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The Week Ahead – Geopolitics and the FED to Test the Theory of Gravity

Bob Mason
·8-min read

On the Macro

It’s a quieter week ahead on the economic calendar, with 50 stats in focus in the week ending 12th June. In the week prior, 60 stats had also been in focus.

For the Dollar:

While it’s a relatively quiet week ahead on the economic data front. Once more, we will expect some stats to garner more attention than others.

The markets will almost certainly brush aside May inflation figures and April JOLTs job openings.

That leaves the weekly jobless claims on Thursday and June consumer sentiment figures on Friday in focus.

The big question is whether last week’s labor market stats and fall in the unemployment rate will continue.

The main event of the week is the FED interest rate decision on Wednesday. Expectations are that the FED will continue to write-off the chances of negative rates.

Some guidance on the bond-buying programs and what lies ahead is likely. One thing is for certain, with the unemployment rate sitting at 13.3%, expect the continued promise of support.

Geopolitical risk, civil unrest in the U.S, and COVID-19 updates will also need monitoring.

There is also the small matter of fiscal support and funds reaching the right hands.

The Dollar Spot Index ended the week down by 1.43% to 96.937.

For the EUR:

It’s also a quieter week ahead on the economic data front. With the markets uninterested in 1st quarter and April figures, there’s unlikely to be too much influence from the stats.

Stats include April industrial production and trade data out of Germany and 1st quarter GDP and April industrial production figures for the Eurozone.

While finalized inflation figures for May are also due out, we aren’t expecting any reaction to the numbers.

In the week, expect discussions on the disbursement of the COVID-19 recovery fund to garner plenty of interest, however.

While the more than €2tn is a huge plus, member states will need to disburse the funds to support the recovery. EU finance ministers are scheduled for a meeting on Friday, which will garner plenty of attention.

There is also geopolitical risk to consider, with any rise in U.S – China tensions will likely weigh on the EUR.

The EUR/USD ended the week up by 1.71% to $1.1292.

For the Pound:

It’s a relatively busy week ahead on the economic calendar.

The markets will have to wait until Friday, however. Key stats include April GDP, manufacturing and industrial production, and trade data.

While we will expect the markets to be somewhat forgiving of any dire numbers, there is the chatter of negative rates.

Particularly dire numbers could force the BoE into action. Not only is the UK economy grappling with the COVID-19 pandemic but also Brexit uncertainty.

On the Brexit front, we are expecting updates and there could be the talk of an extension to the transition period.

The GBP/USD ended the week up by 2.63% to $1.668.

For the Loonie:

It’s a particularly quiet week ahead on the economic calendar.

Economic data is limited to April and May building permits and housing starts. We’re not expecting the Loonie to be too responsive to the numbers.

Crude oil inventories, chatter from OPEC Plus, and the monthly OPEC meeting will influence.

Ultimately, risk appetite will continue to be the key driver. Economic data will need to support the market view of a pickup in economic activity. Geopolitics will influence that view in the week.

The Loonie ended the week up by 2.60% to C$1.3422 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quiet week but an important week ahead for the Aussie Dollar.

Key stats include May business confidence and June consumer sentiment figures.

We continue to see the sentiment, employment, and consumer spending as the key drivers for the Aussie Dollar.

Disappointing figures would test the Aussie mid-week.

From elsewhere, trade data out of China and geopolitics will also influence.

The Aussie Dollar ended the week up by 4.53% to $0.6969.

For the Kiwi Dollar:

It’s a relatively busy week ahead on the economic data front.

Expect business and consumer sentiment figures to garner plenty of attention on Tuesday and Friday.

Following a 46.8% slump in electronic card retail sales in April, the markets will be looking for a pickup in spending in May. Retail sales figures for May are due out on Thursday.

New Zealand was amongst the first to be free of COVID-19. That will need to translate into a pickup in consumer and business confidence and spending.

At the end of the week, May’s Business PMI will also provide direction.

From elsewhere, trade data from China and geopolitics will also influence following last week’s surge.

The Kiwi Dollar ended the week up by 4.87% to $0.6507.

For the Japanese Yen:

It’s going to be another limbo week for the Japanese Yen.

On Monday, finalized 1st quarter GDP numbers aren’t likely to garner too much interest.

At the end of the week, finalized industrial production figures for April will also be brushed aside.

The markets will be asking what it will take for the Yen to break from its current stranglehold.

A reality check and a realization that the U.S economy is going nowhere fast and that Trump’s days are numbered, that would do it… Following last week’s labor market numbers, however, that may be a big ask.

The Japanese Yen ended the week down by 1.63% to ¥109.59 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front. Key stats include May trade data on Monday and inflation figures on Wednesday.

While we will expect the numbers to have some influence on market risk sentiment, geopolitics could overshadow any pickup in economic activity.

The Chinese Yuan ended the week up by 0.74% to CNY7.0834 against the U.S Dollar.


UK Politics:

We continue to see Brexit as the key risk to the Pound and its recent upswing from sub-$1.21 levels.

While current risk sentiment is Pound positive that would shift should the chances of a hard Brexit spike.

The Pound, for now, is holding on to the hope of an extension to the transition period or, an EU trade agreement, at a minimum.

An eternal optimist may want both, which would bring $1.30 levels into play against the Dollar.

U.S Politics:

There is never a dull moment, with U.S President Trump in office.

While Trump may be looking to pass the buck, it’s going to be hard to do so.

He may want to distract the markets, should the riots continue into the week. Even the NFL backtracked on its decision to ban kneeling during national anthems. The reversal was made in response to the global reaction to George Floyd’s murder. Trump will be ignored in his call for all to stand tall during anthems.

China and U.S tensions remain the key risk for now, however. With HK in the spotlight, China could throw in new laws, particularly following the Tiananmen vigils of last week.

Either way, it was way too quiet last week.

The Coronavirus:

While the U.S and the EU have seen the number of new cases steady to acceptable levels, other nations continue to struggle.

The UK is one of those nations, with an unprecedented number of COVID-19 deaths. Over the weekend, the total number of deaths rose to more than 40,000. Only the U.S has more, while none of the most affected nations have such a high mortality rate.

For the UK, a mortality rate of close to 15% will raise questions over the government’s preparedness. Germany’s mortality rate, by contrast, sits at under 5%…

The U.S may have the highest number of cases and deaths but Brazil and Russia have seen a surge new in cases. As of Saturday, Brazil had 671,464 total cases, with Russia sitting at 458,689.

From the market’s perspective, there are 3 key considerations that remain:

  1. Progress is made with COVID-19 treatment drugs and vaccines.

  2. There are no spikes in new cases as a result of the easing of lockdown measures.

  3. Governments continue to progress towards fully opening economies and borders.

As the easing in lockdown measures continue, an effective treatment drug and vaccine must be the priority.

Countries are beginning to open up borders to support tourism, which does raise the threat of a 2nd wave…

At the time of writing, the total number of coronavirus cases stood at 6,961,938.

Monday through Saturday, the U.S reported 150,005 new cases to take the total to 1,987,175. This was up from the previous week’s 130,165.

For Germany, Italy, and Spain, there were 5,887 new cases Monday through Saturday. This took the total to 708,887. In the previous week, there had been 9,228 new cases over the same period.

This article was originally posted on FX Empire