Week Ahead
 | 21/06/2019

Weekly outlook: June 24th to 28th | Focus on RBNZ, G20 meeting and Eurozone’s HICP rates, next week.

With international politics coming to the forefront, the G20 meeting and developments that may precede it, especially in the US-Sino relationships could play a substantial role for volatility in the financial markets. On the other hand, UK politics may be somewhat subdued the coming week. On the monetary front, RBNZ’s interest rate decision comes to the forefront and on second base from the Czech republic CNB’s interest rate decision. As for financial releases, next week’s highlights could include among others Eurozone’s preliminary CPI rates for June, UK’s and Canada’s GDP rates, yet as mentioned before a number of other financial data could play a key role.

USD - US-Sino relationships, final GDP for Q1 eyed

On Wednesday the dovish turn of Fed caused the greenback to weaken, remaining shaky until the end of the week, at least until these lines are written. The Fed practically signalled its readiness to cut rates if it feels that it is appropriate. We expect that any further signals provided by Fed members could provide some volatility for the market. In that respect, we tend to focus on Powell’s planed speech on Tuesday about monetary policy and economic outlook. Also, reports about the US President’s intentions to replace the Fed’s chair, seem to increase, yet had no substantial effect on the USD thus far. On a more fundamental basis, the G20 meeting in Osaka, at the end of the month. The main issue concerning the markets is whether there could be some improvement in the US-Sino relationships. It was announced in the past days, that President Trump is to have an “extended” meeting with Chinese President Xi. Given Buenos Aires G20 meeting last November, which resulted in a temporary “ceasefire”, some analysts tend to be optimistic about the possible outcome. However, it should be noted that in the meantime, negotiations between the two countries are ongoing and we would not be surprised to see headlines about the issue reeling in. Some easing in the tensions between the two countries could support stock markets while at the same time may moderate the Fed’s dovishness. As for financial releases coming from the US, we would like to point out the release of the CB consumer Confidence indicator for June, the durable goods growth rates for May, which are expected to accelerate and be indicative of some confidence of US businesses in the US economy. Also on Thursday, the final GDP growth rate for Q1 is due out and on Friday we expect the Fed to be closely watching the Core PCE Price Index (its favourite inflation measure) for May.

GBP - Brexit to take a backseat, GDP rate could move the pound

The race for Theresa May’s replacement is heightening, as the two main contesters for Theresa May’s job are racing for the votes of the Tory members. Boris Johnson and Jeremy Hunt have practically now been singled out are to duel over the next month, as Tory members are to vote for their new leader. Johnson seems to be leading the race according to some analysts and the scenario of Boris Johnson becoming Prime Minister, is highly uncertain that will benefit the pound. Never the less as the first phase is over, we could see statements being made from the two contesters, yet at the same time we expect political developments to gradually heighten until the 22 of July, while the first days could be quieter. On the financial releases front, it is expected to be a slow week for the pound. Pound traders will have to wait until Friday for the main release this week, which could prove to be the final GDP growth rate for Q1. The rate is expected to remain unchanged at +0.5% qoq, if compared to the preliminary release for Q1. Should the actual rate meet its forecast, we could see the GBP being more confident, albeit one must mention that the preliminary release absorbed most of the market’s reaction. Other than that, one could also mention the house prices index and the current account balance, due out on Friday.

JPY - Safe haven flows and financial data to set the tone

Moving on to Japan, safe haven flows are expected to maintain their influence of the JPY. JPY traders are expected to keep a close eye on the G20 meeting in Osaka, near the end of the week. Should the US-Sino relationships improve, we could see JPY experiencing some safe have outflows, as the risk off sentiment may be subdued. On the flip side should tensions escalate, we could see the Yen getting some safe haven inflows as the risk off sentiment of the market may be enhanced. On a similar tone, we would not rule out a similar reaction of the JPY, regarding the US-Persian relationships. In the monetary front, we would not expect much from the release of the minutes of BoJ’s April meeting on Tuesday, on the other hand, there could be some reactions for the Yen, at the release of the summary of opinions regarding BoJ’s last meeting in June, on Friday. Analysts could be searching the documents, for any clues about the bank’s intentions and what form a possible stimulus may take. As for financial releases, despite the JPY being less sensitive, we still would like to mention the release of Japan’s retail sales growth rates for May, on Wednesday. Also on Friday, we get Japan’s Industrial production growth rate for May and Tokyo’s inflation rates for June, among other financial data.

EUR - June’s preliminary HICP rates to draw the lights

With the EU Council’s negotiations about EU’s top jobs, turning into a stalemate on Friday, the common currency prepares to enter the new week wit ha number of questionmarks open. We expect to see further headlines about the issue as matters could turn ugly. We would not exclude the possibility of some countries (like Italy), pressing other interests as their leverage may be higher during the negotiations and given the impasse. Also recent charges from US President Trump about the ECB using exchnage rates to get an advantage could cause genuine concerns about the possibility of the US President turning the Tariff war into an exchange rate war. Overall, the EUR ended the week with substantial gains agaist the USD as it recovered some lost ground, yet we expect the common currency to be mostly data driven. It would be indicative that the EUR had some indications of a positive reaction today as June’s preliminary PMIs seemed to show an overall improvement, on Friday. We would like to start with the release of Germany’s Ifo Business Climate indicator for June, on Monday. The indicator’s reading is expected to drop somewhat and should that be the case, we could see the EUR slipping as it would be the lowest reading of the indicator in a number of years. Should the forecaqst be realised, it could be indicative of a less optimistic view about the next six months form German businesses for Eurozone’s largest economy. Should also Germany’s GfK indicator for July drop as well, that would mean that the average German consumer, has lower expectations from the German economy. However the most important indicator’s are expected to be the preliminary HICP rate for the members of the Eurozone and the Eurozone itself, for the month of June. Germany’s rate is expected on Thursday to accelerate somewhat and reach +1.4% yoy and should also Eurozone’s rate accelerate on Friday, we could see the EUR marking some gains.

NZD – RBNZ’s interest rate decision front and center

On Wednesday during the Asian session, we get from New Zealand, RBNZ’s interest rate decision. The bank is expected to remain on hold at +1.50% after having a rate cut of 25 basis points (bp) in its meeting on May. Currently NZD OIS imply a 68.25% probability for the bank to remain on hold, with the rest being infavor of another rate cut of 25 bp. Given the recent rate cut we would expect the bank to remain on hold at next week’s meeting as to maintain a wait and see position. Yet, we would also expect the bank to maintain a dovish tone as to keep the option for a possible rate cut in the future open. Current financials, especially infltion do not seem to favor the Kiwi much and that could also weigh on the bank’s tone in the accompanying statement. As for other notable financial releases next week from New Zealand, we tend to point out to the release of New Zealands’ May trade data on Tuesday, early in the Asian session.