What mattered last week:
- U.S.-China trade tensions continued to intensify as the U.S. said it was considering increasing from 10 to 25 percent the tariffs on U.S.$200 billion in Chinese imports that are currently under public review.
- China responded with an announcement it would implement tariffs on U.S.$60 billion of U.S. imports, should the U.S. proceed with tariffs on $200 billion of Chinese imports.
- After falling just short of 6.90, the Yuan rallied sharply against the U.S dollar on Friday, after the PBOC raised the reserve requirement on FX forward trading to 20%, effective August 6th.
- The Bank of England raised interest rates to 0.75%. The vote was unanimous 9-0, and the message that accompanied the decision was viewed as neutral.
- U.S. Q2 2018 season continued with 77% of S&P companies now having reported and delivered earnings beats. Although this reporting season may be remembered more for the earnings misses from Facebook and Netflix, leading to the first negative earnings revisions for both stocks in years.
- The Bank of Japan lowered its inflation forecast (to 1.5% for FY2019) and widened its tolerance band around its JGB yield target to 20bps.
- Italian Political concerns related to upcoming budget discussions weighed on Italian bonds and the EURUSD.
- In the U.S., the headline number of the Payrolls data on Friday was lower than expected. However, strong revisions to previous months dulled the impact and the U.S Dollar index finished the week towards the top of its recent range.
For the week ahead, the key events are:
Australia: RBA Interest Rate decision (Tuesday) with interest rates expected to stay on hold at 1.5%. The market will be watching for any comments on the impact of escalating U.S.-China trade tensions as well as updates on the housing market. Home loans and the RBA Governor Lowe speak (Wednesday). The topic of the speech is Demographic Change and Recent Monetary Policy with the talk being delivered at the Anika Foundation Luncheon, 1.05 pm AEST. Then follows the RBA Statement of Monetary Policy (Friday). Forecasts of growth and inflation for 2018 and 2019 are expected to remain unchanged.
Australian June half earnings with reports from AMP, CBA, Tabcorp, Crown and Suncorp amongst others this week.
New Zealand: Business inflation expectations (Tuesday), Global Dairy Trade Auction (Wednesday morning). Followed by the RBNZ Monetary Policy Statement Review (Thursday). Expectations are for interest rates to remain on hold at 1.75% and a neutral message to be conveyed in the accompanying statement as slowing growth is offset by rising inflation.
China: Foreign Exchange Reserves (Tuesday), balance of trade for July (Wednesday), China inflation data (Thursday), followed by New Yuan loans (Friday).
Japan: Household spending, leading economic index (Tuesday), BoJ summary of opinions (Wednesday), machine orders (Thursday) and then GDP (Friday). The market is looking for a rebound to 0.3% from -0.2% in the previous quarter.
U.S: PPI for July (Thursday) followed by CPI (Friday). The market is looking for both the headline and core CPI number to rise by 0.2%. This would move the year on year rates to 3.0% and 2.3% respectively. Within the components, shelter prices are expected to bounce back after a soft reading in June, while energy prices should weight on the headline number as gasoline prices fell by more than usual in July.
Canada: Ivey PMI and building permits (Wednesday), housing starts and new housing price index (Thursday) and then Employment data (Friday). The market is looking for a gain of +17.5k jobs and the Unemployment rate to drop from 6% to 5.9%. The July report does have a tendency to be seasonally weak. Keep in mind, the Syncrude outage (one of the world’s largest oil sands producer of synthetic crude after a power outage) is expected to weight on July economic data in general.
Euro area: German Factory orders (Monday), German balance of trade and IP (Tuesday), ECB Economic Bulletin (Thursday).
UK: GDP estimate (Friday). This will involve the release of two GDP numbers. The one to watch is the estimate of GDP growth in the three months to June (the Office of National Statistics preferred GDP measure). The market is looking for growth of 0.4% in the three months to June vs 0.2% in the three months to May, with weaker construction data in March dropping out of the calculation.
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