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Week Ahead: G20, OPEC and NFP

The early parts of next week will be dominated by the events that will unfold over the weekend, namely the outcome of G20 meetings and trade talks between the US and Chinese Presidents. But there’s a lot more than just that. We have several market-moving data to look forward to, not least the latest global PMIs and US nonfarm payrolls report for June, while the OPEC will also be making a decision on crude oil output.

G20 summit kicks off

The G20 summit has officially got underway and US President Donald Trump is set to hold talks with Chinese leader Xi Jinping regarding their nation’s ongoing trade dispute. Ahead of the talks, Trump has already indicated that a trade deal with China was possible this weekend. However, Trump also warned that he’s prepared to impose tariffs on most remaining Chinese imports if they don’t agree. So, it looks like the outcome of the meetings will likely be a binary one. If they make progress, then a delay in raising tariffs or cancelling some of the previously announced-levies are likely, and talks could resume between the two nations in July. However, if trade talks falter, it will be plan B: more tariffs on Chinese goods. Ahead of the meetings, sentiment is cautiously optimistic with European markets slightly higher but overall remain in consolidation mode.

Crude oil investors eye G20 and OPEC

Another topic that will likely take centre stage will be Iran and the economic sanctions imposed on it by the US. Global leaders are likely to call for de-escalation of the tensions following recent events which pushed Iran and the US on the brink of a military confrontation. Tehran may be warned not to increase its uranium enrichment else the historic nuclear accord could be torn apart. The deal already looks fragile after the US pulled out, which in turn led to warnings by Iran that it would breach its conditions.

So, oil prices could be impacted as well as equity and FX markets, not only from the supply side of the equation, but demand, too. A trade breakthrough will boost the oil demand outlook from the world’s second largest economy, while de-escalation in US-Iran tensions would ease supply-side concerns.

After reacting to the outcome of the G20 summit on Sunday night/early Monday, oil traders’ focus will immediately turn to the OPEC meeting, which will start on Monday. Then a meeting between the cartel and allies including Russia will take place on Tuesday. The discussions will all be about the extension of production cuts to keep prices supported. According to Iraq’s oil minister, the OPEC is expected to keep the existing deal in place but will discuss an even bigger reduction in oil production.

Global macro concerns could ease if incoming data improves

Investors will also be watching the latest macro pointers amid recent concerns over a global economic slowdown. Following last month’s much smaller-than-expected rise in jobs growth, serious question marks may be raised if we see another poor showing from the US jobs sector. We will also have the latest PMI data from important economic regions, including the US and China, to provide us with fresh clues about the health of the economy.

Next week’s key macro data highlights:

  • Monday – Official and Caixin Chinese manufacturing PMIs; UK manufacturing PMI; US ISM manufacturing PMI and start of OPEC meeting.

These PMIs should give as an early indication about the health of the global economy in June, which could have implications for a wide range of markets, if we see big surprises in either direction.

  • Tuesday – RBA and OPEC+ meetings.

A decision on oil output is expected to be announced late in the day on Tuesday from the OPEC and allies including Russia (OPEC+). Having just cut interest rates by 25 basis points in early June, the Reserve Bank of Australia is highly unlikely to loosen its policy further at this meeting, although it could provide signals for future cuts.

  • Wednesday – Aussie building approvals; UK services PMI; US ADP private sector payrolls report and ISM non-manufacturing PMI.

While Monday would be all about manufacturing, Wednesday is about services, the most dominant sector in the UK and US economies. As far as the US version is concerned, traders will be eyeing the employment component of the ISM report for clues about job creation in June, ahead of the official non-farm payrolls (NFP) report on Friday. The ADP is another leading pre-NFP indicator that will be scrutinised by market participants.  

  • Thursday – Aussie retail sales.

Thursday could be a quiet day with Australian retail sales being the only major piece of news on the day, with US investors out celebrating 4th July.

  • Friday US non-farm payrolls report and wages data, and Canadian employment.

We will be preparing a non-farm payrolls preview closer to the time, but make no mistake about it: Friday should be a highly volatile day in the markets, with USD/CAD traders being extremely busy due to the simultaneous publication of jobs data from both North American nations. 

Finally, a reminder that Canadian banks will be closed Monday 1st July in observance of Canada Day, while, as mentioned, US investors will be celebrating Independence Day on Thursday 4th July.

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