CAD
While today’s comments by Chair Powell will hold the attention of loonie traders to start the week, tomorrow’s Canadian inflation report is likely to be the key event as far as the Bank of Canada is concerned. Consensus expectations project price growth easing to just 0.1% MoM in June, well down on the 0.6% reading seen the month prior. If realised, this should see annual price growth fall to 2.8% YoY, with similar falls across both the core-median and core-trim measures of underlying inflation favoured by the BoC. That said, given our view that last month’s inflation uptick was largely attributable to one-off factors that should reverse in this latest print, we see risks skewed towards an expectations undershoot tomorrow. If we are right, then this should see BoC rate cut expectations rise from the 75% chance of a July easing that is currently priced by swap markets, weighing on the loonie in the process.
USD
An assassination attempt on former US President and current Presidential candidate Donald Trump is the major market story to start the new week, having boosted the odds of a Trump win in betting markets, with this in turn seeing upside support for the dollar so far this morning. As we have previously noted, a second Trump Presidency would likely entail tariffs, trade wars, and looser fiscal policy, all of which would support greenback upside at the margin – in keeping with the early Monday move higher for the broad dollar, which is up 0.2%. Even so, we would caution around reading too much into this latest popularity bounce just yet, given that there is only modest historical evidence for any such opinion move being sustained over the medium term.
More immediately for markets, the key data point of note to start the week comes from China, which recorded an expansion of just 4.7% YoY in Q2, below both the 5.3% recorded in Q1 and the 5.1% expected by markets. The unexpectedly large slowdown in activity seems to once again be a product of sustained weakness in consumer demand, with Q2 retail sales standing out, having slipped from 3.7% YoY to just 2.0%. While not entirely surprising to us considering that a slow-moving real estate crisis continues to haunt the Chinese economy, weighing on consumer sentiment, sputtering growth in China offers a grim outlook for global activity through the second half of the year when set against mounting signs of a slowdown in the US, a dynamic that is seeing growth sensitive FX underperform in early trading.
Coming up, a relatively light US data calendar should keep market attention focused outside the US for most of the week, with retail sales tomorrow the main US data event of note. For today though, we will be keeping a close eye on Fed Chair Powell, who speaks at 17:30 BST this afternoon. Key for markets will be the Chair’s assessment of last week’s core inflation print, which undershot expectations to land at just 0.1% MoM. While there is broad consensus that this represents yet another “good” reading for the Fed, a more generous characterisation of this latest disinflation progress by Chair Powell is a risk this afternoon – one which could see the greenback reverse its early Monday gains on a further acceleration of Fed easing bets.
EUR
The ECB is front and centre for euro traders this week, with a rate announcement due on Thursday, followed by a press conference by President Lagarde. That said, there appears minimal risk of a rate cut, with a hold in rates widely expected, in line with recent ECB guidance. Nor does any significant steer on the future rate path look likely either. Lagarde typically prefers to play her cards close to her chest, retaining optionality, while another round of forecasts is not due until September. All told then, despite the attention that it is likely to garner, this week’s meeting risks being a rather dull event. This should keep traders focused on any signs of dissent amongst ECB voters, particularly after Austrian National Bank Governor Robert Holzmann unusually broke ranks at the June policy meeting.
GBP
Whilst the pound is set for a slow start to the week, inflation and wage data, published Wednesday and Thursday respectively, should attract plenty of attention from sterling traders. These are the last prints of both series in advance of the Bank of England’s rate decision on August 1st. Granted, we suspect that together they will prove net neutral for the MPC. But continued uncertainty around the impact of April’s National Living Wage rise means that risks are two-sided and notably wider than usual. All told then, while we expect this to leave August rate cut expectations unmoved this week at just north of 50% as a base case, with sterling similarly seeing little change, it would not be outside of the realms of possibility to see GBPUSD end the week trading above 1.31, or below 1.28.
This content was originally published by our partners at Monex Canada.