The Week Ahead – Trade Wars, OPEC and the BoE in Focus – 16/06/18

On the Macro

For the Dollar, key stats through the week include May building permit and housing starts figures on Tuesday, 1^st quarter current account and May existing home sales numbers on Wednesday, the weekly jobless claims and June’s Philly FED Manufacturing PMI on Thursday, with June’s prelim U.S private sector PMI numbers out on Friday. For the Dollar, focus will be on the Philly FED on Thursday and release of the services PMI on Friday, while a number of FOMC member speeches through the week and noise from the Oval Office will also provide direction for the Dollar, geo-political risk still taking centre stage. The Dollar Spot Index ended the week up 1.34% to $94.788.

For the EUR, it’s a quieter week on the data front, with key stats limited to wholesale inflation figures out of Germany on Wednesday, Eurozone flash consumer confidence figures on Thursday, with finalised 1^st quarter GDP numbers out of France and June prelim private sector numbers out of France, Germany and the Eurozone due out on Friday. While both the Eurozone’s consumer confidence and Germany’s manufacturing PMI will be key, a number of Draghi speeches scheduled through the week will also need to be followed in the wake of last week’s dovish press conference. The EUR/USD ended the week down 1.35% at $1.1610.

For the Pound, it’s a particularly quiet week on the data front, with key stats scheduled for release limited to June CBI Industrial Trend Orders on Wednesday and the BoE’s quarterly bulletin release on Friday. The stats are unlikely to have a material impact on the Pound, with sentiment ahead of the BoE’s June monetary policy decision on Thursday key for direction, alongside Brexit chatter. The messier Brexit gets, the less chance of a rate hike this year, with economic indicators released through the 2^nd quarter continuing to confuse the markets, making this month’s vote count and tone all the more relevant. BoE Governor Carney is also due to speak late Thursday that could provide further direction for the Pound. The GBP/USD ended the week down 0.95% to $1.3278 last week.

For the Loonie, it’s a particularly quiet first half of the week, with no material stats scheduled for release until April wholesale sales figures on Thursday. While the numbers will provide direction, May inflation and April retail sales figures scheduled for release on Friday will be the key driver from a data perspective. Outside of the stats, trade war talk and the OPEC meeting will be in focus, the Loonie having taken a beating last week following the tweet attacks on Canada and introduction of trade tariffs on China. The Loonie ended the week down 1.98% to C$1.3184.

Out of Asia, it’s a relatively busy week ahead.

For the Aussie Dollar, key stats through the week are limited to 1^st quarter house price figures that are unlikely to have a material impact on the Aussie Dollar on Tuesday, with the RBA minutes from June’s meeting also scheduled for release and likely to overshadow the numbers. With RBA Governor Lowe speaking on Wednesday, any shift in tone towards policy could see a shift in sentiment towards the Aussie Dollar, while the RBA Bulletin on Friday also there to consider, though the impact of China’s planned tariffs and possible response by the U.S on commodities will need to be considered. The AUD/USD ended the week down 2.09% to $0.7442.

For the Japanese yen, key stats through the week include May trade figures on Monday and inflation figures on Friday, with the BoJ’s May policy meeting minutes and BoJ Governor Kuroda speech scheduled for Wednesday also there to consider, though we will expect the minutes to have a limited impact, following last week’s press conference and policy decision. Direction through the week will ultimately be dictated by market risk appetite, trade action to hit market risk appetite and drive demand for the Yen, particularly should the U.S respond to China’s retaliatory move over the weekend. The Japanese Yen ended the week down 1.01% to ¥110.66 against the Dollar.

For the Kiwi Dollar, stats through the week include 2^nd quarter consumer sentiment and 1^st quarter current account figures due out on Wednesday, along with 1^st quarter GDP numbers on Thursday, which is forecasted to be Kiwi Dollar negative. It could be another big hit for the Kiwi Dollar should trade war rhetoric gain momentum and 1^st quarter growth ease. The Kiwi Dollar ended the week down 1.21% to $0.6949.

Out of China, there are no material stats scheduled for release, leaving China – U.S trade war noise to dictate risk appetite across the global financial markets, China’s retaliatory response early Saturday to roll out tariffs on 6^th July providing little time to resolve the ongoing trade dispute that will likely lead to a hit back by the U.S administration, a positive for the safe havens.

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Geo-Politics

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

Loonie Woes: While the U.S wages its trade war, there will be some relief that NAFTA talks have been kept alive, though the U.S administration is more than capable of flip flopping, with any more Trump tweets likely to weigh more heavily on the Loonie.

U.S – China Trade Pact: There’s yet to be a pact, with the U.S firing the first shot and China responding early Saturday to the new tariffs, though with China’s tariffs not scheduled to become effective until 6^th July, there may be some hope of a resolution. If the past is anything to go buy, more from the U.S is likely and possibly even more from China before progress can be made, neither side likely to be backing down too quickly.

U.S – North Korea Summit: With the summit over, it’s now all about progress. While trade war noise will likely take centre stage, any negative news from either side would support demand for the safe havens.

Italy’s 5-Star League: Market panic over the prospect of a withdrawal from the EUR abated last week, while any talk of debt relief could spur the markets into action, with the coalition government’s turning away of a ship with 600 migrants putting the Italian collation government in hot water with the EU from the get-go.

Iran: After a number of weeks out of the limelight, the Iran nuclear agreement could being garnering more attention in the coming weeks, with any rhetoric between the U.S and Iran likely to have a material impact on crude oil prices and market risk sentiment in general.

The Rest

On the monetary policy front, it’s over to the Bank of England’s Monetary Policy Committee on Thursday, with the FED, the ECB and BoJ having delivered last week. Following some mixed stats out of the UK, the jump in retail sales figures will have provided some hope of a hawkish BoE, though April’s manufacturing production figures and the annual rate of inflation holding at 2.4% will likely be enough for the BoE to take a more cautious stance, the jump in May retail sales figures attributed to the Royal Wedding and improved weather conditions rather than a material shift in consumer demand. With Brexit also a lingering concern, it’s going to come down to the vote count, more than 2 in favour of a rate hike needed to drive the Pound.

Crude Oil: Following last week’s slide in crude oil prices, WTI falling by 3.75% on Friday, focus will now shift to the 22^nd June OPEC – Russia meeting as concerns over a material rise in supply weighed at the end of the week. Expectations are that OPEC and Russia will agree to increase production by as much as 1m bpd according to news hitting the wires last week. There’s nothing set in stone going into the meeting however and the impact on oil prices could be significant should production increased by 1m bpd or more.