Doubts about the Trump/Xi agreement alongside growth fears (due to the inversion of the US yield curve) drove markets last week and China data released over the weekend isn’t any help. Look out below on equities this week as well, since China’s economy is slowing and demand is falling rapidly. If there is a negative reaction in China it will keep the AUD under pressure.
Themes for the week:
- Yield Curve Inverstion & less hawkish FOMC: combined, these themes show deterioration in investor confidence and worries that the US recovery is long in the tooth. The market is also reacting negatively to the less hawkish messaging from the Fed in recent weeks. Watch this week’s US inflation numbers as we should react strongly in either direction.
- Trade issues: Trump & Xi will need to do more than have a 90 day truce to get the markets revived. Not even the OPEC meeting was able to produce a solid bounce given small cuts bu members vs. a large oversupply. Commodities overall are in trouble. Without good news from the trade front, especially strong Chinese demand, things are unlikely to reverse.
- Mayday (witty title coined by the folks at Reuters): Tuesday UK PM May’s Brexit deal with the EU is put to a vote in the House of Commons. The weekend press suggests the deal could be rejected by a large and crushing margin. What will happen after is anyone’s guess, but GBP is likely to come under intense pressure.
- ECB Decision: the ECB is due to halt it’s QE but…will it follow through with a weakening economy, Brexit, Italy’s issues and trade tensions? Surely the ECB cannot raise rates. The commentary this Thursday will be influential to say the least.
Data in the week ahead:
- UK GDP
- UK Employment
- Fed’s Powell testifies
- US CPI
- SNB decision
- ECB Decision (should be important due to staff projections)
- US retail sales.
On the Radar:
I remain bearish on equities going into the week, with FTSE & Dax as top contenders. I also like AUD weakness vs. Jpy and Usd. GBP will be in play after the Brexit vote (most likely short) and the Euro post-ECB.
About the Author
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