Asian markets open the week mildly higher following US and were supported mildly by G20 communique. Brexit was the major topic in the G20 meeting in China. The group noted in the post meeting statement that Brexit added to uncertainty in global economy where growth was already "weaker than desirable". But leaders emphasized that they are "positioned to proactively address the potential economic and financial consequences". And, "in light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth." G20 also noted other risks to global growth including geopolitical conflicts, terrorism and refugee flows.
FOMC and BOJ meetings will be the main focuses of the week. There is very little chance for Fed to hike interest rate this time. But markets will be keen to scrutinize the statement on whether Fed is now comfortable to move in September. Currently, fed fund futures are pricing in 15% chance of hike by September and 47% chance by December. Recent comments from Fed officials argued that policy makers generally didn't expect Brexit to have a large impact on the US economy. And business would gradually return to usual in Fed. But since there will be no press conference this time, markets could be disappointed by the lack of hints in the statement. Instead, the focus could turn to minutes to be released on August for more information on the views among the FOMC members.
Recent reports on BoJ's stance on monetary policy ahead has been a bit confusing. Governor Haruhiko Kuroda somehow tried to clarify the stance with a speech on Saturday. Kuroda maintained the pledge that "we will check risks in the economy and prices and expand monetary stimulus if it's needed to achieve our price stability target at the earliest time possible." But "if the words 'helicopter money' mean the direct underwriting of government debt or managing fiscal and monetary policy as one consolidated measure, that is forbidden in developed nations -- including Japan -- from the lessons of history." That's clearly not helping the market participants. Meanwhile, there were talks that BoJ would ease this week as part of the "policy mix" with the fiscal stimulus to be announced by prime minister Shinzo Abe. But there were also talks that BoJ would wait for BoE and possibly even ECB to act first before moving themselves. So, the result of BoJ meeting this week, one way or the other, could be quite market moving.
There are also a number of key economic data to be released this week. In particular, UK, US and Eurozone will release Q2 GDP. Eurozone and Japan will release CPI. Also, Australia CPI will be crucial to determine whether RBA will cut interest rate in August. Here are some highlights for the week ahead:
- Monday: Japan trade balance; German Ifo
- Tuesday: New Zealand trade balance; UK BBA mortgage approvals; US S&P Case Shiller house price, consumer confidence, new home sales
- Wednesday: Australia CPI; Swiss UBS consumption indicator; German Gfk consumer sentiment; Eurozone M3; UK GDP; US durable goods orders, pending homes sales, FOMC
- Thursday: Australia import prices; German CPI, unemployment; US jobless claims
- Friday: Japan CPI, BoJ; Australia PPI; Swiss KOF; UK mortgage approvals, M4; Eurozone CPI, GDP, unemployment; Canada GDP, RMPI and IPPI; US GDP, employment cost, Chicago PMI