UK Re-opens

Inflationary pressures are showing no signs of easing just yet and the market will soon look to test the Fed’s patience. The dollar has been stuck in a tight trading range since the middle of June, but that could soon change if the rest of the world shifts to a tightening mode more quickly than the Fed.

This week is filled with many catalysts that stem from a deadline to finalize a bipartisan infrastructure package, persistent global Delta variant concerns, widespread inflationary pressures, central bank rate decisions, and a busy week of earnings results.

The main event will be the ECB rate decision and press conference. This will be the first meeting since their strategy review that aimed for a slightly higher inflation target. It appears that a divide is growing in the ECB over stimulus guidance, a sign that the hawks will be strongly push for tightening in the fall.

Here are the key market moving factors for the week:

 The US

• The dollar was up on Monday morning in Asia, remaining near its highest levels in months. Investors turned to the safe-haven U.S. currency as COVID-19 cases continue to increase globally, in turn prompting concerns about the global economic recovery.
• The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.02% to 92.707 by 12:28 AM ET (X AM GMT).
• With the Fed entering the blackout period ahead of the July 29 FOMC policy decision, it is a busy week of economic data, but nothing like the past one. On Monday, the NAHB housing market index is expected to tick higher to 82, still well off the highs seen at the end of last year.
• On Tuesday, both Building Permits and Housing Starts should post modest gains, a sign the housing market isn’t ready to cool. Thursday is all about weekly initial jobless claims and if the rate of decline can speed up. Friday is all about the flash PMI readings which should show steady activity in both the manufacturing and service sectors.

The UK

• On Monday, the government is scheduled to lift all COVID restrictions, with mask-wearing and social distancing optional but not mandatory. However, there is opposition from health officials who fear the move could lead to a surge in COVID infections. As well, the mayor of London has said that passengers on public transport will still be required to wear masks.
• BoE member Jonathan Haskel will deliver a speech at the University of Liverpool School of Management, on the topic “Will the pandemic scar the economy?”
• On Tuesday, U.K. Business Secretary Kwasi Kwarteng testifies before a parliamentary committee on how to protect the nation’s steel industry following the massive collapse of Greensill Capital.

Europe

• The ECB holds its monetary policy meeting on Thursday, and the central bank is widely expected to implement significant changes in monetary policy. The July meeting was expected to be a non-event, but the release of the ECB’s strategy review last week has the markets buzzing since the Thursday meeting should provide more clarity on how the bank plans to implement this new strategy.
• At the presentation of the strategy review, ECB President Christine Lagarde said that there would be a review of forwarding guidance to align it to the strategy review. This means that we could see some important changes in forwarding guidance at the meeting.
• The strategy review has changed the inflation target from “below, but close to 2%,” to “2%” and also stated that the bank is willing to accept “a transitory period in which inflation is moderately above target.” The ECB is likely to incorporate these changes in its forward guidance..

AUSTRALIA & NZ

• Australian stock markets were trading sideways despite another impressive set of jobs data this past week. The focus remained on the NSW COVID-19 outbreak and deepening restrictions in Sydney. Melbourne also entered a snap lockdown as cases spread to Victoria and also South Australia. Markets remain on tenterhooks and extended closures in Sydney and Melbourne will surely see Australia recovery projections adjusted lower.

JAPAN

• Risk appetite for Japanese assets took a big hit after news that fans will be banned at the Summer Olympics. Japan is clearly still in the middle of its fight against COVID and the decision to declare a state of emergency through Aug. 22 will dramatically force investors to downgrade their growth forecasts.
• The Bank of Japan downgraded GDP growth only slightly at its policy meeting on Thursday, but Japan equities have given back all of their week’s gains as fears over a COVID slowdown intensify. Like the rest of Asia, Japan markets will be vulnerable to COVID-19 caseloads in the week ahead. USD/JPY remains a purely US/Japan rate differential play at the moment.

CHINA

• The pilot trials for China’s digital yuan project led by the People’s Bank of China, its central bank, has posted some 34.5 billion yuan ($5.34 billion) worth of transactions as of June 2021.
• The statistics posted were referenced in a whitepaper published by the People’s Bank of China (PBOC). According to the central bank, the new digital, blockchain-based currency has been used for 70.75 million payments across 1.32 million “scenarios” which means the impact of digital currencies has reached across traditional retail settings like stores and restaurants, and beyond, to public services such as transportation, utility, and government service transactions.
• The afterglow from last Friday’s RRR cut has quickly faded. China data the past week appeared to show the economic recovery slowing. Washington DC is ramping up the anti-HK and Xinjiang and adding more China tech companies to the entity list. Additionally, China announced tighter supervision of property developer debt levels and continues broadening its China-tech clampdown.

Market Overview:

 Gold

• Gold prices fell alongside stocks on Friday as a disappointing US consumer confidence survey from the University of Michigan sent markets scrambling. The headline sentiment gauge unexpectedly dropped to a five-month low.
• As noted ahead of the release, rising prices emerged as a key concern. The survey’s tracking of one-year inflation expectations put the projected rate at 4.8 percent, the highest in 13 years. Shares fell and haven demand buoyed the US Dollar, applying pressure on perennially anti-fiat bullion.

Oil

• COVID-19 concerns are not easing up at the moment and that has been sending oil prices lower. Even countries with successful vaccine campaigns are struggling with the Delta variant and that is proving disruptive to the short-term crude demand outlook. The drama between the UAE and Saudi Arabia appears to be over and if OPEC+ can ratify that this week, more supply will be welcomed.

Below are the major market moving events for the week:

All times listed are EDT

Monday

21:30: Australia – RBA Meeting Minutes

 Tuesday

8:30: US – Building Permits: expected to rise to 1.700M from 1.683M.

 Wednesday

10:30: US – Crude Oil Inventories: anticipated to surge to -4.359M from -7.897M.

 Thursday

7:45: Eurozone – ECB Interest Rate Decision: forecast to remain steady at 0.00%

8:30: Eurozone – ECB Press Conference

10:00: US – Existing Home Sales: expected to rise to 5.90M from 5.80M.

 Friday

2:00: UK – Retail Sales: to jump to 0.5% from -1.4%.

3:30: Germany – Manufacturing PMI: predicted to edge down to 64.1 from 65.1.

4:30: UK – Manufacturing: to drop to 62.9 from 63.7.

4:30: UK – Services PMI: expected to slip to 62.0 from 62.4.

6:30: Russia – Interest Rate Decision: forecast to rise to 6.00% from 5.50%.

8:30: Canada – Core Retail Sales: seen to jump to -2.0% from -7.2%.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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