Looking forward to upcoming week, the focus will shift from the dominant presence of US data to other significant events. While this might disappoint traders seeking macroeconomic reactions, it allows everyone to take a breather and prepare for the next round of volatility, particularly surrounding the Federal Open Market Committee (FOMC) meeting in two weeks. Nevertheless, traders can look forward to earnings season for index traders and stock pickers, along with a data dump from China on Monday and crucial inflation and retail sales reports from Canada. Forex markets will closely monitor these events and their impact on global currencies.
July week 2 was marked by a theme of disinflation as headline US Consumer Price Index (CPI) and Producer Price Index (PPI) both fell below expectations. This news sparked excitement that the Federal Reserve might only need to hike interest rates once more, relieving pressure from other central banks to continue tightening (except for the Bank of England). As a result, the US dollar index plummeted to a 15-month low, Wall Street indices surged to new highs, and the Bank of Canada delivered a hawkish rate hike. Looking back to the last week, the Reserve Bank of New Zealand decided to pause its tightening cycle after twelve consecutive hikes. These developments had a profound impact on forex markets, particularly the US dollar, gold, and major currency pairs.
The upcoming week will witness the commencement of earnings season, featuring major companies in the S&P 500 reporting their Q2 earnings. Banking, technology, and semiconductor sectors will take the spotlight, with companies such as Bank of America, Morgan Stanley, and Charles Schwab leading the way. Other notable companies include Tesla, Netflix, IBM, and United Airlines. Meanwhile, China will release a range of crucial economic data points on Monday, including Q2 GDP, industrial production, retail sales, investment, and unemployment. Additionally, Canada's monthly inflation report and retail sales data will be closely watched. These events will significantly influence forex markets and investor sentiment.
China's data dump on Monday will provide insights into the country's economic performance. Given the softer overall data, it is unlikely that Q2 GDP will surpass expectations. Notably, manufacturing PMIs have contracted, services PMIs are barely expanding, and both imports and exports have declined. Weakening inflation and potential misses in retail sales data could undermine Beijing's efforts to drive a demand-driven economy. However, worsening figures increase the likelihood of further stimulus measures. In response, markets could rally on reports of the so-called plunge protection team supporting local share markets, and the yuan may be allowed to depreciate to boost exports. Observing the loan prime rates (LPRs) will also provide insight into the Chinese government's efforts to stimulate aggregate demand.
After consecutive hawkish rate hikes by the Bank of Canada (BOC) and the Reserve Bank of Australia (RBA), the focus shifts to Canada's upcoming inflation and retail sales reports. The recent signs of disinflation have raised hopes that the US Federal Reserve might not be as hawkish as anticipated, potentially impacting the BOC's decision to raise rates further in September. The BOC's preferred choice of inflation measurement, the median and trimmed measures of CPI, may help alleviate market concerns. A strong retail sales report could tilt sentiment back towards another rate hike. Additionally, the release of RBA minutes will shed light on the central bank's outlook on future policy decisions, considering Governor Lowe's upcoming departure and the current economic landscape.