Week of July 10

The week was generally dominated by the narrative around how much the Fed would eventually hike, given the jobs numbers. A relatively quiet week comes ahead, focusing on US CPI figures and the start of earnings season, with US major banks reporting on Friday.

Top Events in Review

The main event from last week was the release of FOMC minutes, which left the impression of a more hawkish Fed than expected. Most traders had expected a rate hike at the next meeting, but that majority grew to near unanimity. In the same theme, the RBA held rates unchanged, citing uncertainty in the economic outlook.

Saudi Arabia announced it would extend the July 1M bbl/day production cut to August, while Russia announced it would cut crude exports by 0.5M bbl/day, though it appears that wouldn't mean a reduction in supply.

Flash European inflation was in line with expectations on the headline, but there was a surprise increase in the core. Later in the week, PPI turned negative for the first time since the middle of the pandemic. ECB speakers throughout the week hammered home the message that more rates were needed to bring inflation down.

In geopolitics, China announced curbs on exports of two rare earth metals that are key for chip and solar manufacturing. Europe's top 50 index lost some 5% to 4200 at some point.

Biggest Market Movers

WTI trended 2.50% higher in choppy trading, with Saudi Arabia and Russia announcing supply curbs. The commodity reclaimed control of the $70/bbl, opening up $75/bbl.

The Dow Jones trended 1.50% lower as the consensus strengthened expectations that the Fed will hike at the next meeting and possibly after that.

The yen gained strength, among speculation that it had previously weakened near levels that would spark an intervention, and signs inflation in Japan is picking up. USD/JPY revisited the 143.00 handle, exposing the round 140.00 once again.

USD/CAD rose more than 1% on disappointing Canadian GDP figures and slower business conditions. The pair failed to recapture $1.34, with further failed attempts offering correction toward $1.3286.

Top Events in the Week Ahead

CPI Will Help Demystify Fed's Plan

The week will likely be dominated by US CPI figures as markets digest the NFP results and how likely the Fed will keep hiking after the July meeting. Annual inflation is expected to come down to 3.6% compared to 4.0% prior, with the core rate, which is more closely tracked by the Fed, falling behind at 5.0% from 5.3% prior.

A day later is the release of PPI figures, expected to rapidly decelerate to an annual 0.2% from 1.1% prior. Markets are still pricing in just one hike for the rest of the year, while the Fed dot-plot matrix shows two hikes.

EUR/USD might react to both events, possibly breaking past $1.10 or $1.08.

Central Bank Rate Decisions

The BOC and RBNZ meet next week, with the consensus being that both commodity currencies will keep interest rates steady. But the consensus for the BOC is more shaky than the near-unanimous view that the RBNZ will stay put.

Kiwi might finally move past the top of $0.6240 unless investors get disappointed, with the decline expected to extend losses as low as $0.6050.

A Row of Data for the UK

The UK will keep cable traders busy with important weekly data releases, starting with job numbers on Tuesday. The June Claimant Count is seen falling to -22K from -13.6K in the prior month. But the May Unemployment rate is expected to tick higher to 3.9% from 3.8%. What could be more of a concern for the BOE's fight against inflation, average earnings are expected to accelerate to 6.7% growth from 6.5% prior.

Later in the week is the release of manufacturing production, expected to accelerate into the red at -1.6% from -0.9%, but the monthly GDP figure is forecast to be flat compared to 0.2% growth in the prior month. The UK is also expected to report a slight increase in the trade deficit.

Cable remains near its peak at $1.2854, with a positive trove of data expected to see the resistance revisited. Otherwise, traders might turn sour, enacting a series of shorts towards $1.25 following the collapse of $1.26.

Other Events, Earnings

Monday has China inflation figures. Australian consumer and business confidence and the German Zew economic sentiment survey are on Tuesday's docket. Wednesday sees Japan's machinery orders. Thursday features China's trade balance. Finally, Friday has US University of Michigan consumer sentiment.

Earnings start to pick up through the week ahead of the unofficial start of earning season on Friday with the release of earnings from United Health, JPMorgan Chase, Well Fargo, BlackRock, and Citigroup. Through the week, other earnings include Michael Page, Fastenal, Pepsico, Experian, Delta Airlines, Burberry, and Conagra Brands.