic data shows the quarter ending on an upbeat, the PBOC does not appear to be in a hurry to ease policy further. The 10-year onshore yield fell to fell to 2.92% on July 13, its lowest in a year.

The low currency volatility and the non-correlation of the bond market to other major bond markets attract foreign asset managers. Year-to-date, the US 10-year yield has risen 40 bp, the German Bund by 22 bp, the British Gilt 43 bp, and the Chinese bond yield is off almost 20 bp.

This article was written by Marc Chandler, MarctoMarket.

China’s Economic Outlook Stabilises as Beijing Addresses Financial Risks to Enhance Resilience

The Chinese state’s commitment to reining in credit growth, deflating asset bubbles, and cutting off state support for unproductive firms while also encouraging the development of Chinese financial markets and opening the capital account support the sustainability of China’s growth model.

Reduced financial-stability risk is partially a function of a noticeably reduced concentration of the state on meeting inflated ‘hard’ growth objectives. The latest Five-Year Plan target of doubling the size of the economy between 2020 and 2035 implies a more manageable average annual growth of 4.5% over 2022-35 assuming growth in GDP of 8.6% (our updated forecast) this year.

Such structural reforms ease still significant economy-wide debt risks and increase likelihood of a ‘soft’ rather than ‘hard’ landing after the significant private- and public-sector debt accumulated since the global financial crisis. As economic growth recovered slightly to 1.3% Q/Q in the second quarter, we expect Chinese authorities to balance management of financial stability risk with a parallel need to support recovery over the second half of this year.

Trend growth of China’s economy still compares favorably with that of most economies

Even as growth cooled since the initial rebound from Q1 2020 troughs, trend growth of China’s large and diversified economy remains very high compared with that of most economies around the world even if the former moderates towards a 5% rate over the medium run.

The Agency I represent affirmed China’s long-term local- and foreign-currency issuer and senior unsecured debt ratings at A+ on 9 July and revised the Outlooks to Stable from Negative. We also affirmed China’s short-term issuer ratings at S-1+ in local- and foreign-currency and revised the Outlooks to Stable from Negative.

Extensive financial-stability reform and progress of renminbi as reserve currency underscore improved outlook

Extensive supervisory and regulatory changes have intensified since the Covid-19 economic crisis with the People’s Bank of China laying out defined priorities in the period to 2025 that include improvement of the macro-prudential assessment framework and strengthening supervision of systemically important institutions, businesses and infrastructure.

Further anchoring China’s improved outlook is gradual progress in establishing the renminbi as a global reserve currency, which in turn reinforces the country’s economic resilience on top of existing external-sector buffers relating to high foreign-exchange reserves and low external debt.

Budget deficits and rising public debt remain credit challenges

Structural public-sector fiscal deficits as well as an increasing public-sector debt stock over the long run remain prevailing credit challenges, exacerbated by the fiscal and monetary easing adopted to cushion China’s economy against repeated macroeconomic shocks.

China’s general government deficit increased to 11.4% of GDP in 2020 despite relatively moderate pandemic-related fiscal stimulus, from 6.3% in 2019 and only 0.9% of GDP in 2014. The general government deficit will remain a sizeable 9.5% of GDP this year before narrowing to 8.6% next year.

High and rising levels of total non-financial sector debt since 2008 remain a core credit challenge, although authorities have taken important steps to easing this trajectory of rising debt.

For a look at all of today’s economic events, check out our economic calendar.

Dennis Shen is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

The Week Ahead – COVID-19 , Economic Data, and the ECB in Focus

On the Macro

It’s quieter week ahead on the economic calendar, with 32 stats in focus in the week ending 23rd July. In the week prior, 66 stats had also been in focus.

For the Dollar:

On Thursday, jobless claims will draw plenty of attention.

At the end of the week, prelim private sector PMIs for July will also be in focus.

Expect the services PMI and the initial jobless claim figure to be the key numbers of the week.

In the week ending 16th July, the Dollar Spot Index rose by 0.60% to 92.687.

For the EUR:

It’s a relatively busy week on the economic data front.

Late in the week, business and consumer confidence figures will be in focus. With the ECB looking for consumption to fuel the economic recovery, the numbers will influence.

On Friday, prelim private sector PMIs for France, Germany, and the Eurozone will also be in focus.

The markets will be looking for any economic speed bumps following disappointing stats from Germany recently.

On the monetary policy front, the ECB is also in action on Thursday. With the policy revamp and some uncertainty over the economic outlook, it should be an interesting press conference…

For the week, the EUR fell by 0.59% to $1.1806.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar.

CBI industrial trend orders will draw interest on Thursday.

At the end of the week, however, private sector PMI and retail sales figures will be the key stats of the week.

A pickup in spending and service sector activity would deliver the Pound with strong support.

The Pound ended the week down by 0.96% to $1.3767.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

House price figures are due out along with retail sales data.

Expect the retail sales figures to be key on Friday. With economic data on the lighter side, crude oil prices and market risk sentiment will also influence in the week.

The Loonie ended the week down 1.33% to C$1.2613 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Retail sales figures are due out on Wednesday. With consumer spending key to a sustainable economic recovery, Wednesday’s stats will draw plenty of interest.

On the monetary policy front, the RBA monetary policy meeting minutes are due out on Tuesday.

Following the RBNZ’s surprise move last week, any talk of a tightening of monetary policy would give the Aussie Dollar a boost.

The Aussie Dollar ended the week down by 1.16% to $0.7401.

For the Kiwi Dollar:

It’s a particularly quiet week ahead, with no major stats to provide the Kiwi with direction.

A lack of stats will leave the Kiwi in the hands of market risk sentiment in the week.

The Kiwi Dollar ended the week up by 0.19% to $0.6999.

For the Japanese Yen:

Inflation and trade data on Tuesday will be the only stats of the week. Expect the trade data to garner the greatest interest.

On Wednesday, the BoJ’s monetary policy meeting minutes are due out for the June meeting. We don’t expect the dated minutes to have a material impact on the Yen, however.

The Japanese Yen rose by 0.06% to ¥110.070 against the U.S Dollar.

Out of China

It’s a particularly quiet week ahead, with no major stats to provide the markets with direction.

