US
The upcoming jobs report will be pivotal for the Fed in deciding whether the economy is headed toward hitting their substantial progress goal. Now that the Fed has finally had their first deep dive into discussing tapering asset purchases,
Wall Street will closely focus on labor market progress in the coming meetings. The July jobs report is expected to show 925,000 jobs were created, an improvement from the prior month gain of 850,000.
Tapering at earliest seems like it could be in September, but that still means interest rate hikes are a long way off. Unless risk aversion becomes the dominant theme, the dollar could remain vulnerable in the short-term.
Financial markets will also pay close attention to debt ceiling drama. The Treasury still has around $450 billion in cash, so Congress can afford to delay tackling this issue until October. While the Treasury will use extraordinary measures to prevent the US from defaulting, Republicans will start to posture for spending reforms in order for President Joseph Biden to move forward with his next round of stimulus.
EU
The data this week is unlikely to have done much to change the ECBs view on what is needed to achieve its new, more aggressive, inflation target. Hawks at the central bank may make a little more noise going forward, with German inflation now running above 3%. But I don’t expect this will change much at this stage.
The key releases next week will be PMIs on Monday and Wednesday, with German factory orders on Thursday, also noteworthy.
UK
The Bank of England meeting on Thursday is the standout event, although the meeting almost certainly comes too early to make any significant judgement on paring back monetary support. While the recent surge in the Delta variant has eased, the risk of cases rising again is still significant.
What’s more, the MPC will want more evidence on how the economy is responding to restrictions being lifted fully, not to mention the impact that the furlough scheme ending in September will have.
Of course, the growth and inflation data may make some members of the MPC a little nervous and stimulate debate on the risks of it, but with the widespread view being that both are temporary, it’s unlikely that the majority policy makers will consider removing support any time soon.
Emerging Markets
Russia
Unemployment fell to 4.8% last week, slightly behind expectations, while retail sales rose 10.9% on an annual basis, ahead of forecasts.
This week we get the quarterly monetary policy report on Monday. This comes a couple of weeks after the central bank raised interest rates to 6.5%. They did warn of more to come after the meeting and the report may hold clues as to what we can expect going forward.
South Africa
PMI is the most notable economic release this coming week. The central bank previously left interest rates unchanged and signaled a hike may be considered later in the year.
Asia Pacific
China
Market sentiment has been dominated by the China government’s crackdown on the tech sector and now the education sector with Mainland and Hong Kong exchanges, as well as US-listed China companies taking a bath last week. Concerns are also rising in the corporate credit sector with Chinese corporate dollar-denominated debt falling heavily last week.
Despite assurances from China that its moves were “targeted” and not part of a broader agenda, financial markets are taking this with a grain of salt and sentiment will start this week walking a tightrope. China equities will continue to underperform until the regulatory discount reaches equilibrium with lower prices.
China released official Manufacturing and Non-Manufacturing PMIs over the weekend, along with Caixin Manufacturing PMI on Monday morning.
Pan-Asia PMIs are also released Monday. Weak readings will increase nervousness already complicated by Asia’s Delta-variant situation, and could be another headwind for both China and regional stocks, as well as ASEAN currencies which have not benefited from US Dollar weakness this past week.
India
The Indian rupee recovered over the past week due to lower oil importer buying, with COVID-induced demand still weak. Additionally INR has seen inflows from international investors who have been fleeing China markets and rotating into India and ASEAN markets. With its large universe of IPO’d tech unicorns, India is well positioned to benefit from a China rotation. Both the Sensex and the INR should outperform ASEAN markets on that basis in the coming week.
The back end of the week will be dominated by the latest Reserve Bank of India rate decision. Inflation remains above the RBI’s upper 6.0% limit, but the ongoing COVID-19 situation, although improving, should stay the central bank’s hand. It would be a huge surprise if the RBI hiked on Friday and if they did, India equities would fall sharply and the INR would rally sharply.
Australia And New Zealand
Australian stock markets were trading sideways over the past week with Delta-variant cases increasing in Sydney resulting in a harsher lockdown and a 4-week extension. The week is dominated by the RBA rate decision on Tuesday, with no change expected. The threat to growth and employment from the NSW COVID situation will ensure the RBA remains very dovish. Other data includes PMIs, Home Loans, Retail Sales and the Trade Balance, but global risk sentiment and the RBA will dominate.
Both the AUD and NZD continue to bounce around on swings in global risk sentiment. Both have traced out technical recovery formations last week, but had yet to break convincingly higher. That will very much depend on the Sydney COVID-19 situation stabilizing, and China stock markets finding a floor this week.
New Zealand’s Employment Change and Labor Costs data on Wednesday could send NZD/USD sharply higher if it comes in above expectations. The RBNZ has an itchy trigger finger and has said as much. Higher prints will make an RBNZ hike almost certain at its next meeting and be very supportive of the currency.
