Week of AUGUST 5th

Central banking decisions moved markets, with the FOMC retaining rates, the BOJ raising by 15 basis points and the BOE cutting by 25 basis points.

Week in Review

US data was last week's theme, highlighted by the Fed's rate decision. While keeping policy unchanged as broadly anticipated, remarks from Chair Jerome Powell opened the door to a September reduction. Alongside generally positive technology company earnings, sentiment improved.

The BOJ unexpectedly lifted rates and decided to taper bond purchases. Seven voted for and two against, signalling further hikes if forecasts are met. The bank's quarterly lowered this year's growth and inflation estimates but raised them next year.

The BOE cut interest rates as anticipated, with a five-to-four vote decision. In his remarks, BOE Governor Andrew Bailey stressed prudence regarding excessive rate reductions and observed signs of an economic slowdown in the third quarter. BOE Chief Economist Huw Pill (who opposed the cut) highlighted the absence of an obligation to continue lowering rates.​ Cable lost its 50-day MA below 1.28, eyeing 1.2650 next.

The latest European PMI figures showed ongoing weakness in the Eurozone economy, which has been contracting for 25 consecutive months. Meanwhile, according to both headline and core readings, Eurozone CPI came in slightly higher than anticipated. Euro has held the 1.08 support against the greenback, opening the door to a potential bounce toward 1.09.

In China, the Caixin manufacturing PMI joined the official NBS survey in contraction territory for the first time in nine months.

A weaker-than-expected US ISM manufacturing PMI added to several data points that concerned investors about a slowing American economy, leading to significant risk reduction in the markets with falling bond yields in the latter half of the week.

Multiple retailers, including Wayfair and notably Amazon, noted a sizable decrease in discretionary spending as shoppers focused their purchases on essential items.

Australian Q2 trimmed-mean CPI was lower than projected, prompting the markets to discount the possibility of an interest rate hike in the near future.​

Geopolitically, Middle East tensions rose following 12 deaths in an Israel missile strike. Reports state that Israel eliminated a Hamas leader in Tehran with diplomatic efforts later sought to avoid retaliation.​

Biggest Market Movers

• Crude oil prices fell following early reports of weaker demand but then rose higher due to rising Middle East tensions and a surprise fall in US stockpiles.
• The US dollar weakened further against the Japanese yen through the week as the yen strengthened 3.5% after BOJ's rate hike.
• Gold prices climbed equally near an all-time high throughout the week, buoyed by declining returns and growing central bank stimulus.
• Japan's Nikkei 225 index has dropped over 15% since its peak as investors factor in tighter financial conditions and slower economic growth.​

Top Events Next Week

This week brings a relatively quiet period for economic data releases.

Trade Balance in Focus

Markets will pay close attention to services PMI figures on Monday, particularly the US ISM services PMI, which is forecast to return to the expansion territory in July. Failure to do so could compound concerns from last week's manufacturing ISM report and push investors towards safer assets. Gold may post a new record high to 2500 per ounce.

Trade data will also be in focus, with the US trade balance expected to narrow in July as both imports and exports increase. However, recent restrictions on semiconductor exports to China will be important to monitor. Thanks to stronger import growth and slightly slower export expansion, China's trade surplus is projected to shrink marginally for the month.

Germany and France will also report trade balances as investors gauge demand trends across major economies. Canada's trade deficit is forecast to widen.

RBA to Hold Steady Again

The RBA is widely anticipated to keep rates on hold at its Tuesday meeting while potentially taking a less hawkish stance in light of evolving inflation dynamics.​ Aussie may finally break below 0.65.

Continuing on the monetary policy front, the BOJ's meeting minutes are scheduled for release but may have limited market impact given the recent rate hike decision. USDJPY could accelerate its descent towards 145 if 150 holds firm in a pullback scenario.

Other Events and Earnings

On Monday, China will publish the Caixin Services PMI for the month. The US Redbook report will be released on Tuesday. The UK Halifax house price index and Canadian Ivey PMI survey results are scheduled for Wednesday. The Australian NAB Business Confidence survey will be published on Thursday. Chinese inflation data and the Canadian employment report are slated for Friday.

While the bulk of corporate earnings season has now passed, several major companies are still expected to announce quarterly financial results this week. These include Palantir, Amgen, Caterpillar, Uber, Diageo, Walt Disney, CVS Health, Hilton, Eli Lilly, Gilead Sciences and Parker-Hannifin.​