A lack of stats will leave chatter from Beijing in focus through the week.

In the week, the PBoC is in action, though the markets are expecting loan prime rates to be left unchanged.

The Chinese Yuan ended the week flat at CNY6.4792 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. Following the withdrawal of troops from Afghanistan, news updates from the Middle East will also need continued monitoring…

The Weekly Wrap – The Greenback Comes out on Top as U.S Inflation Spikes

The Stats

It was a busier week on the economic calendar, in the week ending 16th July.

A total of 66 stats were monitored, which was up from 42 stats in the week prior.

Of the 66 stats, 34 came in ahead forecasts, with 23 economic indicators coming up short of forecasts. There were 9 stats that were in line with forecasts in the week.

Looking at the numbers, 32 of the stats reflected an upward trend from previous figures. Of the remaining 34 stats, 32 reflected a deterioration from previous.

For the Greenback, economic data continued to deliver Dollar support. The upside came in spite of FED Chair Powell delivering dovish testimony in the week. In the week ending 16th July, the Dollar Spot Index rose by 0.60% to 92.687. In the previous week, the Dollar had fallen by 0.13% to 92.102.

Out of the U.S

Inflation figures drove support for the Greenback early in the week.

The annual rate of inflation accelerated from 5.0% to 5.4% in June, with the core annual rate of inflation picking up from 3.8% to 4.5%.

Wholesale inflationary pressures were also on the rise, with the producer price index increasing by 1.0% in June. In May, the index had risen by 0.7%.

In the 2nd half of the week, jobless claims, retail sales, and consumer sentiment were in focus.

It was a mixed set of numbers for the Dollar.

In the week ending 9th July, initial jobless claims fell from 386k to 360k.

Retail sales beat forecasts, with sales up 0.6% month-on-month. Economists had forecast a 0.5% decline following a 1.7% slide in May. Year-on-year, sales was up 18%, coming in ahead of a forecasted 14.0% increase. In May, retail sales had risen by 27.6% year-on-year.

While the jobless claims and retail sales figures were positive, consumer sentiment waned in July.

According to prelim figures, the Michigan Consumer Sentiment Index fell from 85.5 to 80.8. Economists had forecast a rise to 86.0.

Manufacturing sector data from Philly and NY State, industrial production, and business inventories were also out but had a muted impact on the markets.

On the monetary policy front, FED Chair Powell delivered 2 days of testimony to lawmakers. Powell talked of the FED’s willingness to let inflation run hotter in order to avoid the mistake of tightening policy too soon. The FED Chair’s assurances had limited impact on the Greenback, however.

In the equity markets, the NASDAQ slid by 1.87%, with the Dow and the S&P500 ending the week down by 0.52% and by 0.97% respectively.

Out of the UK

It was busier week. Mid-week, inflation figures delivered Pound support, with the UK’s annual rate of inflation picking up from 2.1% to 2.5%.

On Thursday, employment figures were also positive for the Pound.

In June, claimant counts slid by 114.8k, following a 92.6k decline in May.

The unemployment rate saw an increase from 4.7% to 4.8% in May, though this is likely to fall back following the June claim figures.

While the stats were positive for the Pound, uncertainty over the impact of the Delta variant on the economy lingered.

In the week, the Pound fell by 0.96% to end the week at $1.3767. In the week prior, the Pound had risen by 0.56% to $1.3901.

The FTSE100 ended the week down by 1.60%, following a 0.02% loss from the previous week.

Out of the Eurozone

It was another busy week.

Industrial production and trade data for the Eurozone were in focus along with finalized inflation figures for June.

For the Eurozone, industrial production fell by 1.0%, reversing a 0.6% rise from April.

In June, the Eurozone’s trade surplus narrowed from €10.9bn to €7.5bn. Economists had forecast a widening to €16.4bn.

Following a shift in the ECB’s policy on price stability, however, the inflation figures had limited impact.

The Eurozone’s annual rate of inflation softened from 2.0% to 1.9%, falling below the ECB’s new 2% target rate.

The core annual rate of inflation softened from 1.0% to 0.9%.

For the week, the EUR fell by 0.59% to $1.1806. In the week prior, the EUR had risen by 0.09% to $1.1876.

The CAC40 fell by 1.06%, with the DAX30 and the EuroStoxx600 ending the week down by 0.94% and by 0.64% respectively.

For the Loonie

Monetary policy was the main area of focus in the week.

While holding monetary policy unchanged on Wednesday, the BoC revised down growth forecasts, weighing on the Loonie. The BoC revised its 2021 growth forecast down from 6.5% to 6.0%. While revised down for 2021, the BoC revised its growth forecast for 2022 up from 3.7% to 4.6%.

In spite of the downward revision to this year’s growth forecast, the BoC announced that it would reduce its weekly bond purchases from $3bn to $2bn, citing a strengthening in the economic recovery…

Stats in the week included manufacturing sales, ADP employment change, and wholesale sales figures.

While having limited impact on the Loonie, the stats were skewed to the negative.

Also weighing on the Loonie were falling crude oil prices in the week.

In the week ending 16th July, the Loonie slid by 1.33% to C$1.2613. In the week prior, the Loonie had fallen by 1.01% to C$1.2447.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 16th July, the Aussie Dollar slid by 1.16% to $0.0.7401, while the Kiwi Dollar rose by 0.19% to $0.6999.

For the Aussie Dollar

It was a busier week, with consumer confidence and employment figures in focus.

The stats were skewed to the positive, though had a limited impact on the Aussie Dollar.

In July, the Westpac Consumer Confidence Index rose by 1.5% to $108.8. The survey was carried out before the rollout measures announced on 9th July.

Employment figures also impressed, with a 51.6k jump in full employment following a 97.5k increase in May. As a result of the further increase in hiring, the unemployment rate fell from 5.1% to 4.9% in June.

While the stats were positive for the Aussie Dollar, new COVID-19 restrictions weighed on the Aussie in the week.

For the Kiwi Dollar

It was a busy week.

Early in the week, electronic card retail sales and business confidence figures delivered mixed results.

In June, card retail spending increased by a further 0.9%, following a 1.7% rise in May.

