August 26, 2019

Market Outlook

Equities markets retreat as the US-China trade war escalates with both sides unveiling fresh tariffs on each other. Safe haven currencies were the major benefactors of the unexpected trade war drama. Fed Reserve Chair Powell’s address was slightly downbeat and overshadowed by the events between China and the US.

Week Ahead

Key economic releases from across the globe this week include: Australia: Building Permits, Private Sector Credit and RBA Deputy Gov. Debelle Speaking; US: Second Estimate of Q2 GDP growth will be keenly watched alongside Personal Income and Outlays, PCE price Index, and Durable Goods Order; UK: MPC Member Tenreyro Speaks, Gfk Consumer Confidence, Net Lending to Individuals and Mortgage Approvals are all released; Eurozone: Eurozone Flash Inflation, German IFO business Climate and the Jobless Rate are in focus; Rest of the World: Japan Consumer Confidence, Industrial Output, and Retail Sales; China NBS PMIs; and Canada and India release Q2 GDP growth rates.

AUD

The Aussie dollar nears 10 year lows this morning against several currencies following Friday’s fresh round of trade war tariffs. Data is light this week out of Australia with the only top tier economic releases coming in the form of Building Approvals, Private Capital Expenditure and Reserve Bank Deputy Governor Debelle speaking tomorrow. Investors will look to data out of the US this week in the form of preliminary GDP and Consumer Confidence numbers to dictate the AUD/USD cross. The latest round of trade war tariffs between China and the US does nothing but heap pressure on a globally exposed currency like the Australian dollar as investors seek safety in the Japanese Yen and US Dollar following the trade war spat.

USD

Jerome Powell’s address at the Jackson Hole Symposium was slightly subdued and somewhat overshadowed by fresh tariffs imposed by China and the US. Powell commented that the domestic economy was in a “favourable place” and that inflation was tracking closer to the Fed’s 2% target figure. He acknowledged that the US economy still faces significant risks, but his address was overshadowed by China announcing tariffs to the tune of $75 billion on US imports. This sparked a tit-for-tat response from President Trump which will see a 25% tariff on $250 billion in goods from China rising to 30% starting October 1st. Data from the US this week features second estimate of Q2 GDP growth, personal income and outlays, PCE price index, and durable goods orders.

GBP

GBP gained ground last week against the Aussie dollar as Boris Johnson met German Chancellor Angela Merkel. Merkel suggested that a solution to the Irish border issue could be found before Britain leaves the European Union on Oct. 31 lifting the Pound 1.4% against the Aussie dollar. AUD/GBP is now at its lowest level since July.  However, the Pound retraced this morning on the back of comments made by UK PM Boris Johnson over the weekend who stated to the BBC News channel that the chances of the UK leaving the EU without a deal are now “touch and go.” The Pound had experienced its best day of trading in the European markets in over three months on Friday amidst renewed hopes that an agreement could be reached.

EUR

AUD/EUR has fallen over 50 basis points nearing ten-year lows. Italian politics currently remains the key focus in Europe with Italian president Sergio Mattarella giving his parties until Tuesday to find a new government. The parties have informed Mattarella that more time is needed to solve the ongoing government crisis following the resignation of former Prime Minster Giuseppe Conte last week. Key data this week from the Eurozone includes Flash Inflation, German IFO business Climate numbers and the Jobless Rate.

Rest of the World

The Kiwi dollar was a big mover last Friday, jumping from a three and-a-half-year low after the New Zealand Central Bank stated they are “pleased” with where interest rates currently sit. This dampens expectations of further rate cuts to follow recent aggressive easing. The Brazilian Real fell to 1-year low on Friday following the escalation in the China-US trade war.

Event Wrap

Monday

NZD – Trade Balance

EUR – German Ifo Business Climate

GBP – Bank Holiday

USD – Core Durable Goods

* G7 Meeting – All Day

Tuesday

AUD – RBA Deputy Gov. Debelle Speaks

USD – FOMC Member Bullard Speaks

EUR – German Final GDP (Quarterly)

GBP – MPC Member Tenreyro Speaks

Wednesday

AUD – Private Capital Expenditure

AUD – Construction Work Completed

GBP – Nationwide HPI

EUR – M3 Money Supply

USD – Consumer Confidence

Thursday

AUD – Flash Manufacturing PMI

AUD – Private Capital Expenditure

NZD – ANZ Business Confidence

JPY – Consumer Confidence

USD – Prelim GDP

USD – Goods Trade Balance

USD – Unemployment Claims

CAD – Current Account

EUR – German CPI

EUR – German Unemployment Change

Friday

AUD – Building Approvals

AUD – HIA New Home Sales

AUD – Private Sector Credit

NZD – Building Consents

USD – Personal Spending

USD – Core PCE Price Index

USD – Chicago PMI

GBP – GfK Consumer Confidence

GBP – M4 Money Supply

GBP – Mortgage Approvals

GBP – Net Lending

EUR – CPI Flash Estimate

EUR – Unemployment Rate

EUR – German Retail Sales

CAD – GDP

 

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