Politics is in the air. The increased scrutiny surrounding President Trumps’ business transactions, the 2016 campaign and alleged ties to Russia have caused some practitioners to believe that Trump’s economic agenda may be placed on the back burner. This belief coupled with rumors that the ECB will unwind its quantitative easing program beginning in the fall has led the Euro to rally against the USD. The Euro climbed to levels, 1.166 at the time of writing, not seen since January 2015 relative to the greenback on Friday.
The moves in the Euro come despite ECB’s President Draghi’s efforts to provide a more dovish tone at the meeting held last Thursday. The central bank left rates unchanged at 0% and continued its focus on buying 60 billion euros of new bonds each month until the end of the year. ECB policymakers plan to discuss changing its bond-buying program in the fall, which signaled to some practitioners a more hawkish stance.
Similarly, the Bank of Japan left its rates unchanged and cut its outlook for inflation over the next two years. The bank expects inflation to be at 1.1% and 1.8% for the current and following fiscal year respectively, down from initially anticipating inflation levels of 1.4%. and 1.9%.
U.S. stock markets such as the S&P 500 and NASDAQ continued to trend higher over the course of last week. However, the industrial sector was hard hit, particularly on the back of weak earnings stemming from GE whose 2017 forecasts also came in on the lower end.
Looking forward to the week ahead:
All eyes will be on the Fed, which will begin its two-day deliberation on Tuesday. The market expects the FOMC to leave rates unchanged with the committee likely focused on winding down its balance sheet. Fairly robust data may prompt the Fed to reduce its balance sheet earlier than expected, despite recent inflation data. Minneapolis Federal Reserve Bank President Neel Kashkari is scheduled to speak on Friday. The Central Bank of Brazil is also scheduled to meet on Tuesday and Wednesday.
Domestic economic data will stream in all week. Key indicators include: PMI composite flash (Monday), Existing Home Sales, New Home Sales (Tuesday), EIA Petroleum Status Report, Durable Good Orders (Thursday), Jobless Claims and GDP (Friday).
Overseas, second quarter GDP data will also be released in the UK (Wednesday) and France (Friday). Eurozone PMI data will be released on Monday. The ECB will likely take a close look at the economic data as a broad EU economic recovery will probably reinforce scaling its accommodative stance in the fall. Elsewhere, Japanese inflation data is to be released on Friday.
Corporate earning releases will continue next week, with tech juggernauts such as Facebook, Google and Amazon expected to announce their earnings. Technology has been the strongest performing sector among the names within the S&P 500 since the beginning of the year.
Good luck all!