Japan
Japanese stocks continued gyrating on swings in risk sentiment internationally, reflecting the heavy presence of retail fast money in the Japan market. We expect this volatility to continue as the only major data releases are Tokyo CPI and Household Spending.
Japan expanded its COVID-19 states of emergencies to more prefectures on Friday, and that appeared to be weighing on the Nikkei. An escalation of the COVID situation, especially if it threatens the Olympics, could be a strong headwind for Japan stocks this week.
USD/JPY has dissolved into a purely US/Japan interest rate differential play. The flattening US yield curve has seen USD/JPY fall to 109.50 and if yields in the US track lower this week, Friday’s US Non-Farm Payroll will ironically, be the biggest market-moving event risk for USD/JPY this week.
Key Economic Events
Sunday, Aug. 1
UK Government lowers its contribution for furloughed workers to 60%, with the employer burden increased to 20% of pre-pandemic pay.
Monday, Aug. 2
- US ban begins over investing in 59 Chinese firms with ties to China’s military or surveillance industries.
- Director of NIAID Fauci speaks at the Center for Strategic and International Studies (CSIS)
- The Toronto Stock Exchange will be closed.
Economic Data/Events
- US July ISM Manufacturing PMI: 60.7e v 60.6 prior; July Final Markit Manufacturing PMI: 63.1e v 63.1 prelim; construction spending
- Australia CoreLogic house prices, Melbourne Institute inflation, ANZ job advertisements
- Eurozone Manufacturing PMI
- Germany Manufacturing PMI, retail sales
- India Manufacturing PMI
- UK Manufacturing PMI
- Australia Manufacturing PMI
- Thailand Manufacturing PMI, business sentiment index
- Russia Manufacturing PMI
- South Africa Manufacturing PMI
- Hungary Manufacturing PMI
- Poland Manufacturing PMI
- Turkey Manufacturing PMI
- Czech Republic Manufacturing PMI
- Sweden Manufacturing PMI
- Switzerland Manufacturing PMI
- China Caixin manufacturing PMI
- Singapore PMI, electronics sector index
- Japan vehicle sales, consumer confidence index, manufacturing PMI
- Switzerland CPI
- Bank of Russia quarterly monetary report
Tuesday, Aug. 3
Eurogroup President Donohoe, Scotland PM Sturgeon, Singapore PM Lee Hsien Loong, and SEC Chairman Gensler to speak at 3-day annual Aspen Security Forum
Economic Data/Events
- Australia rate decision: No changes expected to Cash Rate Target, likely to defer bond taper
- Australia building approvals
- US factory orders, durable goods
- New Zealand CoreLogic house prices
- Japan Tokyo CPI, monetary base
- Turkey CPI, PPI
- Mexico international reserves
- New Zealand Unemployment
- Eurozone PPI
- Denmark currency reserves
Wednesday, Aug. 4
Economic Data/Events
- US ADP employment change
- Thailand (BOT) rate decision: Expected to keep Benchmark Interest Rate unchanged at 0.50%
- Eurozone PMIs, Retail sales
- Hungary Retail sales
- Australia Retail sales
- Singapore PMIs
- India PMIs
- China Services PMIs
- Japan PMIs
- South Africa PMIs
- Russia PMIs
- Sweden PMIs
- Germany PMIs
- UK PMIs
- Thailand consumer confidence
- France budget balance
- EIA crude oil inventory report
Thursday, Aug. 5
The Group of 20 digital economy ministers meet in Trieste, Italy.
Inauguration day for Iran’s Ebrahim Raisi
Economic Data/Events
- BOE Rate decision: to keep its benchmark interest rate and its bond-buying target unchanged
- Czech Republic rate decision: To raise interest rates 25 basis points to 0.75%
- US initial jobless claims, trade balance
- France industrial production
- Germany factory orders
- Indonesia GDP
- Australia Trade
- Russia CPI
- Thailand CPI
- Eurozone ECB publishes Economic Bulletin
- Russia gold and forex reserves
- UK new car registrations
- Ireland unemployment
Friday, Aug. 6
RBA Governor Lowe gives testimony to a Parliament committee.
Economic Data/Events
- US July Change in nonfarm payrolls: 925Ke v 850K prior; unemployment rate:5.6%e v 5.9% prior, wholesale inventories
- Germany Industrial production
- Italy Industrial production
- Spain Industrial production
- Hungary Industrial production
- India Rate decision: Expected to keep Repurchase Rate unchanged at 4.00%
- Canada unemployment
- Australia Reserve Bank of Australia statement on monetary policy
- Japan household spending, leading index
- Switzerland Foreign reserves
- China BoP current account balance
- France Trade
- Hungary Trade
- South Africa gross and net reserves
Sovereign Rating Updates
- Norway (Fitch)
- ESM (S&P),
- Czech Republic (Moody’s)