Fed has left the interest rate unchanged at the 0-0.25% range as expected with a unanimous vote. The Path of the economic recovery will largely depend on the virus. They have added that economic activity and employment have picked up a bit in the recent months but are still below their levels from the beginning of the year. Chairman Powell added that Fed will do whatever they can for as long as it is needed. High-frequency data showed that the pace of the recovery has slowed. He reiterated that they are not even thinking about thinking about raising rates. There were no talks about yield curve control or additional stimulus measures. We can expect that members chose to wait for more data before possibly acting on it in September.
Advanced Q2 GDP reading showed a drop of an abysmal -32.9% q/q, better than the expected -34.5% q/q, but still easily the worst in history. Personal consumption plunged -34.6% q/q while business investment fell -27% q/q. Exports were down a historic -64.1% while imports were down a horrific -53.4%. Headline PCE rebounded to 0.8% y/y from 0.5% y/y the previous month, however a worrying sign is the drop in core PCE to 0.9% y/y from 1% y/y the previous month indicating softening price pressures. Personal spending came in at 5.6% m/m vs 5.2% m/m as expected. Spending is still positive but is dying down as the $600 weekly government cheques are about to expire.
Initial jobless claims for the week ending July 25 came in lower than expected at 1434k, but it is the second week of claims rising compared to the previous week. Continuing jobless claims for the week ending July 18, when NFP is calculated, jumped to 17108k from 16151k the previous week. Trends are reversing as parts of the country are again under lockdown due to Covid-19 outbreaks. Consumer confidence in July fell to 92.6, below expectations and the previous month’s reading of 98.3, due to an increase in Covid-19 cases. Gold has breached an all-time high level of $1920 in the early hours Asia-Pacific session on market opening and went above $1940 level. It rose all the way up to $1980 before dropping sharply to the $1905 level on Tuesday and then again testing the $1980 level a couple more times during the week.
This week we will have ISM PMI and trade balance data as well as NFP data on Friday. Expectations are for an increase of jobs in the range of around 2.3m while the unemployment rate is seen at around 10.5%.
Important news for USD:
Ifo business climate index for the month of July came in at 90.5 vs 89.3 as expected and up from 86.2 the previous month. Expectations index came at 97, indicating belief about the Q3 rebound in the German economy. Ifo sticks with their forecast of 6.9% Q3 GDP. Sentiment data for the EU showed an improvement compared to June, but the pace of improvement is not impressive, indicating doubts about the strength of the Q3 rebound.
Preliminary Q2 GDP came in at -12.1% q/q as expected. German reading was worse than expected while French reading came in better than expected which put the EU reading on par with expectations. Inflation in July surprised to the upside, improving the mood of policymakers, with the headline number coming in at 0.4% y/y vs 0.3% y/y the previous month. Core inflation came in at 1.2% y/y vs 0.8% y/y the previous month. Headline German inflation fell into deflation territory for the first time since April 2016 coming in at -0.1% y/y as price pressures strongly declined.
This week we will have final July PMI numbers as well as consumption data.
Important news for EUR:
Prime Minister Johnson stated that they will have to slow down the easing of lockdown measures. Reopening of leisure facilities will now be postponed for at least two weeks. He confirmed that this means a return to social distancing. The pound enjoyed a very strong week. It has gained across the markets with GBPUSD crossing over 1.31 level and breaking above W1 200SMA. It now constitutes eleven trading days of rising prices.
This week we will have final July PMI numbers as well as BOE interest rate decision. There will be no changes in the rate but talks about possible introduction of negative rates may occur.
Important news for GBP:
Q2 CPI data came in at -1.9% q/q vs -2% q/q as expected. The headline number represents the biggest fall in more than 70 years and signals deflationary conditions in the economy. Core inflation came in at 1.2% y/y vs 1.4% y/y as expected.
Company profits in China for the month of June rose 11.5% y/y while dropping -12.8 y/y for the period from January to June of 2020. Both numbers show improvement compared to figures from May led by rising profits in state-owned enterprises. Official manufacturing PMI for July improved yet again to 51.1 for a fifth consecutive month of expansion. Non-manufacturing and composite PMIs saw slight drops coming in at 54.2 and 54.1 respectively, but they are still safely in the expansion territory.
This week we will have trade balance data as well as RBA interest rate decision and monetary policy statement. We expect RBA to keep the rates unchanged and let their monetary policy measures take effects, although talks regarding further monetary stimulus may emerge. Out of China we will have Caixin PMI and trade balance data.
Important news for AUD:
Final ANZ business confidence in July came in at -31.8 vs -34.4 the previous month. Activity outlook came in at -8.9 vs -25.9 the previous month. ANZ' stated that the vigorous bounce out of lockdown appears to be topping out and that the retail sector has driven much of the rebound since June.
This week we will have Q2 employment data.
Important news for NZD:
GDP data in May came in at -13.8% y/y vs -17.1 y/y the previous month. On the monthly basis GDP rebounded 4.6% m/m vs -11.7% m/m which was a record low. Goods were up 8% m/m while services were up 3.4% m/m. Canadian dollar did not take advantage of the seriously weak USD this week and USDCAD pair finished the week basically unchanged from where it started.
This week we will have trade balance and employment data.
Important news for CAD:
Final Q1 Capex data came in at 0.1% q/q vs 4.3% q/q as preliminary reported. Company profits have plunged -28.4% y/y. Considering the great uncertainty in the world combined with falling company profits a drop in business investment was expected. Retail sales in June came in at 13.1% m/m vs 8% m/m as expected and -1.2% y/y vs -5.7% y/y as expected. Consumption picked up strongly with healthy beats. The unemployment rate positively surprised, ticking down to 2.8% vs 3.1% as expected. Preliminary industrial production came in at 2.7% m/m vs -8.9% m/m the previous month for the first positive reading in five months.
Fitch has confirmed Japan’s A rating but has lowered the outlook to negative from stable. They expect Japan's economy to contract by 5% for 2020, before rebounding to 3.2% in 2021. Japan has downgraded its GDP forecast for 2020, they now expect it to shrink by 4.5% before rebounding to 3.4% in 2021.
This week we will have final July PMI numbers and final Q1 GDP data as well as Tokyo area inflation, earnings and spending data.
Important news for JPY:
SNB total sight deposits for the week ending July 24 came in at CHF692.6bn vs CHF691.5bn the previous week. Steady increase in the deposits as SNB keeps intervening in the forex market. Retail sales in June came in at 1.1% y/y vs 6.2% y/y the previous month. The food, beverages and tobacco category was the biggest contributor.
This week we will have inflation data.
Important news for CHF:
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Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that PRO. account have Market Execution. Please note that execution might work differently during high impact news and other times of low liquidity.