The Fed and BoJ Will Command Attention This Week
The Federal Open Market Committee (FOMC) and the Bank of Japan (BoJ) will take centre stage this week, as both the central banks are scheduled to hold their monetary policy meetings. While the US Fed is expected to maintain status quo, the BoJ is anticipated to introduce additional stimulus measures. Although the US witnessed a series of positive data points last week in the form of nonfarm payrolls, retail sales and CPI, the nation’s inflation is still far away from the Fed’s target rate. As a result, the Fed seems hesitant to introduce an upward move at this meeting. On the other hand, given the sluggish growth in Japan, a stimulus announcement is widely expected from the BoJ this week.
Today the German Ifo survey data for July came in better than expected. In the UK, the CBI industrial trends orders data for July will be released. In the US, the Dallas Fed manufacturing index will be eyed.
Pound Sterling – UK Markets
The Pound has made a dramatic turn and is trading higher against its major peers this morning. Today the UK CBI industrial trends orders data for July is due for release. The indicator had posted an improvement in the previous month, but is widely projected to slump in July, in response to the Brexit vote. Looking ahead, the key event in Britain this week is the release of the nation’s preliminary reading of the second quarter GDP. In addition to this, several other economic data points such as Britain’s consumer confidence index, mortgage approvals and nationwide housing price data are also up for release this week.
On Friday, Sterling tumbled and dropped below the crucial 1.32 mark against the US Dollar, after the preliminary reading of UK’s manufacturing and services PMI slipped into contractionary territory in July. This came closely on the heels of a disappointing retail sales figure, thus bringing back the dreaded “R” word, or “recession” to be precise, back to the fore.
US Dollar – US Markets
The greenback has trimmed its previous session gains and is trading mixed against the shared currency and the Pound this morning. This week is pretty crucial for the US with several important events set to unfold. To start with, the US FOMC is scheduled to hold its two-day monetary policy meeting this week and expectations are that the central bank will keep the monetary policy steady. Other high-profile data points on the US docket will include the nation’s second quarter GDP data, durable goods orders, services PMI, new home sales and the consumer confidence index. However, the first day of the week begins on a lighter note, with only the Dallas Fed manufacturing business index for July scheduled to release today, aptly depicting the tranquillity before the tempest strikes.
On Friday, the US Dollar soared against its peers, after the US flash Markit manufacturing PMI blew past investor expectations and notched a nine-month high level in July, mainly backed by an acceleration in new business volumes.
Euro – European Markets
The shared currency is trading mixed against its major peers this morning. Earlier in the session, data showed that German Ifo business confidence index fell less than expected in July, as Brexit fears seem to have been over exaggerated. Meanwhile, the nation’s business expectations index, which measures attitude towards business prospects over the next six months, dropped in July, but came in better than anticipated. Moreover, the Ifo current assessment index surprisingly nudged higher in July. All in all, the latest batch of data looks broadly positive, and contrasts with last week’s ZEW numbers. Looking ahead this week, investors will look forward to more of German economic data, including the nation’s consumer confidence index, unemployment rate, consumer price index and retail sales data.
On Friday, German private sector growth hit its highest level so far this year. On the other hand, the Euro zone’s composite PMI dropped to an 18-month low level in July. Separately, Italian retail sales rose above expectations in May.
Other Currencies – Highlights
The Japanese Yen is trading lower against the US Dollar this morning. Earlier in the session, data showed that Japan’s final leading index, that measures future economic activity, declined in May. Moreover, the coincident index, that depicts the current economic conditions, dropped to its lowest reading since August 2013. On the other hand, Japan posted a better than expected merchandise trade surplus in June, its first half-year trade surplus since the 2011 Fukushima nuclear disaster, led by a steep decline in imports and a modest fall in exports.
This week, the Bank of Japan (BoJ) will hold a two-day monetary policy meeting and investors are expecting additional fiscal and monetary stimulus to kick-start Japan’s anemic growth. Meanwhile, the nation’s Shinzo Abe government, bolstered by a recent election victory, is expected to press ahead with its “Abenomics” economic program, which would likely see increased government spending. Separately, the BoJ Governor, Haruhiko Kuroda, flatly rejected the use of “helicopter money” to boost Japan’s economy.