Business confidence waned, however, with the NAB Business Confidence Index falling from 20.0 to 11.0.

By contrast, economic data in the 2nd half of the week impressed.

In June, the Business PMI rose from 58.6 to 60.7, with inflation accelerating in the 2nd quarter.

The annual rate of inflation accelerated from 1.5% to 3.3%, with consume prices up 1.3% in the quarter.

While the stats influenced, the RBNZ monetary policy decision on Wednesday was key.

Catching the markets off-guard, the RBNZ agreed to end the additional asset purchases under the LSAP programme by 23rd July.

For the Japanese Yen

It was another relatively busy week.

Early in the week, machinery orders provided some comfort, with orders up 7.8% in May.

Industrial production figures disappointed, however, with production falling by 6.5% in May.

Tertiary industry figures were also week, with the index falling by 2.7% in May.

At the end of the week, the Bank of Japan was also in focus but failed to deliver any surprises.

The Japanese Yen rose by 0.06% to ¥110.07 against the U.S Dollar. In the week prior, the Yen had risen by 0.82% to ¥110.140.

Out of China

It was a big week on the economic data front.

Early in the week, trade data for June was in focus ahead of 2nd quarter GDP numbers on Thursday.

While trade data impressed, with exports up 32.2%, GDP numbers disappointed in the week.

Year-on-year, the Chinese economy expanded by 7.9%, which was down from 18.3% in the 1st quarter. Quarter-on-quarter, the economy expanded by 1.3%, which was up from 0.6% growth in the 1st quarter, however.

Other stats at the end of the week included fixed asset investment, industrial production, and retail sales data.

The full set of numbers were softer in June than back in May, adding further pressure on riskier assets.

In the week ending 16th July, the Chinese Yuan ended the week flat at CNY6.4792. In the week prior, the Yuan had fallen by 0.09% to CNY6.4790.

The CSI300 and the Hang Seng ended the week up by 0.50% and by 2.41% respectively.

China Central Bank Says it Will Steadily Push Forward Digital Yuan Pilots

China is a front-runner in the global race to launch central bank digital currencies (CBDC) and has held trials in several major cities including Shenzhen and Shanghai.

The country will mainly use its digital yuan for domestic retailing payments, while exploring pilot schemes in using the digital currency for cross-border payments, the People’s Bank of China (PBOC) said in a white paper published on its website.

Pilots on cross-border payment will be based on respecting the monetary sovereignty of China and foreign countries complying with laws of countries involved, it said.

In April, Zhou Xiaochuan, China’s former central bank governor, said China should not rush to use the digital yuan for cross-border payments due to regulatory obstacles and foreign concerns about it’s global impact.

The PBOC will deepen its research on the impact of a digital yuan on monetary policy, the financial system and financial stability, the bank said.

The central bank warned that cryptocurrencies are mostly used for speculation, which threatens financial security, and such currencies could be used for money laundering and other illegal economic activities.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Judy Hua and Kevin YaoEditing by Peter Graff and Kim Coghill)

 

Euro Bounces From Three-and-a-Half Month Lows After Fed Comments

In testimony to the U.S. Congress, Fed Chair Jerome Powell said the U.S. economy was “still a ways off” from levels the central bank wanted to see before tapering its monetary support.

Against the greenback, the euro steadied at $1.1831, recovering from an early April low of $1.1772 hit before the Powell testimony in the previous session.

“Overall the comments suggest that the Fed is more likely to wait until later this year to begin tapering quantitative easing but has the option to start earlier in September,” MUFG strategists said in a daily note.

Apart from the euro, broad market sentiment remained subdued with the dollar holding strong against other major currencies.

Mixed economic data in China – showing a largely expected growth slowdown, but signs of more resilient domestic demand – also did little to improve the mood.

The safe-haven yen rose broadly, and was last up 0.1% at 109.86 per dollar and close to testing multi-month peaks at 129.91 per euro. The Aussie fell to $0.7453, while the kiwi dipped below 70 cents to $0.6998. AUD/

“The market is still on an uncertain path,” said National Australia Bank strategist Rodrigo Catril.

Against a broad basket of currencies, the greenback steadied at 92.41 despite 10-year benchmark U.S. Treasury yields extending their decline for a second consecutive session.

The Canadian dollar also weakened on Thursday – with help from softening oil prices – even though the Bank of Canada further tapered its policy support on Wednesday.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Saikat Chatterjee; Editing by Hugh Lawson)

Dollar Rises as U.S. Data Shows Inflation Running Hot

U.S. consumer prices rose by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum.

“(This was) clearly an upside surprise. It will make (Federal Reserve Chairman Jerome) Powell’s testimony on Capitol Hill tomorrow a much trickier exercise than it would’ve otherwise been given that it will put some additional pressure on the ‘transitory’ narrative,” said Michael Brown, senior analyst at payments firm Caxton in London.

“FX reaction is as one would expect given an upside surprise, with the dollar rallying across the board in line with the sharp rise in Treasury yields,” said Brown.

Traders are looking forward to Powell testifying before Congress on Wednesday and Thursday for any signals on the timing of potential U.S. tapering.

Powell has repeatedly stated that higher inflation will be transitory, noting that he expected supply chains to normalize and adapt. Treasury Secretary Janet Yellen shares that view.

The dollar index, which measures the greenback against a basket of six currencies, was 0.59% higher at 92.762, its highest since July 8. The index is just shy of the three-month high of 92.844 touched last week.

The possibility of U.S. stimulus withdrawal – brought to the fore by a surprise shift in tone last month from the Fed – has boosted the dollar in recent weeks despite a renewed rise in coronavirus cases in many parts of the world.

U.S. consumer price inflation data is likely to help boost the dollar higher.

“It kind of reinforced the Fed taper story and the dollar has been consolidating for the front of the week, and I think this was the kick that it needed to renew its gains,” said Kathy Lien, managing director at BK Asset Management in New York.

Modest strength in the price of oil, a major export for Canada, failed to stanch the Canadian currency’s losses against its U.S. counterpart. The loonie was down 0.5% to a four-day low against the dollar. The Canadian central bank is due to update its economic forecasts at a policy announcement on Wednesday.

