By Deepta Bolaky
It will be another jam-packed week with central banks meetings, top-tier data and trade-related headlines to kick start a new month. The markets ended mixed last week as trade escalation returns while at the same time, the Fed cooled down expectations of an aggressive rate cut cycle.
As central banks move towards global easing policies to face the weakening global economic outlook, attention will be on the two major banks which already started what is likely to be a series of cuts to their cash rates.
Reserve Bank of Australia (RBA)
After back-to-back rate cuts which sent Australian’s official interest rates to a record low of 1%, investors will be bracing for another interesting month. We expect the central bank to keep interest rates on hold this Tuesday.
Beyond the Rate Decision, we will have speeches from Michele Bullock and Governor Lowe on Thursday and Friday respectively followed by the Monetary Policy Statement.
Other key economic data releases:
Tuesday: Exports and Trade Balance
Wednesday: AiG Performance of Construction Index & Home Loans
Reserve Bank of New Zealand (RBNZ)
We expect the RBNZ to follow its neighbour and cut interest rate for the second time by 25 basis points to 1.25%. The rate cut is mostly priced-in, but the local currency could come under heavy pressure depending on the tone and language of the RBNZ towards the next rate cuts.
The Fed has struck a less-dovish approach towards interest rates, which helped the greenback to gain strength. The New Zealand dollar traded around two-month low last week. Ahead of the rate decision of Wednesday, we expect the domestic economic calendar to keep traders busy:
Tuesday: Participation Rate, Employment Change, Labour Cost Index, RBNZ Inflation Expectations and GDT Price Index.
The dark clouds of tariffs are back and are threatening the global trade system and economic growth. President Trump issued new tariffs on $300bn worth of Chinese goods and markets turned risk-off. We expect risk sentiment to be heavily influenced by trade-related headlines at the start of the week in anticipation of any retaliation from China.
In Europe, President Trump announced an agreement on Friday to boost beef exports to the European Union in an attempt to help American agriculture, which is being hurt by the trade war with China.
Rather than outright threats, the President decided to use humour to put pressure on the European Union:
“We’re working on a deal where the European Union will agree to pay a 25% tariff on all Mercedes-Benzes, BMWs coming into our nation, so we appreciate that,” the President said.
“I’m only kidding,” he continued, sparking laughter in the room. “They started to get a little bit worried. Thank you. Congratulations. Best beef in the world, thank you very much!”
A slew of economic data in China across the week will help to gauge the strain of tariffs on its economy. Traders will closely monitor the trade and inflation data:
Monday: Caixin Services PMI
Thursday: Exports, Imports, and Trade Balance
Friday: Consumer & Producer Price Index
Taking into consideration the current trade woes and the Fed’s stance on interest, we expect investors to remain on the defensive at the start of the week.
The Pound fell to a 30-month low on higher prospects of a no-deal Brexit. The data releases this week will be of utmost significance for the domestic currency.
Monday: Markit Services PMI
Tuesday: BRC Like-For-Like Retail Sales
Friday: GDP, Manufacturing and Industrial Production
The July and June reading will help investors to evaluate the British economy amid the Brexit chaos. The UK growth is forecasted to slow in the second quarter. The BoE did not provide much indication of lowering interest rates and appeared to be more concerned on the entrenched Brexit uncertainties and its effect on demand, supply and the exchange rate.
Traders will monitor if this week’s releases will provide or allay concerns of a downturn.
|Tuesday, 05 August 2019
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