Week Ahead – Focus Remains on Virus Spread, Fiscal Stimulus, Rebounding Data, and Earnings

Key Economic Events

Saturday, July 18th

• EU leaders finish their two-day summit with hopefully an agreement on stimulus, or at the very least a breakthrough.
• G20 finance ministers begin a two-day meeting in Saudi Arabia.
• Sunday, July 19^th

  President Trump morning interview on Fox News

• 19:50 ET Japan Jun Trade Balance (JPY): -7.6B v -833.4B prior
• 19:50 ET BOJ Minutes

Monday, July 20^th

• Brexit talks resume in London
• US Sec of State Pompeo meets UK PM Johnson and Foreign Sec Raab
• 21:30 ET China to keep 1-and-5 year loan prime rates steady
• 21:30 ET Australia RBA Minutes of July Policy Meeting
• 23:00 ET New Zealand Jun Credit Card Spending Y/Y: No est v -21.1% prior

Tuesday, July 21^st

• 8:00 ET Hungary Central Bank Rate Decision: Expected to keep rates steady, last meeting they cut unexpectedly
• 8:30 ET Canada May Retail Sales M/M: No est v -26.4% prior
• 19:30 ET Japan Jun CPI Y/Y: 0.1%e v 0.1% prior
• 20:30 ET Australia Jun Westpac Leading Index M/M: No est v 0.19% prior

Wednesday, July 22nd

• UK releases report on Russian meddling in British politics
• 8:30 ET Canada Jun CPI M/M: No est v 0.3% prior
• 10:00 ET US Jun Existing Home Sales: 4.80Me v 3.91M prior
• 10:30 ET Weekly DOE oil inventories report

Thursday, July 23^rd

• South Africa Central Bank (SARB) Interest Rate Decision: Expected to cut rates by 25 basis points to 3.50%
• 2:00 ET Germany Aug GFK Consumer Confidence: No est v -9.6 prior
• 2:45 ET France July Manufacturing Confidence:  No est v 77 prior
• 7:00 ET BOE’s Haskel Speaks on the economic effects of Covid-19
• 7:00 ET Turkey Central Bank Rate Decision: Expected to keep One-Week Repo rate unchanged at 8.25%
• 8:30 ET Weekly Initial Jobless Claims and Continuing Claims
• 10:00 ET Eurozone July Advance Consumer Confidence: -12.3e v -14.7 prior

Friday, July 24^th

• 2:00 ET UK Jun Retail Sales (inc auto fuel) M/M: 9.0%e v 12.0% prior
• 3:30 ET Germany July Prelim Manufacturing PMI: 47.0e v 45.2 prior
• 4:00 ET Eurozone July Prelim Manufacturing PMI: 49.3e v 47.4 prior
• 4:00 ET UK July Prelim Manufacturing PMI: 52.0e v 50.1 prior
• 6:30 ET Russia Central Bank (CBR) Interest Rate Decision: Expected to cut rates by 25 basis points to 4.25%
• 9:45 ET US July Markit Manufacturing PMI: 52.0e v 49.8 prior

Country

US

The focus in the US stays with the coronavirus response, reopening process and sluggish economic recovery.  COVID-19 continues to batter the Sunbelt and that is starting to derail the economic recovery.  Much attention will go to California and their recent restrictions which will hopefully slow the rapid spread.  Americans need to show signs they can change their behavior otherwise, the revival of the economic recovery will stall even further.

Earnings season will also be closely watched as corporate America will likely need to downgrade their outlook and as the risk for job cuts grow.  The recovery was not as quick and strong as hoped and businesses may be forced to shrink their labor force.  Key updates will come from Microsoft, IBM, Lockheed Martin, UBS, Tesla, Novartis, Unilever, Twitter, and Coca-Cola.

US Politics

President Trump’s new re-election strategy will likely go strongly on the offensive against former-VP Biden.  Trump had to shake up his campaign after a disappointing rally turnouts and abysmal polling numbers.  President Trump will likely remain on the offensive with the rhetoric against China and that will see a tit-for-tat response.

