What mattered last week:
- The Trump administration announced a 10% tariff on U.S. $200 billion of Chinese goods before China responded with tariffs on U.S. $60 bn worth of U.S goods.
- The Chinese Premier Li, speaking at the Word Economic Forum in Tianjin said that China won’t seek to devalue its currency as a competitive weapon against the U.S. Soothing words, however keep in mind the Yuan has already fallen by about 9% since April.
- The market appears to have become more comfortable with the idea that the short-term hit to economic growth both in China and in the U.S. due to tariff implementation will not be as great as initially feared, at least in the short term.
- Overall, this helped to ease trade war and currency concerns. More so coming after the recent strong action from some emerging market central banks e.g., the Central Bank of the Republic of Turkey which hiked the one-week repo rate 625bp to 24%.
- Economic data in the antipodeans continued to surprise with NZ GDP released last week printing at 1.0%, the strongest quarterly print in two years. This run of better domestic economic data has helped guide both AUDUSD and NZDUSD higher.
- GBPUSD on the other hand, fell sharply as PM Theresa May warned of an unfriendly Brexit.
For the week ahead, the key events are:
Australia: Private sector credit (Friday). The interim report of the Hayne Royal commission into the financial services sector is due to be handed down by the 30th of September.
New Zealand: Balance of trade (Tuesday), ANZ business confidence (Wednesday) and RBNZ meeting (Thursday).
- Business confidence dropped to -50.3 percent last month to the lowest since April of 2008. For a reminder of how important business confidence is to the New Zealand economy look no further than RBNZ Governor Adrian Orr’s reply when asked what the possible catalysts were for a near term interest rate cut in New Zealand he answered, “business confidence getting lower”.
- The RBNZ is expected to leave the OCR unchanged with the tone of the OCR Review to be neutral to dovish in line with the tone from the August meeting.
China: Caixin manufacturing PMI (Friday) with the market expecting a small decline to 50.5 as trade tensions impact.
Japan: BoJ meeting minutes (Monday), Tokyo core CPI, employment data, preliminary IP, retail sales (Thursday). BoJ Governor Kuroda speaks (Tuesday and Thursday).
U.S: Consumer confidence (Tuesday), new home sales (Wednesday), FOMC, final 2Q GDP, durable goods, PCE core, personal income, (Friday).
- Consumer confidence is expected to remain strong, supported by a strong jobs market and U.S. equity markets which are trading at record highs.
- New home sales are expected to bounce slightly after two months of declines. New home sales are sensitive to mortgage rates which began to rise earlier this year.
- On Thursday, the Fed is expected to raise interest rates taking the Fed Funds range to 200-2.25%. The market has already fully priced this in, so attention will focus on the Fed’s commentary about the outlook for future interest rate hikes i.e. the “dot plot”.
Canada: GDP and BoC Governor Poloz speaks (Friday). GDP looks like it will come in around +0.1% and NAFTA negotiations continue.
Euro Area: IFO business survey (Monday), EA consumer confidence and economic sentiment, Germany GfK consumer confidence and preliminary CPI (Thursday), EA flash HICP and Germany employment (Friday).
A host of ECB members are scheduled to speak this week including Draghi, Praet and Coeure.
- IFO business climate is expected to ease marginally to 103.2 from 103.8 in August
- EA inflation data is likely to show core inflation remaining around 1% year on year.
UK: GfK consumer confidence, and final 2Q real GDP (Friday). BoE Carney speaks (Thursday).
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