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AFEX Market Watch 1st August 2016
AFEX Market Watch
Monday Aug 1
· All day Swiss bank holiday
· All day Canadian holiday
· 09:30 GBP Manufacturing PMI
· 15:00 USD ISM Manufacturing PMI
Tuesday Aug 2
· 02:30 AUD Building approvals & Trade balance MoM
· 04:00 NZD Inflation expectations QoQ
· 05:30 AUD RBA rate statement and cash rate
· 09:30 GBP Construction PMI
· 14:15 NZD Dairy price index
Wednesday Aug 3
· 09:30 GBP Services PMI
· 13:15 USD ADP Non farm employment change
· 15:00 USD ISM Non manufacturing PMI
· 15:30 USD Crude oil inventories
Thursday Aug 4
· 00:30 AUD Retail sales MoM
· 12:00 GBP BoE Inflation report
· 12:00 GBP MPC rate decision
· 12:30 GBP BoE Governor Carney speaks
Friday Aug 5
· 02:30 AUD RBA Monetary policy statement
· 08:30 GBP Halifax HPI MoM
· 13:30 CAD Employment data and Trade balance
· 13:30 USD Non farm employment & Unemployment rate
· 13:30 USD Average hourly earnings MoM
Last week Sterling weakness was shown mainly on the crosses as the USD lost ground despite a mildly hawkish Fed. This meant GBPUSD managed to gain just over 1.5% on the week whilst it lost 1.5% to the EUR and 4% against the JPY. This week sees the release of more complete PMI data (remember that we had early PMI reads on July 22nd) with the main event of the week being the BoE meeting on Thursday. The market is heavily discounting a rate cut of 25 bps and also expects a restarting of the QE programme and possibly funding for lending. The BoE can change monetary policy however the Govt. also needs to change fiscal policy and build confidence in the economy. On this front the weekend press is full of stories about the building of the nuclear power station at Hinckley being put on hold as well as more procrastination on an additional airport runway for London, neither of these stories are helping to build confidence.
Last week saw EUR strength which was really a by-product of USD weakness. Firstly the market didn’t believe the Fed on Wednesday when it said that it was back in rate hike mode and on Friday when US GDP data came in at a weak +1.2% and lower than the expected +2.6% the EUR gained more ground. The European bank stress tests didn’t really provide many surprises but also didn’t include Portuguese or Greek banks so are having trouble being taken seriously. Event risk for the EUR will probably rise in October with the Italian referendum taking place and also comments from Turkey saying that if they don’t get visa free travel for their population by then they will allow the migrants currently being held in Turkey across their border and into Europe.
Month end selling of USD combined with poor economic data pushed the USD lower last week and the market will now look to economic data releases for direction on the US economy. Today we have ISM Manufacturing PMI and Wednesday we have ADP Non farm employment change which is a precursor to Friday’s official release of Non farm payrolls. Overnight Fed Governor Dudley (one of the three Fed members worth taking note of) urged caution on US rate hikes and said that a flatter tightening path for US rates was appropriate.
Commonwealth et al
Weak at the start of last week and then stronger at the end the AUD now waits for Tuesday’s RBA meeting for AUD direction. The market is pricing in a 50% chance of a rate cut by the RBA and with the Fed possibly not hiking rates until the end of the year the RBA could see this month as the right time to ease. Chinese data over the weekend was slightly better than expected although still very close to expectations. The CAD made ground last week against the USD despite a lower oil price.
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