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Week Ahead: US-China trade impasse and handful of macro pointers

The economic calendar is a lot quieter next week, but volatility could nonetheless remain elevated. At the time of writing this report, the US stock markets were bouncing off their lows after trade talks ended for the day. According to the US Treasury Secretary Steven Mnuchin, they were “constructive,” while China’s Liu said they went “fairly well.” We have heard this before, but “talks going well” headlines were enough to cause a 200-point ramp in the Dow off its lows. What the markets want now is either a deal or no deal, just so they can move on and focus on something else.

However, what is likely to happen is this: the “US and Chinese negotiators will maintain open lines of communication and continue to schedule occasional meetings while the newly-escalated US tariffs gradually weigh on growth on both sides of the Pacific.” That is what my colleague Matt Well thinks might happen, which could keep the losses limited for the US indices.  

As far as next week’s economic calendar is concerned, well there are only a handful of potential market-moving events to keep an eye on. These include:

  • Tuesday: Average Earnings Index and German ZEW Economic Sentiment
  • Wednesday: Chinese industrial production; German and Eurozone GDP; US retail sales and Canadian CPI
  • Thursday: Australian employment data

The UK wages data on Tuesday has the potential to move the GBP/USD decidedly above its short-term bear trend or break that 1.30 support in the event of disappointment. Likewise, the Aussie employment data on Thursday could very well lead to a sharp, short-term, move in the AUD.

But I suppose next week’s more important macro numbers will be those scheduled for release on Wednesday.

After a surprisingly strong 8.5% showing in March, China’s industrial production is expected to have moderated to 6.5% y/y in April. Anything less than that and growth worries could resurface and weigh on the Chinese stock markets and the yuan, as well as the likes of the Aussie and Kiwi dollars.

With regards to the euro area GDP figures, well both the German and Eurozone economies are expected to have expanded by 0.4% each in Q1. Recent economic pointers from the Eurozone have improved a tad, and the single currency has responded with the EUR/USD being on the verge of posting its first back-to-back weekly gains since February. A surprisingly strong set of GDP figures on Wednesday could help make that a hat-trick of weekly gains.

That’s assuming of course the US retail sales data do not show a massive surprise to the upside. Last month, both the headline and core retail sales were surprisingly strong, although this time analysts are expecting only a modest 0.2 and 0.7 percent respective monthly rises.

Last but not least, Canadian CPI data will be watched closely by FX markets in light of the big 107K upsurge in employment in April, as was reported on Friday. If the Canadian CPI data is also strong then the USD/CAD could break down after all and take out that 1.3380 support level.


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