Sterling fell on Tuesday after the Bank of England scrapped pandemic-era curbs on dividend payments by banks, but warned some asset prices look stretched.

The pound was last down 0.49% against the dollar, with the bulk of the day’s losses coming after the release of the U.S. CPI data.

Escalating violence over the jailing of former President Jacob Zuma  sent South Africa’s rand down more than 2% to a three-month low against the U.S. dollar.

China’s yuan rose to a near one-week high after surprisingly strong trade data  eased fears about a slowdown in what has been one of the world’s strongest economic recoveries.

Cryptocurrencies remained on the back foot on Tuesday, with bitcoin down about 2.18% at a four-day low of $32,384.64, as investors shed riskier assets following U.S. inflation data.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Saqib Iqbal AhmedEditing by Sonya Hepisntall)

Dollar Edges Higher Amid Pandemic Concerns; U.S. Inflation Data Eyed

With markets hyper-sensitive to any talk of early tapering, U.S. inflation data on Tuesday will be closely watched ahead of testimony by Federal Reserve Chair Jerome Powell on Wednesday and Thursday.

“Market caution reigned at the start of the week, weighing on risk sentiment and boosting the U.S. dollar,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Reports from around the globe of surging infections of the Delta coronavirus variant also hurt investors’ appetite for riskier assets.

Investors will look to U.S. inflation data on Tuesday and Federal Reserve Chair Jerome Powell’s economic testimony on Wednesday and Thursday as they gauge expectations for the Fed to dial back on stimulus as soon as this year, Manimbo said.

“A hotter report will likely boost Treasury yields and the dollar, and bring the Fed taper conversation back to the forefront,” Ronald Simpson, managing director, global currency analysis at Action Economics, said in a note.

The dollar index, which measures the greenback against a basket of six currencies, was 0.1% higher at 92.264. The index remains close to a 3-month high of 92.844 touched last week.

The Australian dollar, often viewed as a liquid proxy for risk, was 0.17% lower on the day.

Sterling fell, as British Prime Minister Boris Johnson was expected to confirm plans to remove nearly all remaining COVID-19 restrictions in England from July 19, despite a surge of cases to levels unseen for months.

The pound was 0.22% lower at $1.3879.

Meanwhile, the People’s Bank of China (PBOC) said China would cut the amount of cash that banks must hold as reserves, releasing around 1 trillion yuan ($150 billion) in long-term liquidity to underpin a post-COVID economic recovery that is starting to lose momentum.

“While welcome, the move also signals that the authorities are concerned about China’s growth prospects, so it’s mixed news,” said Marshall Gittler, head of investment research at BDSwiss Holding.

The Canadian dollar was trading about 0.1% lower at 1.2462 to the greenback, or 80.22 U.S. cents.

Investors are looking to a rate announcement from the Bank of Canada on Wednesday to see whether the bank will announce any slowing of its asset purchases.

Cryptocurrencies were on the defensive with bitcoin down about 3.4% at $33,109.25 and ether down 5.2% at $2,028.54.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Julien Ponthus; Editing by Kevin Liffey and Chizu Nomiyama)

 

The Week Ahead – Economic Data, Monetary Policy, and the Delta Variant in Focus

On the Macro

It’s busier week ahead on the economic calendar, with 64 stats in focus in the week ending 16th July. In the week prior, 42 stats had also been in focus.

For the Dollar:

Inflation figures will be in focus early in the week. With market concerns over FED monetary policy lingering, expect the numbers to influence.

On Thursday, jobless claims and Philly FED manufacturing numbers will draw attention.

Wrapping things up will be retail sales and consumer sentiment figures on Friday. Expect the retail sales figures to be key.

In the week ending 9th July, the Dollar Spot Index fell by 0.10% to 92.130.

For the EUR:

It’s a relatively busy week on the economic data front.

Eurozone industrial production figures on Wednesday and trade data on Friday will be in focus.

Following some disappointing numbers last week, we can expect increased sensitivity to the Eurozone figures.

Through the week, finalized inflation figures for member states and the Eurozone will also draw interest.

The Eurozone’s inflation figures on Friday will be key on the inflation front. Following the ECB’s revision to its inflation target, however, sensitivity should be limited to the upside.

For the week, the EUR rose by 0.09% to $1.1876.

For the Pound:

It’s a relatively busy week ahead on the economic calendar.

Inflation figures will draw attention on Wednesday ahead of employment figures on Thursday.

While inflation figures will influence, expect Thursday’s stats to be key.

Away from the economic calendar, COVID-19 news will need monitoring.

The Pound ended the week up by 0.56% to $1.3901.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

Manufacturing sales figures will be in focus on Wednesday ahead of ADP employment change figure on Thursday.

At the end of the week, housing starts and wholesale sales figures are also due out. We don’t expect too much influence from these numbers.

The main event of the week will be the Bank of Canada monetary policy decision on Wednesday. Expect plenty of Loonie sensitivity to the BoC’s outlook on the economy and monetary policy.

The Loonie ended the week down 1.01% to C$1.2447 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s also a relatively quiet week ahead.

Housing sector data in the early part of the week will likely have a muted impact on the Aussie Dollar.

On Wednesday, consumer confidence figures for July and June employment figures on Thursday will be key, however.

Expect the employment numbers to have a greater influence in the week.

The Aussie Dollar ended the week down by 0.50% to $0.7488.

For the Kiwi Dollar:

It’s a busier week ahead.

Early in the week, retail card spending and business confidence figures will be in focus.

Both sets of numbers will provide the Kiwi Dollar with direction.

At the end of the week, business PMI and inflation figures will also influence.

The main event of the week, however, is the RBNZ monetary policy decision on Wednesday. Economic data has continued to deliver Kiwi Dollar support. Whether the RBNZ will deliver a hawkish statement remains to be seen, however.

The Kiwi Dollar ended the week down by 0.57% to $0.6986.

For the Japanese Yen:

Machinery orders on Monday and industrial production figures on Wednesday will be the key stats of the week.

At the end of the week, the BoJ will also deliver its July monetary policy decision and quarterly outlook report.

There’s unlikely to be any surprises from the BoJ, however.

The Japanese Yen rose by 0.82% to ¥110.140 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead, with trade data for June due out on Monday.

