Themes for the Week and Potential Opportunities
Reminder: trading will commence again on Tuesday since US and UK markets are on holiday Monday. With illiquid markets, it’s usually better to keep powder dry.
US: focus will of course be on NFP, which is expected to print slightly weak (150-160 K) but not enough to discourage the FED. More importantly, AHE should remain on track with a +0.2% and unemployment should drop to 4.9%. Other data during the week includes: personal income & spending (Tue) expected to rise; Chicago PMI (Tue) is expected to rise; ISM manufacturing index (Wed) is expected to fall slightly; construction spending (Wed) should rise; ADP (Thur) is expected strong at 180k; ISM non-manufacturing index (Fri) to fall slightly and factory orders are also expected lower. So on balance, the outlook is actually negative for the USD.
EU: Busy week ahead. We have EU sentiment indicators (Mon) are expected to rise. German CPI is also due, expected higher at 0.2%. German unemployment (Tue) is expected to show a drop of 2K which would keep the Unemployment rate steady at 6.2%. EU unemployment rate (Tue) is expected to fall to 10.1% but the flash estimate of EU HICP is expected to falll, while core inflation is expected to remain unchanged at 0.7%y/y. PMI surveys (Wed) are expected to remain firm. But the major event of the week will be the ECB (Thur) although no change is expected. Final service/composite PMIs (Fri) should also show consistent growth. On balance, the outlook is positive for the EUR.
UK: Manufacturing PMI (Wed) is expected below 50 but slightly higher than previous; Construction PMI (Thur) is expected to fall and Services PMI (Fri) expected to rise slightly but EU referendum uncertainty will still overshadow these releases. On balance, volatile and unclear week on GBP.
Comm-Dolls: Australia has a busy week. Company Operating Profit & Inventories (Mon); Current Account (Tue) and building approvals (Tue) are expected better than previous; AIG Performance of Manufacturing Index (Wed) and GDP are also due and might show some weakness; retail sales (Thur) might show lower growth than the previous print; AIG Performance of Services Index (Fri) is the last data point for the week. On balance, the outlook seems slightly bearish on the AUD.
A key focus (for Cad above all) will be the OPEC meeting in Vienna (Thu). Discussions will center on be on a potential response to recent supply disruptions, including Canadian wildfires and militant attacks in Nigeria. In particular, markets will be watching for any signs of an increase in Saudi Arabian production levels but most likely, OPEC’s current strategy will be maintained for now,
CHN: markets are expecting a marginal fall in the official Chinese manufacturing PMI (Wed) and similarly in the Caixin manufacturing PMI (Wed) which might influence risk appetite negatively.
Going into the week I will be looking for longs on US indices in line with recent risk appetite; in FX however I will be cautious on current trends based on the amount of space covered already this month. In particular on Aussie and Jpys. So whilst AudUsd short/GbpAud longs remain good looking candidates, I will be cautious. Same goes for GbpJpy longs and EurUsd shorts.