Democrats are eagerly awaiting former-VP Biden’s decision on his running mate.  Prior to COVID-19, the Democratic National Convention was originally scheduled in July, meaning we should have found out his decision by June.  Since the convention was delayed till August 17th, he will have more time to evaluate his candidates.  Biden will turn 78 a few weeks after the election, so his VP selection will be critical for many voters.

EU

EU leaders will hopefully finalize their historic stimulus package, solidifying the strength of the union and providing a strong bid for European assets.  On the data front, close attention will be paid on Friday’s flash PMI readings.  Europe is fairing much better than the US with COVID-19 and expectations are growing for their economic rebound to outperform.

UK

The British pound could start to feel heavy as Brexit negotiations will unlikely see any immediate breakthroughs on which trade agreement to seek.  Brexit will need to show some progress by late September, but some investors may want to abandon their sterling bets.

Excessive weakness for the British pound seems unlikely as the UK economy is starting to look more attractive than the US as the UK has several promising vaccine candidates and their fiscal response has been stronger.

Russia

The Russian ruble could be vulnerable to some pressure with a correction in oil prices and since the Bank of Russia has room to cut rates further due to inflation running below their target.

South Africa

South Africa is expected to cut rates after inflation fell below the target range for the first time in 15 years.  The SARB has noted they expect inflation to remain low over the next quarter and may not signal additional cuts unless inflation drops more strongly. The rand continues to benefit from the broader emerging market rally, which will likely take its cue from China.

China

Ongoing geo-political tensions with the US, although the market appears to be building herd immunity to developments from both sides.

China Loan prime Rate decision Monday the highlight of a dull data week.

Hong Kong

Danger of increasingly stringent lock-down conditions hampering economic activity as Covid-19 cases reappear. Ongoing fallout from security law continues. Yet to see mass exodus of multinationals, but it is a multi-month evolving situation. China decided to tax PRC nationals globally at national rates seen as a blow to the SAR, possible mass returns of PRC nationals.

India

Covid-19 cases continue skyrocketing. India is now in top 4 for infections. INR remains under pressure as stress on the government budget and banking sector continue. Very real possibility that India will repeat Indonesia’s recent playbook, and get the central bank to directly purchase new government bond issues. Negative currency and stocks.

No significant data.

Australia

Australian Dollar range trading. Stock market holding steady as Covid-19 localised to Melbourne environs. Danger of impact to fragile consumer sentiment though.

China relations continue to deteriorate. Unlikely to escalate to barring mineral ore or major agricultural exports, but an increasing risk.

Japan

USD/JPY range trading. Equity markets holding near highs. Trade balance and PMI are expected to confirm Japan remains in recession.

Covid-19 cases are increasing in Tokyo but the government is refusing to declare an emergency causing disquiet amongst domestic investors.

Markets

Oil

OPEC+ did the right thing, but it’s a whole new ballgame. The decision to taper production cuts gives them some room to maneuver in case a second wave of the coronavirus forces a return of lockdowns that will shock crude demand.  Oil prices are slumping as the global economic recovery is threatened by risks of new closures and as US unemployment remains high and China’s consumer struggles to bounce back.

WTI Crude remains trapped in the low-$40s but that could break if the slow labor market recovery is not met with a strong fiscal response next week.  Right now, oil prices will take their queue primarily on demand headlines, which means it’s all about coronavirus lockdowns and travel restrictions.

Gold                

Gold’s slump may turn into further weakness tentatively if risk aversion continues to drive the dollar rebound.  Gold prices fell after US retail sales beat forecasts and on President Trump’s comment that he would not sign the next COVID relief bill without a payroll tax.  It is widely expected for the US to see another fiscal stimulus package, but Trump’s comment threatened the immediacy of one passing.  Gold’s fundamentals still support the climb to record high territory, but in the short-term prices could see a retest near last week’s low.

Bitcoin

Bitcoin and the entire crypto space are selling off as investors question the safety in dealing with cryptocurrencies.  Yesterday’s Twitter hack was a great reminder of how vulnerable cryptocurrency traders are too hacking incidents.  Malicious activity has always been a concern for Bitcoin and those concerns are not going away anytime soon. Despite the selling pressure, Bitcoin is still respecting its two-month trading range.  Wednesday’s Twitter hacking incident will likely not derail institutional interest as many crypto experts believe that blockchain technology is needed to enhance security efforts.