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Weekly Market Wrap: ECB meeting a non-event

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The US dollar was seen trading stronger for the week with the biggest declines coming from the Turkish lira. The markets opened this week on the news of a failed military coup in Turkey. However, by Monday morning, the situation was under control which saw the modest risk off mode brushed aside. While the Turkish lira fell over 5% on the news, the currency managed to regain some of its declines.

Economic data on Monday was fairly quiet. From the Asian session, New Zealand second quarter inflation data showed a modest slowdown. Consumer prices rose at a pace of 0.40% in the second quarter, rising at the same pace as Q1 and below estimates of 0.50%. The modestly weaker inflation data saw investors scale back their bullish bets on the NZD as speculation started to mount that the RBNZ could turn dovish.

In Europe, BoE MPC member, Martin Weale said in a speech that there was no urgency to easing monetary policy in the August MPC. He said that more hard evidence was required before the MPC could justify easing monetary policy. The British pound managed to close bullish on the day, rising as much as 0.50%.

On Tuesday, the RBA meeting minutes were the main focus as the Aussie fell after the minutes showed that the RBA was waiting for the second quarter inflation data due this coming week. The central bank also left the door open for more rate cuts if inflation continued to weaken. “The board noted that further information on inflationary pressures, the labor market, and housing activity would be available over the following month,” adding that “this information would allow the board to refine its assessment of the outlook for growth and inflation to make any adjustment to the stance of policy that may be appropriate,” the RBA minutes showed.

In the UK, inflation data showed that consumer prices edged higher, rising 0.50% on a year over year basis in June while the core CPI jumped to 1.40% rising above estimates of 1.30%.

In the US session, housing starts and building permits data showed strong print with the US housing starts rising 4.80% in June while building permits rose 1.50% in June. The broadly better than expected data from the US markets managed to push the US dollar higher with investors turning positive on the Fed rate hikes this year.

The New Zealand dollar continued to edge lower on Tuesday looking ahead to the RBNZ’s economic update. The report showed that the RBNZ was looking at cutting rates further and unhappy with the NZD’s exchange rate. The dovish signal from the economic report sent the kiwi lower by Wednesday as investors started to price in a 25bps rate cut by the RBNZ in August.

In other news on Wednesday, data from the Eurozone showed that Germany’s producer prices index continued to fall but at a slower than expected pace. German PPI was down 2.20% on a year over year basis in June, slower than May’s declines of 2.70%.

In the UK, June’s labor market data saw another beat on estimates as the unemployment rate fell to 4.90%. Average weekly earnings also managed to rise 2.30% in May including bonuses, more than April’s increase of 2.0%.

The IMF also released its new revised forecasts but the outlook was gloomy. The organization cut global GDP estimates by 0.10 percent points to 3.10% for 2016 and said that growth would pick up to 3.40% in 2017. IMF’s Chief economist Maurice Obstfeld said that the British referendum could weigh heavily on the global outlook, adding that “downward pressure to the world economy at a time when growth has been slow amid an array of remaining downside risks.”

By late Wednesday, the markets were focused on the upcoming ECB meeting on Thursday, July 21st. It was widely expected that the ECB would stay on the sidelines. At the meeting, Mario Draghi signaled that it would wait for more economic data before making any adjustment to its policies. The ECB meeting did not see much movement in the Fx markets, but investors were largely seen scaling back their bullish bets.

On the economic front, data from the UK revealed that retail sales eased back, falling to a 6-month low in June. Headline retail sales fell 0.90% on a month over month basis while easing to 4.30% in June on a year over year basis.

On the commodity front, gold prices remained fairly flat but continued their gradual declines to 1327.50 this week, as expected.

On Friday, Markit released flash PMI surveys for manufacturing and services sector. The data showed that manufacturing PMI fell back to 49.1 slightly better than the forecast of 47.8 but down from 52.1 in June. Services PMI was also weaker sliding to 47.4 from 52.3 previously, indicating that the Brexit impact was being felt in the manufacturing and service sector. In contrast, the eurozone flash manufacturing PMI was better off, at 51.9 but slightly below last month’s 52.8 while services PMI ticked higher to 52.7. In Canada, the annual CPI rose to 1.50% in June, rising on higher car and electricity prices, data from Statistics Canada showed. This was slightly above forecasts of a 1.40% increase. The annual core inflation rate excluding food and energy prices increased 2.10%, slightly above consensus estimates of 2.0%

Summary of Economic events this week

  • New Zealand CPI q/q 0.40% vs. 0.50%
  • UK Rightmove HPI m/m -0.90% vs. 0.80% previously
  • MPC Member Weale Speech
  • Canada foreign securities purchases 14.73bn vs. 15.39bn
  • US NAHB housing market index 59 vs. 60
  • Australia CB leading index 0.10% vs. 0.50% previously
  • RBA releases monetary policy meeting minutes
  • UK CPI y/y 0.50% vs. 0.40%; Core CPI y/y 1.40% vs. 1.30%
  • UK PPI input m/m 1.80% vs. 0.90%; PPI output y/y 0.20% vs. 0.10%
  • Germany ZEW economic sentiment -6.8 vs. 8.2
  • Eurozone ZEW economic sentiment -14.7 vs. 12.3
  • US building permits m/m 1.50% vs. 1.20%
  • US housing starts m/m 4.80% vs. 0.10%
  • MPC Member Broadbent speech
  • Australia MI leading index m/m -0.20% vs. 0.20% previously
  • Germany PPI m/m 0.40% vs. 0.20%
  • Eurozone current account 30.8bn vs. 24.9bn
  • UK average earnings index 3m/y 2.30% vs. 2.30%
  • UK claimant count change 0.4k vs. 4.1k
  • UK unemployment rate 4.90% vs. 5.0%
  • Switzerland ZEW economic expectations 5.9 vs. 19.4 previously
  • Eurozone consumer confidence -8 vs. -8
  • US crude oil inventories -2.3mn vs. -1.3mn
  • Australia NAB quarterly business confidence 2 vs. 4 previously
  • New Zealand Credit card spending y/y 4.10% vs. 6.0% previously
  • Japan all industries activity m/m -1.0% vs. -1.0%
  • Switzerland trade balance 3.55 billion vs. 3.49 billion
  • UK retail sales m/m -0.90% vs. -0.40%
  • UK public sector net borrowing 7.3 billion vs. 9.3 billion
  • Canada wholesale sales m/m 1.80% vs. 0.20%
  • ECB holds press conference
  • Philly Fed manufacturing index -2.9 vs. 5.1
  • US weekly unemployment claims 253k vs. 260k
  • Japan flash manufacturing PMI 49.0 vs. 48.3
  • French flash manufacturing PMI 48.6 vs. 48.1
  • French flash services PMI 50.3 vs. 49.6
  • Germany flash manufacturing PMI 53.7 vs. 53.6
  • Germany flash services PMI 54.6 vs. 53.3
  • Eurozone flash manufacturing PMI 51.9 vs. 52.1
  • Eurozone flash services PMI 52.7 vs. 52.3
  • UK flash manufacturing PMI 49.1 vs. 47.8
  • UK flash services PMI 47.4 vs. 48.9
  • Canada Core CPI m/m 0.0% vs. 0.0%; CPI m/m 0.20% vs. 0.20%
  • Canada retail sales m/m 0.20% vs. 0.0%; core retail sales m/m 0.90% vs. 0.30%
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