In the coming week we will get plenty of PMI´s and also US employment data. First we will start however with US inflation, more accurately with the indicator mostly watched by the Fed – The Personal Consumption Expenditures. While year on year the Core CPI is already at 2.2% and would exceed the Feds inflation target justifying another rate hike, the Core PCE is only at 1.6% and couldn´t get any closer to the Fed’s target since April...
Last Week
After a boring Mondaythe European PMIs and New Home Sales from the US were supposed to bring some volatility into the lazy summer markets the next day. While the European PMI data came out mixed on Tuesday, the latest US New Home Sales caused a big surprise coming out at 654 tsd. as we haven`t seen such number since 2008. The construction sector is an important component of US GDP its share on the US GDP is declining and therefore any sign of revival is very important. However, on Wednesday the Existing Home Sales in the US came out worse than expected as failed to hold the 5.5 million level. The increasing Crude inventories surprised the market and caused a drop in WTI testing again the $46.5/barrel, USDCAD didn`t react much on the news despite the dependence of Canada on the oil industry. On Thursday the market focused almost purely on the awaited speech of Janet Yellen in Jackson Hole schedule for Friday and ignored the weak German Ifo Business Climate and the better than expected Durable Goods Orders which increased in the second fastest pace in the last 27 months. On Fridaythe kind of hypnotized trading mode continued. The GDP estimates from UK and US where in-line with expectations and the market reacted little. The rock`n`roll started after Yellen`s speech. While she said the case for rate hike strengthened in recent months at the end stressed the outlook is still uncertain, and rate hikes are not on pre-set course. The US labor market is close to maximum employment and the FOMC anticipates further strengthening. Regarding Fed Funds Rate, Fed anticipates gradual rate increase. According to Yellen the Board of Fed governors see inflation rising to 2% in the next few years (keep in mind that inflation is measured by Fed by Core PCE Price index) and they are not considering higher inflation or nominal GDP targets. After initial half an hour confusion finally the market translated the message (together with several Fed governor statements during the day) as hawkish. USD strengthened in the last few hours of the trading week 1.1% against EUR and GBP, more than 1.7% against JPY and AUD and 2.1% against NZD.
Next week
Monday (USD, JPY):
On the first day of the week Jackson Hole Symposium will probably resonate all over the marketplace. Also the Personal Consumption Expenditures will be released, which is the Feds inflation indicator. While year on year the Core CPI is already 2.2% the Core PCE is only at 1.6% and no change is expected for Monday but looking at the bullish mood on USD from Friday, any positive surprise can easily cause further dollar strengthening. Before midnight we will take a look at the spending of the Japanese households. The notoriously weak private spending is a key problem of reaching the BoJ`s inflation target.
Tuesday (AUD, GBP, EUR, USD, CAD):
Early morning AUD traders should be ready for some volatility as the Building Approvalsmissed estimates in the last 2 months. The data is a leading indicator to inflation and growth and will be watched closely. The RBA cut the cash rate on the 3rd of August by 25 bps and while there is no expectation that the RBA will cut again on the next rate decision scheduled for the 6thSeptember. During the day plenty of European data will be announced, but early afternoon the Canadian Trade balancenumbers will show us if there is any tendency to get into positive territory where the economy was last time in 2008. Later the Conference Board Consumer Sentiment survey will be released. As it´s a leading indicator to US economic activity this could be the data of the day.
Wednesday (NZD, EUR, USD, CAD):
Early morning the ANZ Business Confidence, the result of a survey of about 1500 companies will be released in New Zealand. Could be important as kiwi finished the week with a shooting star on the weekly chart confirming a kind of engulfing pattern (not clear) a few weeks ago however it couldn’t close below key support 0.7200. In the morning we will have important data from Europe, German Retail sales and Unemployment change first, and later the Eurozone flash Inflation could spur the EUR. In the afternoon we will focus on the US ADP employmentand 1.5 hour later the Chicago PMIwith Pending Home Sales. According to Yellen the US employment is close or at its maximum so there could be a lower reading in ADP but Pending home sales could surprise to the upside as last week´s Existing Home Sales were weaker than expected and the key could be in the number of the unfinished purchase contracts. The Monthly GDP from Canadais expected to be well in positive territory after a negative surprise last month. Later the EIA Crude inventorieswill affect the CAD as well.
Thursday: (CNY, AUD, EUR, GBP, USD):
It`s going to be a PMI day and even the market will be waiting for the NFP next day, there could be interesting moves. Especially the Chinese Manufacturing PMIs where the 50 point level is the threshold of recession. The official PMI dropped below 50 pts last time but the Markit PMI hold above. Between these two data the Australian Retail sales and Private Capital Expenditures will be released. As the last rate cut had practically zero effect on AUDUSD, this could give us a hint whether there is a chance for further rate cuts in the fall. We will continue the day with the Spanish, UK and US ISM manufacturing PMI, from these the later has the biggest potential to move the markets. The US jobless claims and US Non-Farm Productivity released in between the PMIs could give a hint if Yellen was right on Employment last Friday.
Friday (GBP, CAD, USD):
One of the most watched US number will be released in the afternoon, the US Non-Farm Payrolls. However, in the morning we will have first the UK Construction PMI. Very important if we think there is a bubble in the UK property market. Even though the last reading showed a slight improvement, the trend in the sectors PMI is not encouraging. While in the first half of 2014 the figure was above 55 points each months, in 2015 hardly could reach this number and the average was around 52.5 and this year only twice reach 52… The US NFP is expected to hold but as the economy is near full employment, there could be come negative surprise.
Have a successful week and don’t forget:
Watch you risk and be consistent in your trading!
Mr TechMan
DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmail.com
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