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Weekly Market Outlook: A Mix of Geopolitics and Economics

Japan GDP, EU Elections, Fed Minutes and Eurozone Flash PMI's to Dominate This week.

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The week ahead will see a mix of both politics and economics across the spectrum. The EU’s parliamentary elections are due later this week on Thursday and Friday. This follows the recent outcome of the Australian elections which were held over the week.

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On the economic front, data this week will cover Japan’s quarterly GDP report due out early in the week. Elsewhere, data from the UK will cover public spending and inflation reports. UK’s inflation is expected to rise once again above the BoE’s 2% inflation target.

The FOMC meeting minutes will be the main highlight on the economic front. The meeting minutes will cover the Fed’s monetary policy meeting held earlier in the month. The Fed funds rate were left unchanged while the Fed’s message was seen to be less than dovish. Fed Chair, Jerome Powell, is also due to speak at an event during the week.

Economic data from the Eurozone will cover the flash manufacturing and services PMI numbers for April. The data will likely outline how businesses fared during the month of April and could give some insights into how economic activity is shaping up during the second quarter of the year.

Here’s a quick recap of what’s to come in the currency markets this week.

New Zealand Retail Sales Forecast to Drop

The quarterly retail sales report from New Zealand is forecast to show that retail sales rose 0.6% on the quarter ending March 2019. This marks a slower pace of gains in the retail spending sector. In the last quarter of 2018, retail sales grew at a pace of 1.7%.

On a year over year basis, retail sales grew at a pace of 3.5% in the December quarter. Excluding auto sales, core retail sales could rise 0.9% in the three months ending March 2019. This marks a slower pace of gains comparing to the 2.0% increase seen in the previous quarter.

The data comes following the recent surprise rate cut from the Reserve Bank of New Zealand. However, it is unlikely that the effects of lower interest rates will be felt in the first quarter retail sales data. Therefore, the markets are likely to shrug off the report for the most part.

But a weaker than forecast pace of increase in retail sales could underline the weakness in New Zealand’s economy.

Powell Speech and Fed Meeting Minutes

The week ahead from the US is forecast to remain somewhat quiet. The exception will be the speech by Fed Chair Jerome Powell and the release of the FOMC meeting minutes.

Powell will be speaking at a scheduled event earlier in the week. Investors will be looking for any references to monetary policy from the Fed. Following the speech, the FOMC’s meeting minutes will be coming out on Wednesday.

The data covers the Fed’s meeting minutes from the monetary policy meeting held in May. There were no changes to the Fed’s monetary policy. However, contrary to market expectations, the Fed noted that the current weakness in inflation was only transitory.

The meeting minutes could potentially indicate the deliberations among policymakers and could provide some clues for what to expect from the June FOMC meeting.

EU Elections and Flash PMI Reports

The week ahead is somewhat busy for the euro currency, which will see a mix of both politics and economics.

The EU wide elections are due on Thursday and will continue over the weekend. The EU elections come at a time when growth has stalled in the economic region. The rise of populist and Eurosceptic parties could potentially upend the economic bloc’s plans for closer integration.

This could potentially create obstacles for the lawmakers in the EU as they will now have to face off against the Eurosceptic parties in Brussels. Policymaking could become somewhat difficult under such circumstances.

The flash PMI’s covering manufacturing and services sector will be due this week. Overall, business activity is unlikely to post any big changes. This would potentially indicate that growth in the Eurozone will continue to rise modestly.

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