Monday’s Bullseye


The macro calendar for the week ahead is filled with lots of top tier macro events, starting with manufacturing PMIs on Monday, followed by a few major central bank meetings in mid-week and culminates with the release of employment data from both North American nations on Friday.



Sentiment towards risk continued to improve during most part of this week with travel and leisure shares joining the rally thanks to a pick-up in easing of lockdown measures in Europe and around the world, before a mild sell-off on Friday caused indices to retreat. Safe-haven dollar fell further, and the likes of the euro and pound rose. The euro got a boost after the EU Commission proposed a €750 billion rescue package for countries impacted by Covid-19, while the pound found support after the UK government announced more lockdown easing steps for mid-June, which outweighed concerns over more Brexit delays. The weakness in the dollar also boosted buck-denominated precious metals. Gold also found some support, while the yuan weakened, amid rising US-China rift, which deepened over moves by Beijing to impose a security law on Hong Kong.  Donald Trump, who has vowed a tough US response, was expected to deliver a news conference on China later in the day on Friday. Ahead of Trump’s speech, stocks fell with the FTSE off nearly 1.5% when this report was written.  Trump could potentially trigger a risk-off response on Wall Street later on Friday’s session, or early next week. So, traders need to remain nimble in this market environment.
 
 
Week Ahead
 
The macro calendar for the week ahead is filled with lots of top tier macro events, starting with manufacturing PMIs on Monday, followed by a few major central bank meetings in mid-week and culminates with the release of employment data from both North American nations on Friday.  So, there will be lots of bouts of volatility to look forward to, which should provide ample trading opportunities for FX and gold traders.
 
Key macro data
 
  • The first day of the week will give us a snapshot of the health of the global manufacturing sector. The market will be keen to find out whether activity has rebounded sharply post Covid-19 lockdown. China, which has already lifted restrictions, has reported a jump in manufacturing activity already after a big drop at the start of the year. With the rest of the world then going into a lockdown, it remains to be seen how demand for Chinese manufacturing has been impacted. China’s manufacturing PMI will actually be released on Sunday and unless it shows a big drop compared to a rise of 51.1 expected, then it shouldn’t cause too much of volatility at the Asian open. Later on during Monday’s session, we will have the flash manufacturing PMIs from Spain and Italy, while Germany, France and the UK will publish their final estimates. The US ISM manufacturing PMI will be released along with a couple of other North American macro numbers in the afternoon. The PMIs will provide us with leading indication of economic health in these regions, as businesses react quickly to changing market conditions.  The US manufacturing PMI version will contain the first major clue for Friday’s official jobs report, with its employment component. So, watch that closely.
 
  • The week’s other key macro data will include Aussie GDP, German unemployment, US ADP private sector payrolls report, ISM services PMI and factory orders, all on Wednesday; Eurozone services PMIs and retail sales, as well as US unemployment claims on Thursday, and those monthly employment numbers out of the US and Canada on Friday.
 
  • In so far as the US non-farm payrolls is concerned, well this will be very important for the dollar, commodities and stock markets.  Some 8 million job losses are expected to be reported for the month of May, which, if correct, would be 12.5m less than April’s 20.5m job losses. During the week, we will have lots of clues for the headline figure, which we will discus in greater detail in our NFP preview report and the NFP Preview webinar scheduled for Friday 11:30 London time.
 
 
Central bank meetings
 
  • Australia will kick off the week’s central bank meetings on Tuesday, followed a day later by the release of GDP estimate for the first quarter. These have the potential to move the Aussie dollar sharply, with the commodity dollar surging back over the past couple on months, as investors decided that the Australian economy would not be impacted as badly as some of the other regions in the world. The Reserve bank of Australia (RBA) launched its first ever quantitative easing (QE) programme a couple of months ago, but then begun winding down its purchases of Australian government bonds. If the RBA suggests purchases will increase again then this could undermine the AUD’s rally. The central bank is widely expected to keep rates unchanged at 0.25%. Meanwhile, Australian GDP is expected to print 0.4% q/q, which would be some achievement given the big falls in growth elsewhere in the world due to Covide-19 lockdown.  
 
  • On Wednesday, the Bank of Canada (BOC) is also expected to keep interest rates unchanged at 0.25%. According to a Reuters poll, nearly all surveyed economists think the BOC will keep its policy at this historic low rate until at least the end of next year as the economy reels from the coronavirus crisis. The central bank needs time to assess how the economy and housing market is coping. So, we are probably talking about another three or four months at least before the BOC gives any major indications about its next move. Therefore, the BOC meeting may not have too much of an impact on the Canadian dollar. The CAD has rallied sharply after the USD/CAD broke key support at 1.3850ish this week. For as long we hold below this level, the path of least resistance would be to the downside for this pair (or higher for the CAD).
 
  • The European Central Bank’s (ECB) policy decision on Thursday will probably the most interesting one to watch out of the three meetings. Analysts are not expecting any rate changes, but it is widely expected the ECB would boost the size of its Pandemic Emergency Purchase Programme (PEPP). The PEPP was unveiled in March and has the capacity for €750 billion of asset purchases. It will be interesting to see how the euro will react should the ECB decide to expand PEPP. This week, the single currency rallied on the back of EU’s proposal for a €750 billion pandemic relief fund.

 



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