A Week of Rate Decisions

Global stocks are all over the place as some indexes fall into correction while others continue to extend higher into record territory. The bond market volatility surprised many investors as the growth outlook took a massive hit with the spread of the Delta coronavirus variant showing many countries are still struggling to return to normal.

Asian stocks should have a strong open following the PBOC’s RRR cut. This is quite pivot by the central bank and it should support the notion that crackdown over tech companies will probably ease. The yuan could be vulnerable following the RRR cut and that should be great news for exports.

The upcoming week is filled with many potential market moving events. A wrath of rate decisions (BOJ, BOC, RBNZ, and CBRT) will continue to show the unbalanced global economic recovery has some banks tapering, others poised for further cuts, and some stuck in wait-and-see mode.

Here are the key market moving factors for the week: 

The US

• This week is a jammed pack week with CPI data, key testimony from Fed Chair Powell, and the beginning of earnings season. It will be a busy week of Fed speak as Quarles, Kashkari, Evans and Williams will all be making the rounds.
• Tuesday will be a busy morning with the June inflation report expected to show inflationary pressures ease. The June month over month reading is expected to tick lower to 0.5%, while the year over year headline eases from 5.0% to 4.9%.
• Earnings season officially begins with early reports from PepsiCo (NASDAQ:PEP), JPMorgan (NYSE:JPM), Fastenal (NASDAQ:FAST) and Goldman Sachs (NYSE:GS). Wall Street will closely listen to what the banks have to say about the US consumer.
• On Thursday, Fed Chair Powell will deliver his semi-annual testimony to the Senate Banking Panel. This could be big because Powell may start to see some easing of pricing pressures and further reasons to become slightly pessimistic to the short-term global growth outlook.

The UK

• On Sunday, July 14, Prime Minister Boris Johnson is expected to confirm the decision to end most health restrictions in England, commencing on July 19. The UK has been hit with a surge in cases of the COVID Delta variant, but Johnson is keen to reopen the economy.
• On Wednesday, the UK releases June CPI YoY. The consensus is 2.3%, vs 2.1% in the May report. The monthly reading is expected to ease from 0.6% to 0.1%. BOE Deputy Governor David Ramsden speaks at the Strand Group, in an event co-sponsored by King’s Business School.
• On Thursday, the UK publishes the Unemployment Rate for May and Unemployment Claims for June. Also, BOE member Michael Saunders delivers a speech on the U.K. inflation outlook.

Europe

• The International Conference on Climate will take place in Venice on Sunday, July 11. ECB President and the Fed’s Quarles will be among the key speakers.
• On Monday, eurozone finance ministers will meet in Brussels to discuss economic and financial issues affecting the eurozone. US Treasury Secretary Janet Yellen will be in attendance.
• The EU Foreign Affairs Council will also meet in Brussels. The agenda will include geopolitical hotspots, including Afghanistan, South Caucasus, Lebanon, Ethiopia, as well as digital technologies. The Council will also hold a working lunch with Israeli foreign minister Lapid.

AUSTRAIA & NZ

• The AUD/USD and NZD/USD have performed poorly again for another week as global risk sentiment took a turn for the worse. In Australia, traders will closely monitor Wednesday’s jobs data that should see the unemployment rate tick lower to 5.0%, with a gain of around 20,000 jobs.
• A key event for the week will be the upcoming RBNZ rate decision. The middle of the week policy meeting is widely expected to see the bank maintain the official cash rate at 0.25%, but they could possibly signal earlier tightening.
• Both the Aussie dollar and kiwi will still closely observe what happens with the broader market risk appetite tone, which could take a lead following the release of China’s second quarter GDP reading on Thursday

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 Nikkei 225 has weakened over 10% from the February peak and investors will closely watch to see how strongly the dip is bought. The Japanese yen tentatively finding support from the 50-day SMA, but if risk aversion reigns supreme early next week, price action could support a decline towards 109.20.

CHINA

• The Hang Seng Index tumbled into bear market territory as China’s technology crackdown continues to weigh on sentiment. Given some economic data softness, the economy was clearly in need of some support and the PBOC delivered a well telegraphed RRR cut that will help boost lending.
• The aftermath of the RRR cut could provide some support for the dollar against the yuan.
• Investors will closely watch Tuesday’s release of trade data that could show exports and imports significantly pullback from elevated levels.
• The main economic data release of the week will be China’s second quarter GDP reading. The world’s second largest economy is expected to see a significant slowdown in the second quarter as GDP declines from 18.3% to around 8.0%.
• The People’s Bank of China (PBOC) unexpectedly cut the Reserve Requirement Ratio (RRR) for all banks by 50bps on Friday, releasing about 1 trillion Yuan of long-term liquidity into the economy. This aims to cushion “the impact of higher commodity prices on business production and operation”,reflecting slowing growth momentum in the world’s second-largest economy.
• China is the first major economy that exited the pandemic-era stimulus, entering a period of strong economic recovery. The unexpected easing by its central bank warns about a bumpy road ahead for other countries if inflationary pressures and supply chain disruptions continue to squeeze manufacturers’ profit margins.

Market Overview:

Gold

• Gold prices traded lower during Monday’s APAC session, as a rebound in the US Dollar and higher yields dampened the appeal of the yellow metal. Real yields, as represented by the rate on 10-year inflation-indexed securities, climbed by 3bps to -0.94% from -0.97% seen on Friday, exerting downward pressure on bullion (chart below).
• Recently, gold prices were buoyed by the emerging Delta variant of the Covid-19 virus that led to lockdowns and tightened travel restrictions around the world. This cast a shadow over the fragile and uneven economic recovery. Therefore, viral concerns may cause a delay in global central banks’ agenda to scale back asset purchases, buoying precious metal prices.

Oil

• Much of the energy market is awaiting to see what happens with Iran’s crude output. Nothing is officially scheduled, but the seventh round of indirect US-Iran talks could resume and that could impact the next major move for oil prices.

Below are the major market moving events for the week:

All times listed are EDT

Tuesday

8:30: US – Core CPI: expected to drop to 0.4%, from 0.7%.

22:00: New Zealand – RBNZ Interest Rate Decision: forecast to remain steady at 0.25%.

 Wednesday

2:00: UK – CPI: seen to edge higher to 2.2% from 2.1%.

8:30: US – PPI: likely to decline to 0.5% from 0.8%.

10:00: Canada – BoC Monetary Policy Report and Interest Rate Decision: predicted to remain at 0.25%.

10:30: US – Crude Oil Inventories: last week’s print showed a drawdown of 6.866M Bbl.

Tentative: Canada – BOC Press Conference

21:30: Australia – Employment Change: anticipated to plunge to 30.0K from the previous 115.2K.

22:00: China – Industrial Production: seen to dip to 7.9% from 8.8%.

22:00: China – GDP: forecast to plummet to 8.1% from 18.3% YoY, while more than doubling on a quarterly basis, to 1.3% from 0.6%.

 Thursday

2:00: UK – Claimant Count Change: previously printed at -96.2K.

8:30: US – Initial Jobless Claims: expected to come in lower, at 360K from 733K.

8:30: US – Philadelphia Fed Manufacturing Index; to dip to 28.3 from 30.7.

18:45: New Zealand – CPI: to edge down to 0.7% from 0.8% QoQ.

23:00: Japan – BoJ Monetary Policy Statement, Outlook Report and Press Conference

 Friday

5:00: Eurozone – CPI: anticipated to remain flat at 1.9%.

8:30: US – Core Retail Sales: seen to jump to 0.5% from -0.7%.

8:30: US – Retail Sales: forecast to rise to -0.4% from -1.3%.

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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