Trading Week Ahead

Week of July 3

The ECB Forum in Sintra, Portugal, brought out the hawks on monetary policy, with attention turning now to a busy week ahead which includes the final PMIs from around the world, ISM Manufacturing and the much-anticipated US Non-Farm Payrolls at the end of the week.

Top Events in Review

Last week had a rough start, driven by a combination of disappointing flash PMI figures and corrections after stocks had rallied the previous weeks.

Crude prices fluctuated in a tight range as investors considered indications of slowing economic demand against falling inventories, swinging from $67.10/bbl to $70.70/bbl to end the week somewhat unchanged.

Equities ticked higher now that summer is officially here, ahead of the mid-year earnings season and a blackout on buybacks. S&P and Dow saw solid flows, ending the week around 1.50% higher each, while Nasdaq lagged but still gained.

Less negative than anticipated US data helped support a narrative of a soft landing while central bankers gathered for the ECB Forum and talked about hiking rates - with the notable exception being the BOJ, which insisted on ultra-easing.

The Chinese government announced new measures to prop up the economy, affirming its expectations for 5.0% growth this year as the summer World Economic Forum meeting began.

EU leaders gathered for the semi-annual summit focused on support for Ukraine as the counteroffensive seems to be dragging on, and repercussions following Wagner's revolt in Russia seem minimal.

The Aussie currency swung quite a bit through the week, buffeted by a slowing growth outlook in China, a sudden slowing in inflation, and readjusted expectations for the RBA meeting next week.

Biggest Market Movers

The yen weakened against the dollar, pulling off a 3-week winning streak with USDJPY hitting 7-month highs as the BOJ insisted on ultra-easing while other central banks talked tough on hiking. 145.00 offers respite, opening up 141.83 but also 147.20 with no evident intervention.

The dollar gained through most of the week, first supported by safe-haven flows and then by stronger rhetoric from Fed Chair Jerome Powell as he talked about multiple rate hikes this year, first at the ECB Forum and then at the Bank of Spain symposium. As a result, EUR/USD saw another week of losses further from $1.10, exposing $1.08 and $1.0744 on the one side and maintaining short-term resistance at $1.0906 and $1.0942.

NZD/USD trended lower despite generally positive news from New Zealand, including better consumer and business confidence and signing trade agreements with China. The growing expectation that the RBNZ would be done with rate hikes must have weighed the currency's upside, opening speculation for a 60-cent drop while trading under $0.6138 and $0.62.

Top Events in the Week Ahead

Quiet Start, Volatile End

The trading week will start slowly with the US away on holiday. Monday will see an early close in US markets ahead of the main holiday on Tuesday. Though the ISM will publish its Manufacturing PMI figures at the start of the week, expected to show improvement but remain in contraction.

The main US event is expected to be Friday's release of the NFP, which is expected to show that the US added 250K jobs in June, leaving the unemployment rate unchanged at 3.7%. Before that, the Fed will release the minutes of the latest FOMC meeting, with investors keen to see what the rationale behind the pause or skip is and how likely there will be another hike at the next meeting, given how much Fed Chair Powell tried to avoid committing to action at the next meeting.

Data might impact gold, with next support below $1890/oz at $1865/oz and resistance above $1935/oz at $1955/oz.

RBA Expected to Hike Again

Despite the recent inflation results, investors are still expecting by a relatively small margin that the RBA will hike when it meets on Tuesday. Though with some minor economic data ahead of the decision, that outlook might change in the lead-up to the meeting as investors process data indicating that inflation is coming under control. On the other hand, the other main concern of the RBA is housing, which is expected to post a substantial rebound last month, and could convince policymakers that more tightening might be needed. Later in the week, it's expected to be reported that Australia's trade balance expanded. With AUD/USD down to 66 cents, further downside could see a revisit of $0.6458 unless bulls can reclaim $0.6678 and $0.6725.

A Trove of Canadian Data

Despite starting the week on holiday, Canada will present a series of important data points ahead of the BOC's meeting later in the month. Given the tandem rate hikes in the last cycle for similar reasons, investors might be keen to see if the Canadian central bank follows its Australian counterpart. Canada's Ivey PMI is expected to remain in expansion but decline a bit, while the unemployment rate is expected to rise when Canada reports another loss in total employment on Friday. USD/CAD has bottomed out at $1.3120 for now, targeting $1.33 and $1.3420, with interim resistance at $1.3390. Losing the swing support might accelerate the downside towards $1.3042.

Other Events and Earnings

Monday has the Tankan Large Manufacturers Index out of Japan and Caixin Manufacturing PMI from China. Tuesday sees the German trade balance. Wednesday will have global services PMIs. European retail sales and US JOLTS job openings are expected on Thursday. Friday has German industrial production and UK Halifax house prices.

A relatively quiet corporate front sees a production report from Repsol, Sainsbury's, Robert Waters and Currys updating investors. Other earnings include Daktronics, Levi Strauss, and Ermenegildo Zegna.