It has been a bit of a lacklustre week; the FIFA World Cup has provided way more excitement for most people than the financial markets. Stocks fell at the start of the week but the selling didn’t materialise into a proper correction and equity indices managed to regain their poise towards the end of the week. The dollar also eased back towards the end of the week after trending higher initially in what has been a quiet week for data. Sentiment has been dominated in recent times by the escalation of trade dispute between the US and her allies. China, the EU, Canada and Mexico have all threatened to impose higher duties on US imports in retaliation. Investors have also been busy deciding whether or not rising borrowing costs is a good or bad thing for stocks and apparently they are still undecided. Interest rates are set to rise twice more in the US and QE will end in the Eurozone before the year is out, while the UK also faces a potential rate rise in August. Against this backdrop, we are wary of a stock market correction. However, so far, the markets don’t seem to be too concerned about rising borrowing costs as stock averages have rebounded and remain elevated especially in the US.
Friday also marks the end of the week, month and quarter, which means Q3 will officially kick off next week. At the start of each quarter, large investors usually rebalance their portfolios, so we could see sizeable moves in the stock, bond, commodity and currency markets come Monday. Also, after a quiet week in terms of global macroeconomic news, the economic calendar in the first week of July is thankfully a lot busier. There’s one major central bank meeting, two key employment reports and lots of other important data releases throughout the week.
China will actually kick things off at the weekend when the official manufacturing and non-manufacturing Purchasing Managers’ Indices (PMIs) are released in the early hours of Saturday. The unofficial, but closely-followed, Caixin manufacturing PMI will be published on Monday. We will also have the latest manufacturing PMIs from the UK and US (ISM) on the same day. So, very early on in the week, we should have a good idea about the latest activity in some of the world’s largest manufacturing industries. The outcome of these indicators should set the tone for the rest of the week.
On Tuesday, the Reserve Bank of Australia (RBA) will publish its latest rate decision along with the policy statement. Like the Reserve Bank of New Zealand last week, the RBA is almost certain to keep rates unchanged at 1.50% and all the attention would therefore be on the rate statement. If, like in the case of the RBNZ, the statement contains dovish remarks, then the Aussie could fall sharply. The only important piece of news from New Zealand will also be released on Tuesday: GDT Price Index. But Australia and the Aussie dollar will remain in focus as we have the nation’s latest retail sales data to look forward to on the next day.
On Wednesday we will also have the latest services PMI data from the UK to look forward to. The pound has been hammered in recent times owing to concerns over Brexit. But any further improvement in UK data should boot expectations over an August rate hike despite the stalemate over Brexit talks. This should help to provide some support for the pound. Obviously if there is progress on Brexit then this should also be welcomed by pound bulls.
Thursday will see the release of some top tier data out of the US, which should provide us with some clues about Friday’ jobs report: the ADP private sector payrolls report along with the employment component of the ISM non-manufacturing PMI are among the most important pre-NFP leading indicators. Thursday will also see the release of the latest FOMC meeting minutes. We already know that the Fed was hawkish when the FOMC updated the dot plots in which they indicated to the market that there will be two further rate rises likely this year. However, if the minutes suggest otherwise then there is a risk for some dollar profit-taking ahead of Friday’s jobs report. Canada’s employment data is also published at the same time as the US non-farm payrolls report, making the USD/CAD an interesting FX pair to watch on the last day of the week.