On Thursday, GDP numbers for the 2nd quarter will be key, however.

Fixed asset investment, industrial production, and retail sales figures are also due out on Thursday. Much will depend on the GDP figures on the day.

Following last Thursday’s risk aversion over concerns over the resilience of the global economic recovery, China’s GDP numbers will lay the foundations of what to expect from elsewhere…

The Chinese Yuan ended the week down by 0.09% to CNY6.4790 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. Following the withdrawal of troops from Afghanistan, news updates from the Middle East will also need monitoring…

The Weekly Wrap – COVID-19 Fueled Market Jitters Muted by Bargain Hunting

The Stats

It was a quieter week on the economic calendar, in the week ending 9th July.

A total of 42 stats were monitored, which was down from 58 stats in the week prior.

Of the 42 stats, 20 came in ahead forecasts, with 22 economic indicators coming up short of forecasts. There were no stats that were in line with forecasts in the week.

Looking at the numbers, 20 of the stats reflected an upward trend from previous figures. Of the remaining 22 stats, 21 reflected a deterioration from previous.

For the Greenback, economic data and the FED failed to deliver Dollar support, with a Friday pullback leaving the Dollar in the red. In the week ending 9th July, the Dollar Spot Index fell by 0.13% to 92.102. In the previous week, the Dollar had risen by 0.41% to 92.226.

Out of the U.S

After Monday’s holiday, service sector PMIs for June were in focus on Tuesday.

The all-important ISM Non-Manufacturing PMI fell from 64.0 to 60.1. While in decline, plus 60 levels continued to support the bullish outlook on the U.S economy.

On Wednesday, JOLT’s job openings for May had a muted impact on the Dollar as did the weekly jobless claim figures.

In the week ending 2nd July, initial jobless claims rose from 371k to 373k.

On the monetary policy front, the FOMC meeting minutes delivered mixed signals. The minutes pointed to a more patient stance on policy, easing concerns of an imminent move. As expected, there was tapering talk, however.

In the equity markets, the Dow rose by 0.24%, with the NASDAQ and the S&P500 ending the week up by 0.43% and by 0.40% respectively.

Out of the UK

It was another relatively quiet week. Early in the week, finalized service sector PMI figures were in focus.

In June, the UK’s services PMI fell from 62.9 to 62.4, which was up from a prelim 61.7.

At the end of the week, industrial and manufacturing production, GDP, and trade figures for May were in focus.

The UK economy grew by an average 3.6% in the 3-months to May, accelerating over the same time period to April.

In the month of May, however, growth slowed from 2.0% to 0.8%

Manufacturing and industrial production figures also failed to impress. Manufacturing production slipped by 0.1% after having stalled in April. Industrial production rose by just 0.8%, partially reversing a 1.0% decline from April.

Trade data was somewhat better, with the UK’s trade deficit narrowing from £10.96bn to £8.48bn. Imports were on the decline, while exports were on the rise in May.

Of significance was a 5th consecutive month where imports from non-EU countries overshadowed imports from the EU…

Away from the economic calendar, concerns over the continued spread of the Delta variant added further downward pressure on the Pound.

In the week, the Pound rose by 0.56% to end the week at $1.3901. In the week prior, the Pound had fallen by 0.40% to $1.3824.

The FTSE100 ended the week down by 0.02%, following a 0.18% loss from the previous week.

Out of the Eurozone

It was another busy week.

Early in the week, service sector PMIs for June were in focus, with the stats skewed to the positive.

For the Eurozone, the services PMI increased from 55.2 to 58.3 in June, which was up from a prelim 58.0.

For June, the Composite PMI came in at 59.5. This was up from a May 57.1 and a prelim 59.2.

According to the finalized survey,

  • The private sector economy expanded at the fastest pace for 15-years in June.
  • Support came from a marked increase in output across both service and manufacturing.

By Country,

  • Ireland ranked 1st, with a 2-month low Composite PMI of 63.4, followed by Spain. In June Spain’s Composite PMI surged to a 256-month high 62.4.
  • Germany ranked 3rd, with a 123-month high 60.1, following by Italy and then France. Both saw their respective composites reach 41-month highs at the end of the 2nd

The rest of the stats in the week were skewed to the negative, however.

Economic sentiment for Germany and the Eurozone waned. The Eurozone’s ZEW Economic Sentiment Index falling from 81.3 to 61.2.

Stats from Germany also disappointed in the week.

Significantly, factory orders and industrial production both fell unexpectedly in May, with Germany’s trade surplus narrowing.

The numbers raised question marks over the resilience of the economy recovery.

On the monetary policy front, the ECB meeting minutes were also in focus. A shift in the ECB’s inflation target to 2% was the only headline.

For the week, the EUR rose by 0.09% to $1.1876. In the week prior, the EUR had fallen by 0.59% to $1.1865.

The CAC40 fell by 0.36%, while the DAX30 and the EuroStoxx600 ended the week up by 0.24% and by 0.19% respectively.

For the Loonie

Ivey PMI and employment figures for June drew interest ahead of the Bank of Canada’s monetary policy decision next week…

The Ivey PMI jumped from 64.7 to 71.9 delivering mid-week support.

More significantly, however, employment data impressed at the end of the week.

Employment surged by 230.7k in June, leading to a fall in the unemployment rate from 8.2% to 7.8%. The fall in the unemployment rate came in spite of a rise in the participation rate from 64.6 to 65.2%.

In the week ending 9th July, the Loonie slid by 1.01% to C$1.2447. In the week prior, the Loonie had fallen by 0.24% to C$1.2322.

Elsewhere

It was another bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 9th July, the Aussie Dollar fell by 0.50% to $0.7488, with the Kiwi Dollar declining by 0.57% to $0.6986.

For the Aussie Dollar

It was yet another quiet week. Finalized retail sales and building approvals were in focus.

In May, building approvals slid by 7.1%, following a 5.7% decline in April.

Retail sales rose by 0.4%, however, which was up from a prelim 0.1% increase.

On the monetary policy front, the RBA was also in action on Tuesday.

In line with market expectations, the RBA left monetary policy unchanged. The RBA continued to project a hold on interest rates until 2024, pegging the Aussie Dollar back early in the week.

