Week Ahead of August 1

Week of August 1

Attention turns to the Bank of England this week as companies continue to report Q2 earnings. The US entering recession last week helped lift Wall Street and pressure the dollar on bets the Fed will scale back its rate hikes in the Autumn. 

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The week in review

• The Fed hiked by 75bps as the majority of economists expected and as the market had priced in. Following Powell's comments on ‘flexibility’ the market seems to be settling in on an expectation that the Fed will raise by another 50bps in September but pause or slowdown after that. 

• The US yield curve remains inverted, and the stock market rallied in a kind of ‘bad news is good news’ reaction to a slowing economy and what it means for interest rates. The NASDAQ is now 7% above its weekly low at 12k, with support at 12300. 13,000 and 14,000 are resistance levels to keep an eye on. 

• The US also reported a second consecutive quarter of negative growth, with some controversy over whether it officially counted as a recession after the White House tried to change the defintion. If the dollar pullback continues, USD/JPY could trade closer to 130.00 than rising to 135.00.

• Nord Stream 1 came back online, but Russia is sending only 20% of its gas capacity to Germany, with some days reducing to 10%. 

• The earnings season so far showed firms reporting higher than expected earnings but slowing sales volumes and mixed guidance on what comes next. SP500 faces the 100-week average at 4130.

Top events for the week ahead

NFP

US NFP is expected to be the focus next week, with slowing but solid job creation expected. The consensus, for now, is that the unemployment rate will stay at 3.6% with 255K jobs created. With Fed’s mandate back in focus, the jobs market is going to be all more critical for how the hiking cycle might end. EUR/USD did not get past last week’s high, but neither did the low and so it remains to be seen if $1.027 or $1.008 break first.

Retail sales vs PMIs

Global PMI is expected to come in lower or underperform the flash figures, as the surveys were conducted during a period of heightened uncertainty. What could help offset the negativity is a series of retail sales data expected during the week, potentially bolstered by more optimistic summer shopping.

BOE Interest rate decision

The BOE is expected to finally raise rates by 50bps. But with increasing concern over gas supplies and increase gov spending, the pound could underperform. GBP/USD tapped $1.22, with $1.2328 next up, and $1.2108 down. Major UK banks took larger than expected provisions, ahead of what could be a difficult winter. 

Other central bank decisions expected next week include Brazil, Czechia, India and Australia’s RBA.

Geopolitics and commodities

The Russia-Turkey-Ukraine agreement on a wheat export corridor concluded by the end of the week, with many skeptical it will be implemented.

OPEC+ holds its monthly meeting and will need to announce a new production plan. WTI floats below $100/bbl with the 50-week SMA at $91/bbl major support.

Copper inventories hit a new low, while workers in Peru announced a strike and industrial action is an increasing worry in Chile. Futures crossed above the 50-week average of $3.4 and found resistance at $3.50. $3.60 and $3.75 are next.

Other data and earnings

On Monday there is unemployment data from the Euro Zone, while Wednesday sees Swiss inflation and US factory orders. USD/CHF is about the break the 200-week average at 0.95. 

Earnings season is still in full swing with prominent names expected to report such as HSBC, Starbucks, Generali, Uber, Moderna, BorgWarner, Eli Lilly, and Allianz.