HIGHLIGHTS FOR THE WEEK AHEAD
Monday: GE Trade Balance, BoJ Governor Kuroda, ECB President Draghi & Praet, BoE’s Broadbent, Fed’s Kashkari
Tuesday: CN CPI/PPI, FR/IT Industrial Production, ECB’s Lautenschlager, UK GDP, Manufacturing & Industrial Production, Trade Balance, GE ZEW, CA Housing Starts/Building Permits, US JOLTs, API Inventories, CN Premier Li in Germany
Wednesday: JN PPI, ECB President Draghi, Praet & Mersch, BoE Governor Carney, US PPI, DoE Inventories, Fed’s Bostic & Williams, CA Rate Decision, MPR & Presser, OPEC Monthly Report, JN & EU Sign Free-Trade Agreement, NATO leaders meet in Brussels, ENG VS CRO at World Cup Semi-Final (7pm)
Thursday: GE/FE CPI (F), EU Industrial Production, ECB Minutes, Eurogroup Meeting (ECB’s Draghi & Coeure in attendance), US CPI, Jobless Claims, Monthly Budget Statement, Fed’s Harker, IEA Oil Market Report, NATO leaders in Brussels, US President Trump visits UK
Friday: CN Trade Balance, ECOFIN Meeting (ECB’s de Guindos in attendance), BoE’s Cunliffe, US Import Prices, Michigan Sentiment (P), Fed’s Kashkari & Bostic, US President Trump visits UK, US Earnings: Citi, JP Morgan, Wells Fargo
Looking at the calendar above there is plenty going on this week from central bank speakers, rate decisions, US earnings season to most important of all… England looking to reach the World Cup Semi-final for the first time since 1990! First things first, some major themes to be aware of.
May muddles through…
For the here and now the FX market is digesting the latest news that UK Brexit minister David Davis has resigned. The news comes despite Friday’s agreement on a new plan for Brexit in the form of a “common rule book for goods”, facilitating a path forward on trade in order to progress talks beyond the current stalemate.
What looked like a positive development for Theresa May just 48-hrs ago has swiftly changed course and question marks are now on who may fellow. The person that immediately springs to mind is Foreign Secretary Boris Johnson, who at the time of writing is said to have not yet spoken to the Prime Minister and is unsure of his next move. For me even if he were to follow Mr Davis I think a reaction would be relatively contained and ultimately, although this perceived softer stance from the government’s white paper may stoke sentiment amongst the Brexiteers, the reality is a leadership content is still unlikely and my expectation is that once again May muddle’s through.
Here’s the latest tweet from ITV political correspondent Robert Peston:
Trump arrives in the UK…
The US President arrives on our shores later this week and comes at an interesting time for the UK government given the necessity to lock in a solid relationship with the US amid the growing divisions we have seen globally amid the US’s growing stance of protectionism. Here’s a tweet from the BBC reflecting the President’s upcoming schedule.
In regards to the on-going trade war saga all remains clear for now and the market seems happy to take the implementation of well telegraphed tariffs last week in its stride. As ever, risks to this surround any further escalation not so much from the US but other counter-parties, particularly from Europe given the context of Trump’s tour this week in the United Kingdom.
A quiet week for Europe…
German political risk has decreased comparative to recent weeks with the potential break-up of the CDU/CSU partnership removed but not entirely forgotten. In essence, Merkel’s deal over the country’s migration policy looks to be more a short-term solution rather than one that full rectifies the nations changing sentiment towards the hotly debated topic of immigration.
Meanwhile, the European economic data slate is light but the ECB minutes on Thursday could prove interesting given the EUR’s biggest fall in two years when the central bank unveiled its extension to QE, and importantly its delay to hiking interest rates in 2019.
Last Wednesday Bloomberg released ECB source comments which suggested that some policy makers at the Bank were uneasy that investors are not betting on a rate hike until December 2019. As such, this indirect verbal intervention via the back-door route of sources serves as a reminder to markets not to over interpret the dovish elements of their statement making for an interesting release this week as we drill down into the exact conversations heard in their most recent meeting.
The Eurogroup gathering later this week is a summit on the EU and Ukraine so as such carries little risk for the broader market. The same can be said for the ECOFIN meeting which is purely a discussion on the so-called VAT reserve charge mechanism proposal.
Earnings season is back…
Major US banks Citi, JP Morgan and Wells Fargo kick-off earnings season this Friday. For Q2 2018, the estimated earnings growth rate for the S&P 500 is 20.0%. If 20.0% is the actual growth rate for the quarter, it will mark the second highest earnings growth since Q3 2010 (34.0%), according to FactSet. During the upcoming week, nine S&P 500 companies (including one Dow 30 component) are scheduled to report results for the second quarter. For more information and a full sector breakdown please click HERE.
Oil remains near multi-year highs…
The fundamentals remain relatively unmoved and the passing of US Independence Day, and Iran’s threat to cause a supply shock, mean that Trump has backed off some of the persistent calls for more output. As we have discussed before the likelihood of the Saudi’s responding to Trump’s request beyond their own OPEC and non-OPEC agreement is low. Therefore, unless the low probability of trade wars unexpectedly ramping up, we foresee oil prices supported for the week ahead.
Briefing from the Head of Trading, Piers Curran…
Rather than cover every topic in this report you can access a full week ahead preview HERE.