For the week of August 19, 2019, we’re expecting to see a continuation of the summer doldrums that we typically witness during this time of the year, as investors & hedge fund managers take a recess ahead of the final trading quarters of the year.
Since the economic docket appears to be sparse during the first half of the trading week, there may not be a definitive catalyst to drive market prices beyond their range, until the second half of the trading week. However, this week of trading does have it’s share of headlines with the publishing of multiple central bank monetary policy minutes (RBA, FED, ECB), as well as the start of the annual Jackson Hole Economic Symposium, which will create additional volatility among financial instruments across the board.
The 3-Day summit is scheduled to start on Thursday, August 23, 2019 and analyst will be locked into news developments & headlines coming from this gathering. Prior to the summit, economists will be paying close attention to headlines from central banks minutes that may provide clarity on each bank’s forward guidance with monetary policy, as well as expected policy easing in the month of September.
Antipodeans To Remain Unsteady For The Week
The first set of top-tier data coming out on Tuesday is the Reserve Bank of Australia policy meeting minutes. The Aussie & Kiwi have managed to remain steady despite the heavy risk aversion from last week, but is poised to continue its rout lower. The RBA minutes will likely reinforce their current perspective, which supports the need for further rate cuts to stimulate growth in the economy, in view of on-going geopolitical tensions and uncertainty over the US-China trade talks. Both sovereigns have a fairly absent economic docket, with the exception of Monday & Friday, with New Zealand releasing their producer prices and retail sales numbers for the second quarter. Producer Prices for input & output reported mixed readings, with the PPI input beating the forecast (-2.9% q/q) with a reading of +0.3% q/q, but the NZ PPI output falling short of consensus (+0.7% q/q), reporting a value of +0.5% q/q.
Meaningful Week For Japanese Data
Following last week’s surprisingly firm Japanese GDP figure for the second quarter, Japanese indicators will continue to be monitored for signs on whether there will be a furtherance of economic resilience into the third quarter. July Trade numbers came out better than expected with imports only dropping by -1.2% y/y (exp. -2.7% y/y) and exports dropping by only -1.6% y/y (exp. -2.2% y/y). On Thursday, Nikkei Manufacturing PMI is expected to remain in contraction, but report a slight better figure than last month’s 49.4 reading. The core CPI rate (without food & energy), which the Bank of Japan targets for its inflation goal, comes out on Friday, and is expected to remain near its 2 year low of 0.5% y/y. Another low reading for August will strengthen the BOJ’s argument for additional easing. But, surprisingly, they are one of the few banks who have avoided joining the global bandwagon for more stimulus and may want to secure their limited ammunition for an extreme emergency. However, if the yen continues to appreciate to unsustainable levels as risk aversion continues, the Bank of Japan may be forced to intervene to calm market tensions.
Canada Inflation Data and Retail Sales Data
Although Canadian inflation figures have been candidly robust & positive in comparison to other developed economies, there is still growing consensus among economists that the Bank of Canada will perform a rate cut at the end of the year. Last week’s surprising drop in July employment did cast a shadow of uncertainty over Canada’s growth forecast, which may be the result of escalating trade tensions. With that being the case, analysts will be monitoring the July inflation figures on Wednesday, and the June retail sales numbers on Friday for clues regarding the strength of their economy. The headline CPI reading is expected to report an increase of +0.1% m/m for the month of July. Core Median CPI is projected to slow to 2.1% year-over-year. If this week’s inflation data and retail sales figures surpass market forecasts, then this could assist the Loonie in recovering earlier losses from last week, against the US dollar.
Greenback Wavers Ahead of FOMC Minutes
This week’s economic docket for the US session only has a few notable releases that investors will be paying attention to. There will be Existing Home Sales on Wednesday, IHS Markit’s Flash PMI on Thursday, and New Home Sales on Friday. However, the market’s primary focus will be on the Federal Reserve Bank Minutes that are scheduled to be published on Wednesday ahead of this week’s Jackson Hole Symposium, which is set to layout the path of monetary policy over the coming months. As yield curves invert and global interest rates head towards negative territory, the theme for this year’s Jackson Hole conference is, “Challenges for Monetary Policy”.
But, prior to the Jackson Hole Meetings, analysts will be dissecting the FOMC minutes from July’s policy meeting, in hopes that it will provide more detail about the two hawkish FOMC members who voted against the cut in July. If the meeting minutes are not as dovish as presumed, causing the dollar to rally, the gains can be reversed by Powell & other Fed Speakers at the Jackson Hole Symposium. Overall, traders are hoping for more transparency from Powell following his highly-criticized press conference from last month’s meeting.
Open-ended trade tensions between the US & China, along with subdued inflation were factors that contributed to the central bank’s decion to lower the federal funds rate on July 31st. If we read from the minutes that Chairman Powell and other FOMC members continue to propose that a worsening US-China trade war may warrant a broader rate-cutting cycle than hinted at Powell’s July press conference, then the greenback will likely come under renewed attack.
Eurozone Flash PMIs and ECB Meeting Minutes
As European economies continue to slow down and show signs of softness,this will increase speculation over the likelihood of European recession. The final print for Eurozone CPI for August reported readings that were slightly below market forecast, with the headline figure coming in at 1.0% y/y in July versus June’s reading of 1.3% y/y, which will build a case for further monetary easing in the 19-member bloc.
However, most of the market’s attention will be focused on the release of Eurozone Preliminary PMIs on Thursday, and the publishing of the ECB monetary policy meeting minutes from July. At July’s ECB policy meeting, the central bank had already signaled to the broader market that more stimulus in the form of a rate cut and possible resumption of their bond purchasing program, is already priced into the market for September’s policy meeting. In other words, the ground has already been laid for some kind of policy accommodation next month. But, some market participants are still doubtful as to how dovish the ECB will be, and the single currency (euro) is still prepared to climb higher if this Thursday’s meeting minutes provide proof that there is some opposition to a broad stimulus package.
As for the Eurozone flash PMI figures for July, the forecasts reveal that analysts are expecting the numbers to slide lower, signaling more contraction and the need for additional stimulus. The IHS Markit report is expecting a figure of 51.2, which is expansionary, but -0.3 points lower than last month’s figure of 51.5.
But, given that we are still in the thick of the summer holiday season, and there are further key risk events into September, many traders are choosing to stay away from the euro, causing price behavior to be limited. The GBP (pound) is in consolidation as British MPs won’t return from their summer recess until September, which means any dialog between UK & Irish prime ministers will be postponed until the first week of September.
Marvin Perry has been an active trader within the Forex market since 2010. He attended the University of Illinois in Urbana/Champaign, and graduated in 2002 with a double major in Cell and Structural Biology and Chemistry. He currently serves as an FX instructor & Quantitative Analyst for the Forex Anatomy Private Trading Community called "The Lab", where he conducts live weekly trading webinars & instruction on Fundamental Analysis & Inter-Market Interpretations of dynamic asset classes and their influence on currencies.