USD: The US Dollar continues dive in freefall fashion as soft data, negative Whitehouse sentiment and technicals point lower. Next week provides a broad look at the US economy as it includes inflation, employment and business sentiment. NFP will continue to be a day traders favourite although with the employment data remaining firm overall and strongly hinting maximum employment has been achieved, it is debatable as to whether a strong NFP will support the Greenback. Yet as sentiment is very negative, traders may see more opportunity with a bad NFP print. Monday may be the bigger event as it includes personal consumption data. Core PCE is the Fed’s preferred CPI gauge although it also gives a peak into consumer sentiment and spending. If ISM and Markit PMIs are to move higher it suggests support for growth in late H2, yet we doubt this would turn the Dollar’s trend and is likely more of a stock market play.
CAD: The Canadian Dollar has been on a tear these past few weeks as the USD unravels to lift commodities whilst hawks continue to bid CAD. This makes CAD biased to good data over bad, particularly if it is inflation related. CPI data showed signs of stability according to their three preferred inflationary measures. In fact, by taking an average of the three we see inflation ticked higher to 1.4%. Raw prices have softened recently and an extension of this trend may take some of the fun out of the bullish CAD story. If we are treated to a recovery though we expect it to support.
PMI data remains supportive of growth overall, with the composite (manufacturing and services) sitting at a very healthy 61.6 to suggest support for growth in the months ahead. Within the indices there has been a softening of employment in recent months, and if we are to see prices move lower than this suggest less of an inflationary pressure. Overall the figures remain healthy though.
Employment remains a mixed picture. Whilst it has picked up in recent months, the unemployment has moved lower as the participation rate has dropped with it. Ideally we should see participation move higher.
EUR: Whilst unemployment continues to make headway and currently sits at 15mn, its lowest level since May 2009, the employment rate is also on the decline. Annually employment growth is -1.5%, its lowest since 2008 whilst the quarterly read is also historically low at 0.4%. Whilst economic data is good overall, the employment sector is one which may undermine some inflationary pressures which are building up elsewhere.
The rate of broad inflation has softened to 1.3% YoY, its slowest rate since January and is moving in line with the UK and US to suggest this may be more of a global trend than one solely related to Europe. The monthly read has scraped by at 0% and -0.1% prior, so be on guard for further softening which may make another dent in the Euro.
GBP: The softness of CPI in June has helped to reduce calls for an immediate hike and we’ll get to see if this is reflected in the MPC votes. Last meeting, we saw 3 votes to hike which had moved up from the original one. If we are to see one of those votes change their mind then we’d expect a bearish follow-through on GBP, although we’d be more surprised if we were to see 4 members vote for a hike which could send Sterling higher.
CNY: China’s manufacturing PMI gave economists a scare in May when it dipped below 50 to denote industry contraction. Yet after recovering to 50.4 we await to see if the contraction was an outlier.
The NBS reads remain the more optimistic data sets, although employment has contracted faster and input prices (inflation) appears ready to cross below 50. Input prices are a slight concern as they have now moved to 50.4, denoting only a slight expansion. If we contract from here it brings down inflationary pressures further down the supply chain.
