Themes for the week and potential opportunities
Any data this week will take back seat to risk appetite based on Brexit tone. The result of the general election in Spain on Sunday and the EU leaders’ summit on Tuesday and Wednesday offer two near-term flashpoints: if the Podemos party does well in Sunday’s election it could be the start of a general wave of “separatist contagion” in the EU. Furthermore, German, French and Italian leaders meet in Berlin on Monday. BoE Governor Carney is due to speak at an ECB forum in Portugal on Monday while Draghi, Yellen & Carney will be attending a panel in Portugal on Wednesday.
UK: The only thing I have to say about UK data this week (and potentially in the coming weeks) is that negative data will exacerbate the downwards bias for Gbp since Brexit is currently seen upon as negative.
EU: we have data this week but the impact is complicated by the results of the referendum in the UK. German and Eurozone sentiment surveys (Wed) are expected to remain more or less stable along with the PMIs on Friday. Flash Ger June inflation is expected higher and EU HICP is also due higher. German labour market data is on Thursday, expected to see a further 5k fall in unemployment with the rate stable at 6.1%. Thursday we will also see the ECB June meeting minutes. Eurozone unemployment is on Friday, expected to fall to 10.1% in May from 10.2%. Overall positive expectations on the data front but risk-appetite and potential for “contagion” will likely dominate the agenda.
Jpy: there is an increasing feeling of looming intervention if UsdJpy falls below 100 and EurJpy below 110. If CPI on Friday fails to impress, and more stimulus seems necessary, that might also give more of an excuse to the MoF to proceeed.
Comm-Dolls: no real data out except Cad GDP (Thur) which is backward looking and will not incorporate the effects from Alberta Wildfires. So instead, traders will watch China’s PMI data on Friday.
We are likely due for volatile times. I’d expect more downside on Gbp and Euro, matched with strength in Jpy & USD. Indices will also be volatile and overall look negative going into the week.