Week ahead: Fed to prepare markets for July rate cut
Fawad Razaqzada June 14, 2019 1:17 PM
The upcoming week features interest rate decisions from three major central banks, namely the Federal Reserve, Bank of Japan and Bank of England, as well as top tier data from around the world, including Eurozone PMIs, UK CPI, and New Zealand GDP, where data has taken a sharp downturn of late. Traders will also be monitoring the latest developments regarding the US-China trade spat, US-Iran war of words and the Tory party leadership contest. There will be something for everyone.
Undoubtedly, next week’s main event is likely to be the FOMC rate decision on Wednesday. While rate cut expectations have risen sharply of late, no one is seriously expecting the Fed to loosen its belt at this meeting, despite the weakness in core consumer prices in May. However, what we and most other analysts expect is that the Fed will probably use this meeting to prepare the markets for a potential trim in the July and possibly September and/or December meetings. Look out for the updated dot plots and economic projections.
Here is a full highlight of the upcoming week:
There is nothing significant on Monday with the exception of Empire State Manufacturing Index and a couple of other not-so-important US macro pointers.
RBA’s meeting minutes, German ZEW survey, Canadian manufacture sales and some housing market data from the US (building permits and housing starts) will be released on Tuesday. These macro pointers are only likely to impact local currencies, albeit mildly. But they probably won’t have much of an implication on the wider markets.
CPI data from UK and Canada will provide FX traders some distraction ahead of the day’s main event: FOMC.
Although the Fed is expected to hold policy unchanged at this meeting, many analysts believe the central bank will nonetheless prepare the markets for potential rate cuts later on in the year, with some suggesting July, September and December as likely dates when rates are expected to be cut. However with expectations being so slow now, the FOMC could surprise by adjusting the dot plots on interest rates outlook only slightly lower: instead of three, it might just signal two cuts in 2019. That could give rise to a potential short term squeeze on the dollar shorts against currencies which have outperformed of late (such as yen and gold).
Thursday will kick off with the release of New Zealand GDP (actually it will still be Wednesday for UK and US traders), followed by the Bank of Japan rate decision slightly later. The BoJ has almost run out of ammunition, so it’s hands will be tied. We don’t expect any new policy announcements.
Thursday will also see the release of UK retail sales and a rate decision from the Bank of England. Some BoE policy makers have recently suggested that interest rates should be higher than where they are at the moment, because UK data has been surprisingly resilient. But with other major banks turning dovish and some already cutting interest rates amid concerns over a global slowdown, and not to mention ongoing political and Brexit uncertainties in the UK, the BoE’s Governor Mark Carney may well provide a more dovish assessment of domestic interest rates than the markets expect.
The first half of Friday’s session will all be about Eurozone PMIs, given concerns over global growth. Should these PMIs disappoint expectations then Eurozone yields and the single currency could fall even more. From North America, the key data on Friday will be retail sales.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.