The Week Ahead – Geo-Politics and the FED in Focus

On the Macro

For the Dollar, With U.S retail sales and hawkish FOMC member commentary contributing to the Dollar rally last week, it’s May’s prelim private sector PMI numbers on Tuesday, the FED meeting minutes on Wednesday and April durable goods orders on Thursday that will be in focus, though the Oval Office and a number of scheduled FOMC member speeches, including FED Chair Powell, will undoubtedly be of influence through the week. Other stats through the week including April housing sector numbers, the weekly jobless claims figures and finalized May consumer sentiment numbers. The Dollar Spot Index ended the week up 1.19% to 93.637.

For the EUR, Prelim May private sector PMI numbers on Wednesday will be the first slew of data out of the Eurozone, focus being on German manufacturing and the Eurozone composite, with 2^nd estimate GDP numbers and consumer sentiment numbers out of German on Thursday scheduled for release ahead of the ECB monetary policy meeting minutes, which will likely be a reminder of how far policy divergence has shifted in favour of the U.S Dollar. Germany’s May Ifo Business Climate Index figures on Friday rounds off the week that may well spell more trouble for the EUR. The EUR/USD ended the week down 1.43% to $1.1772.

For the Pound, it’s a busy week ahead, with key drivers through the week being April inflation figures due out on Wednesday, April retail sales numbers scheduled for release on Thursday and 2^nd estimate GDP and business investment numbers for the 1^st quarter, which will be released on Friday. While GDP numbers will certainly play a hand, the combination of inflation and retail sales figures will be key from a policy perspective, the BoE having possibly missed the boat on being able to lift rates near-term. Other stats through the week include May’s CBI Industrial Trend Orders on Monday and housing sector stats. The GBP/USD fell by 0.54% to $1.3469 last week.

For the Loonie, it’s a relatively quiet week ahead on the data front, with key stats limited to March wholesale sales numbers due out on Tuesday. A lack of stats will give the numbers greater influence, though focus through the week will remain on NAFTA talks, direction of crude oil prices also a factor as Iran faces sanctions once more. The USD/CAD ended the week down 0.70% to $1.2885.

Out of Asia, focus will be on trade figures out of Japan and New Zealand retail sales numbers on Monday, consumer sentiment and construction work done figures out of Australia on Wednesday, April trade figures out of New Zealand on Thursday and Tokyo inflation numbers on Friday. Following Japan’s 1^st quarter contraction, the trio of currencies have taken quite a hiding of late and it could be another harsh week ahead. The AUD/USD ended the week down 0.42% to $0.7511, the Kiwi Dollar down 0.89% to $0.6907, while the Japanese Yen slumped 1.27% to ¥110.78 against the U.S Dollar.

Geo-Politics

On the political front, there’s plenty to consider through the week…

Loonie Woes: The Thursday 17^th May NAFTA deadline came and went and there’s yet to be a conclusion to negotiations, with chatter of talks extending into next year a harsh reality of how the fate of the Canadian economy and the Loonie sits in the hands of the Oval Office. The uncertainty may well leave the Bank of Canada in a holding pattern and that’s never going to be a positive for the Loonie.

U.S – China Trade Pact: There was some progress last week, though both sides delivered negatives to the financial markets mid-week, Trump calling China spoiled, while Chinese officials denied rumours of a willingness to cut the deficit by $200bn. A weekend joint statement was more positive, with China agreeing to significantly increase the import of U.S goods to cut back the trade deficit. The devil will be in the details however and the next round of talks in Beijing could be as early as late next week.

Italy’s 5-Star League: Coalition formed, with policies more aligned with the League party’s mandate, while the markets wait to learn who will be Prime Minister, Di Maio the front runner. Coalition policies will be in focus through the week and there’s likely to be some anti-EU thrown in that could well see the EUR take another hit through the week.

Iran: While China, Russia and Iran look to work out a new oil deal, the U.S Secretary of State Pompeo is scheduled to give details of America’s new strategy towards Iran on Monday. It’s not going to be Iran friendly.

The Rest

FED Talk through the week will have influence on the Dollar, alongside the release of the FOMC meeting minutes on Wednesday, with members Bostic, Dudley, Harker, Kaplan, Kashkari and FED Chair Powell scheduled to speak through the week.

Crude Oil: After hitting $80, can we see the oil rally continue? Monday’s U.S strategy towards Iran and sentiment towards supply suggests yes, as European companies begin to pull out of hardly won O&G contracts in fear of being targeted by the U.S.