For the Kiwi Dollar

It was a particularly quiet week.

Business confidence was in back focus mid-week.

In the 2nd quarter, the NZIER Business Confidence Index increased by 7%, partially reversing a 13% decline from the 1st quarter.

The pickup in business confidence was not enough to prevent a Kiwi Dollar slide against the Greenback, however.

For the Japanese Yen

It was a relatively busy week.

Finalized service sector PMI and household spending figures were in focus.

The stats were mixed in the week.

While service sector activity contracted at a slower pace, household spending fell in May.

Month-on-month, spending fell by 2.1%, reversing a modest 0.1% increase from April.

Risk off sentiment late in the week, however, was the key driver for Yen demand.

The Japanese Yen rose by 0.82% to ¥110.140 against the U.S Dollar. In the week prior, the Yen had fallen by 0.27% to ¥111.050.

Out of China

Service sector and inflation figures for June were in focus, with the stats skewed to the negative.

In June, the Caixin Services PMI fell from 55.1 to 50.3, which followed disappointing manufacturing numbers from the previous week.

Inflationary pressures also eased, with China’s annual rate of inflation softening from 1.3% to 1.1%. While wholesale inflationary pressures also abated, the annual rate of wholesale inflation remained heighted at 8.8% in June.

In the week ending 9th July, the Chinese Yuan fell by 0.09% to CNY6.4790. In the week prior, the Yuan had fallen by 0.26% to CNY6.4730.

The CSI300 and the Hang Seng ended the week down by 0.23% and by 3.41% respectively.

The Dollar Reverses Lower: Is this the Real Thing?

The dollar’s rally into early July left the technical indicators stretched, and we note that near-term trend reversals recently have occurred around the end of the month or US jobs report.

Despite the first employment report that beat expectations in three months, US interest rates softened. In fact, the implied yield of the December 2022 Eurodollar futures contract fell four basis points. The contract traced out what appears to be a key reversal by making new lows before rallying and closing above the previous high (in price). The two-year note yield, which doubled in June, slipped lower for the fifth session in the past six. The 10-year yield fell every day last week for a cumulative decline of 10 to approach 1.40%, the lower end of where it has traded over the past four months.

The new week begins off slowly with the US holiday on Monday. Given that the individual forecasts of Federal Reserve officials were not discussed at last month’s FOMC meeting, and Chair Powell played them down, it ought not to be surprising if the minutes were not as hawkish as the dots. Still, while some “buy the rumor sell the fact” type of trading of the dollar was seen after the employment data, the market will want to see follow-through before becoming convinced that the month-long dollar rally is over.

Dollar Index

The Dollar Index rose to a new high since early April ahead of the jobs report, reaching almost 92.75. It sold off and closed near its lows, around 91.20. A potential key reversal was traced out. A break of 92.00 favors a near-term top being in place, and a move below 91.50 would be convincing. The momentum indicators are over-extended but are still pointing higher. As scar tissue shows, even with technical indicators seeming near extremes, prices can continue to rise, but the reversal pattern and weak close is the ideal set-up to mark the end of the month-long rally.

Euro

The common currency bounced off the push below $1.1810 after the employment data but did not take out the previous session’s high (~$1.1885). It snapped a four-day slide. A move above $1.19 would help stabilize the tone. The late June high near $1.1975 needs to be overcome to boost confidence that a meaningful low is in place. The momentum indicators are oversold territory, but if $1.1800 is given, there is little on the charts before $1.1700, which corresponds to the March low and the (38.2%) retracement of the rally since the pandemic low in March 2020 (~$1.0635).

Japanese Yen

The US dollar posted a bullish outside up day in the middle of last week, trading on both sides of the previous session’s range and closing above its high to move back above JPY111.00. However, ahead of the weekend, it posted a bearish outside down day. It made a marginal new high for the year, a tad above JPY111.65, where the upper Bollinger Band was found. The high from March 2020 was slightly higher at JPY111.70. The high from last year was set in February by JPY112.25. The MACD does not appear stretched, but the Slow Stochastic is more so. Both look poised to turn lower. The yen is often a range-trading currency, and the lower end of the range may be represented by the trendline off the Q2 lows, which is near JPY110.00 now.

British Pound

Sterling fell to its lowest level since mid-April (~$1.3735) before the US jobs data. It recovered to almost $1.3850 to record a key upside reversal. It has fallen in four of the past five weeks, and as a consequence, the momentum indicators are stretched. The MACD is poised to turn higher next week. Next week, follow-through cable buying could turn the Slow Stochastic, which has not confirmed the drop to the lowest level since mid-April. The $1.3870-$1.3900 offers the next hurdle. For its part, the euro has been struggling to sustain a foothold above GBP0.8500 and now looks set to pull back and return to the lower end of its range, closer to GBP0.8500.

Canadian Dollar

The Canadian dollar was the most impressive of the majors at the end of last week. After making a marginal new high near CAD1.2450, before the US jobs report, the greenback reversed lower, taking out the previous three sessions’ lows to record key reversal. Indeed, it surpassed the (61.8%) retracement objective of the bounce since the June 23 low near CAD1.2250. The nearly 1% US dollar decline (to about CAD1.2310) ahead of the weekend was the largest in a year. Initial support will likely be found in the CAD1.2300. A break of it could signal a move back toward CAD1.2200. The MACD has curling over, but the Slow Stochastic is, well, slower.

Australian Dollar

The Aussie recovered smartly after falling to a new low for the year (~0.7445) ahead of the weekend and rallied smartly through the high of the previous two sessions to rise to almost $0.7535. It, too, posted a key upside reversal. It also snapped a four-day drop, which followed a five-day rally the previous week. The MACD is headed lower though it is already at the lowest level since April 2020. The Slow Stochastic is headed lower, but follow-through gains next week could see it turn higher, which would leave a bullish divergence in its wake, has not confirmed the new low in price. The $0.7550-$0.7575 band offers nearby resistance and houses the 200-day moving average. However, it may require a move above $0.7600 to boost confidence that a durable low is in place.

