It’s a new trading week with no shortage of high-impact economic events. The market will look forward to inflation reports in the US, Canada and Britain. Retail sales in the US, employment reports in Australia and RBA Governor’s speech will be eyed too. Also, the overall risk sentiment will be watched.
There was a big concern for risk last week as investors cut down their appetite. US and European equities bled with S&P 500 down over 1.6% – the biggest since late June. However, the Asian market stayed buoyant. The delta variant impact, inflation concern and the slowdown in the economic data in the previous week meant that last week was a profit booking one for investors and traders. The result of this led to a significant rise in the prices of safe-haven assets especially currencies like the Dollar, Swissy and the Yen. Meanwhile, the pressure on CAD, Aussie and Kiwi remained. The Central Banks of Canada and Australia maintained the status quo – not including any additional stimulus cut but remained steadfast in keeping the recent cut and thus running their asset purchases at the current level. The ECB, on the other hand, refused to taper thus attracting more pressure on the Euro. The British Pound broke out as a tapering expectation emerged after the BoE governor hearings on monetary policies.
The GBP was the third strongest FX after the safe-haven USD and Yen. The Swissy followed and the Euro closed almost at breakeven but on the green side. Meanwhile, Aussie and CAD were the weakest, thanks to the risk-off sentiment and dovish outlook from their respective central banks. The Kiwi ended at near breakeven but on the red side.
Meanwhile, a rising dollar pressured Gold to 1780 after completing a bullish correction slightly above 1800. However, the Oil market got a massive lift after trading below $69 (WTI) for most of the week. With a touch of $70 again, Oil bulls can be optimistic that the next sentiment shift will support the black gold into the higher $70s.
What to look forward to this week
Another sentiment shift?
While the economic events and price action are very important, traders should continuously watch the general risk mood of the market. Last week started on risk-on but ended risk-off. The delta variants might still add to the general risk sentiment if there is any breaking news – negative or positive. Also, the market will be focused on economic data, especially inflation reports.
Macro-economics
Inflation Reports (US, UK and Canada)
This week, traders should look forward to the inflation reports from the US, Canada and Britain. In the US, August inflation is expected to drop compared to the previous month. The market estimated the CPI and core CPI figures at 0.4% (prev 0.5%) and 0.3% (prev 0.3%) respectively. However, in the UK, a higher inflation figure is expected at 2.9% against the previous 2%.
Higher than expected inflation rates might discourage investors from believing the much-talked-about transitory nature of fast-rising retail prices. If inflation isn’t transitory as supposed, there will be an expectation from the policymakers to further cut down monetary stimulus. The market might then make the first reaction before policy confirmation from the banks. The equities market will suffer the biggest pressure of higher than estimated inflation figures. However, the local currency might surge on the expectation of more taper and possible rate hikes. On the other hand, less than estimated inflation figures should support the equities market and sell-off on the local currency.
New Zealand GDP
The Kiwi GDP for the second quarter of the year has been estimated at a 1.2% expansion. Although less than the previous quarter, it’s still a positive one. However, the data doesn’t cover the effect of recent lockdowns and thus might not lead to maximum reaction especially if the deviation from the estimate is moderate. In spite of this, very upbeat data might lead to a significant rise on NZD as this might encourage the RBNZ to go ahead with a rate hike. However, a very disappointing figure will pressure the currency as it might discourage the Central Bank.
Aussie Employment Report
August employment change is expected at -80k against the 2.2k recorded in July. Recent lockdowns didn’t help and this will be considered a major setback in recovery. However, traders should watch the data deviation as usual. Much worse is bad for the Aussie but much better than estimate should lift the currency across the board.
US Retail Sales
August Retail Sales in the US is expected to drop by 0.8%. August weaker job data amid rising inflation is expected to weigh on consumers’ spending. The core retail sales data is expected at -0.2% (-0.4% prev) and retail sales at -0.8% (-1.1% prev). Traders should watch out for significant deviation for a significant price deflection.
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