Week of July 17

Decelerating inflation in the US helped support markets last week despite slowing trade data from China, as investors see the Fed is close to done with hiking. This week, China is the first major economy to report Q2 GDP, with Canada, UK and Japan reporting June CPI figures.

Top Events in Review

The theme from last week was deflation, with US CPI falling faster than expected, raising hopes that the cost of living crisis in most of the world could come under control. The dollar weakened substantially as shorter-term yields fell, leading to a steeper curve and the Nasdaq 7% shy of a record high. The consensus that the Fed would hike later in July remained pretty much the same, but only a few traders see a hike beyond that. 

China's trade surplus was lower than expected, with exports falling over 12% in June, the weakest performance since the start of the pandemic. The data came after China reported inflation well below expectations, leading to speculation that the world's second-largest economy was facing more headwinds than initially thought. 

As expected, the BOC raised rates by a quarter of a point, with the accompanying statement seen as more hawkish as it emphasised the risk of inflation remaining above target for longer. USDCAD fell more than 1%, close to $1.30 but missed it, opening 1.2953, with resistance at $1.31 and $1.32.

The RBNZ kept rates unchanged, in line with expectations and following the same from last week's RBA. Kiwi witnessed n over 2% upside but found resistance at $0.64, leaving support at $0.63. 

In geopolitics, NATO held its annual summit in Vilnius, Lithuania, with an agreement to incorporate Sweden but stopped short of offering a path to membership to Ukraine. Japan and South Korea discussed Japan's planned release of water from the Fukushima power plant, and South Korea held military drills on islands disputed with Japan.

Biggest Market Movers

Japanese yen trended stronger through the week without any major news events as investors took more seriously the possibility that the Japanese government could step in to support the currency and augmented by a weaker dollar. USD/JPY fell as much as 3.50% in the week, exposing 135.00 next unless bulls recapture 140.00.

WTI trended higher 5% through the week on speculation of cuts, IEA's reevaluation of demand next year, and a weaker dollar. Putting a 3-week streak in might encourage further bets towards $80/bbl if the support at $75/bbl holds firm in a downward move.

EURUSD trended 2.50% upward after ECB officials talked up more rate hikes, and the dollar weakened through the week. Bulls eye $1.13  next up, while support is seen at $1.11.

The Week Ahead

Busy Start to the Week

Monday could be the big day for the week as it sees the release of much-anticipated Q2 GDP data from China. The consensus is for an annual rate of 7.1% compared to the 4.5% reported in Q1. However, quarterly GDP is expected to drop to 0.8% from 2.2% as the country normalises after the reopening post-pandemic. June industrial production is expected to be released simultaneously, slowing to 2.4% growth from 3.5% prior. 

Across the Pacific, the US is expected to report steadily growing retail sales and updates on the housing market on Tuesday, with building permits expected to be relatively stable at 1.49M new homes. US industrial production will also be published, with the figure expected to slow to -0.3% from 0.1% in June. 

Inflation Week Ahead of Rate Decisions

Several countries will update their consumer price figures ahead of a series of interest rate decisions at the end of the month. Canada is first, having just raised rates, with inflation expected to come in at 3.1%, down from 3.4% prior. 

The UK is also expected to see inflation lower to 8.3% from 8.7% prior, with the core rate remaining sticky at 7.0%, down just a decimal from the prior month's 7.1%. The cable might pay $1.33 a visit if things looked rosy; otherwise, pull back towards $1.30.

The EU will announce its final inflation rate, which usually doesn't change from the preliminary, but lately has provided some surprises to the market. 

Japan is expected to see inflation also coming down, but not as dramatic as other countries, coming in at 3.1% compared to 3.2% prior, likely seen as supporting the BOJ's view that inflation hasn't grown organically enough to justify a quick policy change.

Other Events and Earnings

Monday has US NY Empire State Manufacturing Index. The RBA minutes are expected for Tuesday, opening speculation on Aussie's 3% spike. Wednesday sees New Zealand Q2 inflation. Japan's trade balance comes out on Thursday. Friday has UK retail sales. 

Q2 earnings season gets underway with over a quarter of the S&P 500 expected to report, with names including Bank of America, Morgan Stanley, Antofagasta, Anglo American, Tesla, Netflix, Taiwan Semi, Johnson & Johnson, Abbott, Philip Morris and American Express.