Mexican Peso

The dollar peaked against the peso the day before the US employment report around MXN20.08, nearly reaching the (38.2%) retracement of the unexpected Banxico rate hike-induced slide (MXN20.1040). The pre-weekend sell-off saw it briefly trade below MXN19.75 to record a new low for the week. The momentum indicators are not particularly helpful now, but the dollar is likely to remain under pressure. Initial support is likely around MXN19.70 and then the five-month low set on June 9 by MXN19.60. The market has 50 bp of tightening priced into Q3.

Chinese Yuan

The yuan has been recently moving in line with emerging market currencies against the dollar. Consider last week, the yuan fell by about 0.25% and declined by around 1.3% in the month of June. The JP Morgan Emerging Markets Currency Index lost 0.5% last week and 1.2% in June. Still, the dollar rose for the fifth consecutive week against the yuan. Yet, last week’s high near CNY6.4850 was below the previous week’s high (~CNY6.4910)), and the greenback’s pullback after the employment data suggests a stronger yuan to start the new week. Initially, the dollar could ease toward CNY6.45 and maybe CNY6.43 in the coming days.

This article was written by Marc Chandler, MarctoMarket.

The Week Ahead – Economic Data, Monetary Policy, and COVID-19 in Focus

On the Macro

It’s quieter week ahead on the economic calendar, with 43 stats in focus in the week ending 9th July. In the week prior, 58 stats had also been in focus.

For the Dollar:

ISM Non-Manufacturing PMI numbers for June will be in focus on Tuesday. Following Monday’s U.S holiday, expect plenty of interest in the numbers.

JOLT’s job openings on Wednesday will also draw interest ahead of weekly jobless claims on Thursday.

A fall in initial jobless claims to sub-300k levels would deliver a boost for the Greenback.

On the monetary policy front, the FOMC meeting minutes and FOMC member chatter will also influence. The minutes are due out on Wednesday.

In the week, the Dollar ended the week rose by 0.41% to 92.226.

For the EUR:

It’s a relatively busy week on the economic calendar.

Service PMIs for Italy and Spain are due out on Monday. Finalized PMIs for France, Germany, and the Eurozone are also due out.

Barring marked revisions, expect Italy and the Eurozone’s PMIs to have the greatest impact.

The focus will then shift to German factory orders, Eurozone retail sales, and economic sentiment figures on Tuesday.

Expect German factory orders and Germany’s ZEW Economic Sentiment index to have the greatest impact.

On Wednesday German industrial production figures will be in focus ahead of German trade data on Thursday.

From the ECB, ECB President Lagarde is scheduled to speak on Monday ahead of the ECB minutes on Thursday. ECB President Lagarde is also due to speak on Friday.

The EUR ended the week down by 0.59% to $1.1865.

For the Pound:

It’s a relatively busy week ahead on the economic calendar.

Finalized service and composite PMIs are due out on Monday. Expect any downward revisions to test support for the Pound.

The focus will then shift to industrial and manufacturing production and trade data due out on Friday.

Away from the calendar, COVID-19 news updates will remain a key area of interest.

The Pound ended the week down by 0.40% to $1.3824.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

IVEY PMI numbers for June are due out on Wednesday ahead of employment change figures on Friday.

With little else for the markets to consider, both sets of numbers will influence.

Crude oil inventories and market risk sentiment will also provide direction. A wider spread of the Delta strain of the coronavirus could test support for the Loonie in the week.

The Loonie ended the week down 0.24% to C$1.2322 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s also a relatively quiet week ahead.

Economic data is limited to retail sales figures on Monday. While the numbers are key, the RBA monetary policy decision will be the main event of the week.

With the markets expecting the RBA to stand pat on policy, the Rate Statement will be the key driver.

The Aussie Dollar ended the week down by 0.84% to $0.7526.

For the Kiwi Dollar:

It’s a particularly quiet week ahead.

NZIER Business confidence figures for the 2nd quarter will be in focus on Tuesday.

With little else for the markets to consider, expect plenty of influence from the numbers. A continued pickup in business investment remains key to support a sustainable economic recovery.

The Kiwi Dollar ended the week down by 0.66% to $0.7026.

For the Japanese Yen:

Finalized service PMI figures on Monday and household spending figures on Tuesday are the key stats of the week.

We don’t expect the numbers to have a material impact on the Japanese Yen, however. Monetary policy divergence from the FED remains a negative for the Yen near-term.

The Japanese Yen fell by 0.27% to ¥111.05 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead, June’s Caixin Services PMI will draw interest on Monday.

With service sector activity now also a key component of the Chinese economy, weak numbers would weigh on riskier assets.

At the end of the week, inflation figures will also influence. Central banks are expecting the latest spike in inflation to be transitory. Another pickup in inflationary pressure could test the theory…

The Chinese Yuan ended the week down by 0.26% to CNY6.4730 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. On the Iran nuclear agreement, updates on talks with Iran will also need monitoring.

The Weekly Wrap – Economic Data and the Delta Variant Deliver Mixed Results

The Stats

It was a busier week on the economic calendar, in the week ending 2nd July.

A total of 58 stats were monitored, which was up from 49 stats in the week prior.

Of the 58 stats, 26 came in ahead forecasts, with 26 economic indicators coming up short of forecasts. There were 6 stats that were in line with forecasts in the week.

Looking at the numbers, 26 of the stats reflected an upward trend from previous figures. Of the remaining 32 stats, 25 reflected a deterioration from previous.

For the Greenback, economic data had delivered strong Dollar support ahead of Friday’s NFP numbers. In the week ending 2nd July, the Dollar Spot Index rose by 0.41% to 92.226. In the previous week, the Dollar had fallen by 0.41% to 91.851.

Out of the U.S

After a quiet start to the week, consumer confidence figures impressed on Tuesday. The CB Consumer Confidence Index jumped to a 16-month high in June.

Mid-week, ADP nonfarm employment change figures pointed to another sharp increase in hiring. In June, the ADP reported a 692k increase in nonfarm payrolls, following an 886k surge in May.

On Thursday, the focus shifted to the weekly jobless claims and manufacturing sector PMI numbers.

In the week ending 25th June, initial jobless claims fell from 415k to 365k.

Manufacturing sector activity saw slightly weaker growth in June, however, with the ISM Manufacturing PMI falling from 61.2 to 60.6.

