Market Commentary - Week Ahead

Posted by Kevin Jock on Aug 12, 2019 6:54:53 AM

Market Commentary - Week Ahead


     An eventful weekend brought more Hong Kong protests, the potential end of the military information-sharing pact between South Korea and Japan, trade disputes between the U.S. and France & the Indian government’s decision to end a special status for the Kashmir province.

     Focus also comes down on Trump’s contention that China manipulates its currency. The IMF’s yearly review stated that the yuan has been "broadly stable" against other currencies, saying the PBOC has hardly intervened.  Last week, we saw President Trump threat to cancel the upcoming U.S.-China trade. USD focuses on Trump rhetoric and weak PPI figures- service prices failed to accelerate and goods producing firms are yet to pass through higher costs from wages. US core inflation shadowed by Tariff concerns.

     GBP hit a 2-year low on the dollar this past Friday after data showed the UK economy unexpectedly contracted in Q2, posting the fourth weekly decline in-a-row. Reuters comments that is “only adding to the bearishness over Brexit and the chance of a no-deal exit.”

Figure 1: GBP extending losses to hit 2-year trough (Source: Refinitiv Eikon)

        The APAC team also draws attention to AUDNZD as a key pair to watch- trading towards some big levels. 1.0520/25 which looks quite pivotal coinciding with the 100/200dma. More here: https://mailchi.mp/2717cbc17de7/is-prime-morning-commentary-247827

Figure 2: AUDNZD (Source: Bloomberg)

  In the EM space, TRY and HUF saw solid rallies Friday. ZAR, CNY & INR were among the worst performers.

Up Next

     We have a slow start to the week with little scheduled data and many Asian counties observing holidays. Turkey is off on a 4-day religious festival called Sacrifice Feast. The French and Italian banks are closed in observance of Assumption Day on Thursday.

     Data-wise, the week kicks off with a few second-tier events, starting with the Fed Reserve budget balance during the U.S. afternoon and then JPY PPI, German CPI m/m figures , ZEW economic sentiment post and the AUD’s NAB Business Confidence. We also see a few RBA speeches this week: Chris Kent in Sydney on Monday& Debelle on Wednesday and Thursday.

     Mid-week, sees a furry of CNY data and the AUD come into focus with the latest update to wages and unemployment. Both will be crucial for the RBA, especially if they come in at expectations. This would be a real wake up call for the RBA whose governor has previously said "economy may have reached a gentle turning point." Weak wages numbers loom over the RBA continually undershooting inflation targets. ABC Australia notes that It also puts a brake on household consumption and ultimately the entire economy.

     Brexit keeps the GBP agitated and weaker figures this week have more potential to do bad than solid figures can do good- signs of a less robust economy may be enough to cause the BoE to switch gears in 2019. Average earnings & CPI figures from both the US and UK arrive ahead of the two countries retails sales figures Thursday. U.S. CPI figures will be in focus after last week’s weak PPI figures and concerns over Tariffs.

     EUR’s attention will be on the Italian election and Germany's gross domestic product figures on Wednesday where a contraction is a real risk- Factory output previously saw a large dip in June.

     The week’s last major scheduled event comes from the University of Michigan’s preliminary consumer sentiment post.

 

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