Week of August 14

Markets were in risk-off mode most of the week following China trade data but got a lift after US CPI aligned with expectations. Attention now turns to a trove of UK data and Japanese GDP as well as CPI figures as the BOJ has to figure out how to respond to the weakening yen.

Top Events in Review

The first half of the week was dominated by risk-off events, first with the release of China trade data, which showed an unexpected slowing in imports and exports. US trade data was also slightly softer than anticipated. 

Fitch downgraded ten regional banks and put another eleven banks on negative watch, including some larger ones. The rating agency said that the effects of high-interest rates in the banking sector hadn't been fully mitigated, pointing to smaller banks raising interest payments to depositors to attract more funds at the cost of narrowing margins. 

US CPI came out largely in line with expectations, rising due to base effects but affirming the narrative that consumer prices are under control and the market's expectation that the Fed won't go ahead with another rate hike in September. 

The UK's first look at Q2 GDP was above expectations, and industrial production roaring ahead, which left more room for the BOE to keep hiking. 

In geopolitics, the White House announced its anticipated curbs on investment in China's tech sector.

Biggest Market Movers

The Japanese yen weakened to the lowest level since June against the dollar and the lowest since 2008 against the euro as the BOJ insisted on maintaining its ultra-easing policy. The next levels for both pairs can be seen at ¥147.00 and past ¥160.00, with supports at ¥143.00 and ¥156.50.

Crude prices continued to rise for the sixth consecutive week after OPEC+ affirmed its cuts for the month of September and may confirm a seventh week by Friday’s close. The commodity rose to a November 2022 high shy of $85/bbl, but the risk of a triple top remains relatively high. $80/bbl is expected support come next week and should there be a reversal. 

The New Zealand dollar underperformed ahead of the RBNZ meeting next week, in which economists have come to the consensus there won't be a rate hike. At 60 cents following a 4-week losing streak, the door to $0.5930 remains slightly open unless bulls reclaim $0.61.

Top Events in the Week Ahead

Inflation Figures Continue Coming Out

More inflation figures are seen as potentially the main market-driving headlines next week, starting with Canadian CPI, which is expected to remain at the cycle low of 2.8% annually and affirm the case for the BOC to keep rates steady at the next meeting. USC/CAD will likely conclude the week with a 4-week winning streak, targeting $1.35 and $1.36 next, with $1.33 as major support.

UK inflation is expected to continue to come down, though still, more than triple the BOE's target at 7.4% compared to 7.9%, leaving the narrative of more hikes from the BOE intact. Core inflation is expected to remain sticky again and tick down just a decimal to 6.8% from 6.9% prior. During a relatively slow week of the pound, cable remains in a tight range, with breaks of $1.2830 or $1.2630 likely to change the short to-medium trend.

Finally, Japan is expected to see inflation rise to 3.4% from 3.3% prior, but the core to go in the opposite direction to 3.1% compared to 3.3% prior. Above ¥180.00, GBP/JPY could reclaim 2015 highs, increasing chances at ¥187.00.

Central Bank Action

Central banks are on a semi-holiday in August, with relatively few speakers and decisions in the coming days. The RBNZ will meet with a pretty strong consensus that the result will be a hold, potentially hinting that rates will remain steady at the next meeting as well. 

The Fed will release the minutes from the last FOMC meeting, with investors looking at how committed members are to delivering one more hike before the end of the year. This will likely impact the EUR/USD rate and potentially clear the path away from $1.10.

And finally, the RBA will also post its minutes from the last meeting, where it held rates unchanged. A decisive move under $0.65 may see increased bets towards $0.6415 unless $0.6565 gives way to bulls.

Growth Prospects Around the World

Japan will report its flash Q2 GDP figures, expected to advance to an annual growth rate of 3.2% from 2.7% reported after the first quarter. 

Chinese retail sales are expected to be reported as accelerating to 3.6% from 3.1% prior. 

US monthly retail sales are also expected to accelerate to 0.3% from 0.2% prior. 

Rounding out the generally positive consumer sentiment for the summer, the UK is also expected to see an acceleration in retail sales despite the cost-of-living crisis.

Other events and earnings

Germany will report wholesale prices on Monday. Tuesday has the Australian wage price index and UK employment figures. Wednesday sees a second look at EU GDP figures and US building permits. On Thursday, Japan will disclose its trade balance and machinery orders. Friday includes the EU trade balance and Canadian PPI. 

Earnings season will unofficially come to a close by the end of the week, with major names expected to report, including Suncor Energy, Home Depot, Agilent Technologies, Cisco Systems, TJX, FirstGroup, Walmart, Applied Materials, and Deere.