While the stats delivered Dollar support, nonfarm payroll data at the end of the week was the key stat of the week.

In June, the government reported a 662k increase in nonfarm payrolls following a 516k rise in May.

In spite of the rise, the unemployment rate edged up from 5.8% to 5.9%.

Economists had forecast nonfarm payrolls to rise by 570k and for the unemployment rate to fall to 5.7%. The participation rate held steady at 61.6% versus a forecasted increase to 61.7%…

In the equity markets, the Dow rose by 1.02%, with the NASDAQ and the S&P500 ending the week up by 1.94% and by 1.67% respectively.

Out of the UK

It was another relatively quiet week, with GDP and finalized manufacturing sector PMI figures in focus.

The stats were skewed to the negative, with the UK economy contracting more than had been expected in the 1st quarter.

Quarter-on-quarter, the economy contracted by 1.6%, revised down from a prelim 1.5%.

In June, the Manufacturing PMI fell from 65.6 to 63.9, which was revised down from a prelim 64.2.

Away from the economic calendar, concerns over the continued spread of the Delta variant added further downward pressure on the Pound.

In the week, the Pound fell by 0.40% to end the week at $1.3824. In the week prior, the Pound had risen by 0.50% to $1.3879.

The FTSE100 ended the week down by 0.18%, following a 1.69% gain from the previous week.

Out of the Eurozone

It was another busy week.

Economic sentiment figures for the Eurozone in focus on Tuesday.

A pickup in economic sentiment in June provided some EUR support early in the week.

Midweek, German unemployment and Eurozone inflation figures were in focus.

While unemployment numbers were EUR positive, inflationary pressures across the Eurozone softened in June.

According to prelim figures, the Eurozone’s annual rate of inflation softened from 2.0% to 1.9%.

On Thursday, manufacturing sector PMIs for June were positive, however.

Spain’s manufacturing PMI increased from 59.4 to 60.4, with Italy’s seeing a modest fall from 62.3 to 62.2.

Germany’s manufacturing PMI rose from 64.4 to 65.1, which was up from a prelim 64.9.

France’s manufacturing sector saw growth slow moderately, with the PMI falling from 59.4 to 59.0. This was up from a prelim 58.6, however.

As a result, the Eurozone’s manufacturing PMI rose from 63.1 to a record high 63.4, which was up from a prelim 63.1.

Eurozone unemployment figures for May were also upbeat, with the unemployment rate falling from 8.1% to 7.9%.

Retail sales figures from Germany were also market positive on Thursday. Retail sales rose by 4.2% partially reversing a 6.8% slide in April.

For the week, the EUR fell by 0.59% to $1.1865. In the week prior, the EUR had risen by 0.61% to $1.1935.

The DAX30 rose by 0.27%, while the CAC40 and the EuroStoxx600 ended the week down by 1.06% and by 0.18% respectively.

For the Loonie

GDP, RMPI, and trade data were in focus in the week.

The stats were skewed to the positive, with the Canadian economy contracting by less than forecasted. In April, the economy contracted by 0.3% versus a forecasted 0.8% contraction. The economy had expanded by 1.3% in March.

The RPMI jumped by 3.2% in May, following a 1.0% increase in April, the uptrend supporting the pickup in inflationary pressures globally.

At the end of the week, Canada’s trade balance fell from a C$0.59bn surplus to a C$1.39bn deficit, however. Economists had forecast a deficit of C$0.30bn.

In the week ending 2nd July, the Loonie fell by 0.24% to C$1.2322. In the week prior, the Loonie had risen by 1.39% to C$1.2292.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 2nd July, the Aussie Dollar fell by 0.84% to $0.7526, with the Kiwi Dollar declining by 0.66% to $0.7026.

For the Aussie Dollar

It was another quiet week. Private sector credit figures were in focus along with manufacturing sector and trade data.

The stats were skewed to the positive but were not strong enough to prevent a loss against the Greenback.

In May, private sector credit rose by 0.4%, following a 0.3% increase in April.

Manufacturing sector activity was also on the rise, with the AIG Manufacturing Index climbing from 61.8 to a new series high 63.2.

More significantly, however, was a widening in the trade balance from A$8.028bn to A$9.681bn in May. The widening was driven by a 6% jump in exports.

For the Kiwi Dollar

It was a relatively quiet week.

Business confidence was in focus mid-week.

In June, the ANZ Business Confidence Index fell by 3 points to -0.6%. Firm’s own activity index climbed by 5 points to +31.6%, however.

While building consents for May were also in focus, an unexpected 2.8% drop in consents having little impact on the Kiwi.

For the Japanese Yen

It was a busy week.

Retail sales figures for May came in ahead of forecasts early in the week. Year-on-year, retail sales was up by 8.2% versus a forecasted 7.9%. In April, retail sales had been up by 11.9%.

Mid-week, industrial production figures disappointed, however. Production slid by 5.9% according to prelim figures, reversing a 2.9% increase from April.

On Thursday, the focus then shifted to 2nd quarter Tankan survey numbers.

While on the rise in the 2nd quarter, only the All-Big Industry Capex beat forecasts, rising by 9.6% versus a forecasted 5.2%. In the 1st quarter, the index had risen by 3%.

The Tankan Big Manufacturing Outlook Index increased from 4 to 13, with the Large Manufacturers Index up from 5 to 14. From the services sector, the Large Non-Manufacturers Index climbed from -1 to 3 in the 2nd quarter.

The Japanese Yen fell by 0.27% to ¥111.05 against the U.S Dollar. In the week prior, the Yen had fallen by 0.49% to ¥110.750.

Out of China

Private sector PMI figures for June were in focus in the week.

The stats were skewed to the negative but were not weak enough to sound the alarm bells.

In June, the NBS manufacturing PMI slipped from 51.0 to 50.9, with the non-manufacturing PMI falling from 55.2 to 53.5.

The markets preferred Caixin Manufacturing PMI fell from 52.0 to 51.3.

In the week ending 2nd July, the Chinese Yuan fell by 0.26% to CNY6.4730. In the week prior, the Yuan had fallen by 0.05% to CNY6.4562.

The CSI300 and the Hang Seng ended the week down by 3.03% and by 3.34% respectively.