GDP and Inflation data from around the world in the spotlight

The past week was very active for the major US stock markets especially the S&P500 and the Nasdaq100 that moved higher even as economic circumstances may be not so favorable for the time being. However the most important event during the previous week was the FOMC meeting minutes of which the outcome created waves of volatility. We will be looking more into the meeting through this report while other matters like the Brexit front, the US Sino developments and ECB updates will also be discussed. As always, our analysis will be broken down per currency and the most important upcoming financial releases will be included.

USD–Preliminary GDP readings & Inflation data in focus

We make a start with the FOMC meeting minutes that were released during the past Wednesday and somewhat changed the course of the financial markets as substantial volatility was the outcome. Some comments that stand out for us referred to the labor market conditions that were seen improving in May and June but could not in any way match the deterioration that took place in March and April. Thus even though the unemployment rate has corrected lower in the past months, it still remains very high compared to pre pandemic levels. Moreover, consumer spending was seen improving, but the business sector activity remained rather flat possibly due to the increased uncertainty and risks. Furthermore, even though economic sentiment was initially lifted by positive financial data in the US, China and Europe, the sentiment was rather short lived due to the continuous spreading of the virus and its uncertain effects on the global economy. Very important was also comments made by the FED on interest rates. According to Bloomberg, the FED showed some reluctance to clarify their guidance on the future path of interest rates as was the case back in July’s meeting. Also the FOMC confirmed that uncertainty regarding the economic outlook remained very elevated. The USD captured overnight gains after the FOMC meeting minutes on Thursday. Even though the USD remains in an oversold position, after Wednesday’s event it performed its strongest buying momentum in months and the impact of the movement was seen on all major USD currency pairs. Also precious metals and the US major stock markets moved lower upon the meeting. On the US Sino front, not much has changed for the time being. We are seeing the US intensifying its aggressiveness towards China by adding further restrictions on Huawei and moving against TikTok and WeChat with sanctions. On a separate note even though the trade deal between the largest economies in the world is running behind on schedule and purchases, China is said to have increased agricultural purchases in the past week. The happening tends to ease tensions between two countries and act as a stepping stone for future developments if they continue to pick up. As per the most important US financial releases, starting on the 25th we get the Consumer Confidence for August and the New Home Sales Units for July. On the 26th we get the Durable Goods figure for July. On a busy Thursday the 27th, we get the GDP 2nd estimate Preliminary for Q2, the Core PCE Prices Preliminary for Q2 and the weekly Initial Jobless Claims figure. On Friday the 28th, we get the Consumption Adjusted for July, the Core PCE Price Index for July and the University of Michigan Sentiment Final for August.

GBP- Nationwide house price releases and Brexit updates

During the past weekend Brexit talks had restarted in Brussels between EU and UK members. In our view, things are not looking very bright for the future relationship of the two blocks. Major differences on fishing rights and post-Brexit competition persist and with no side willing to back down headlines of a no Brexit deal have surfaced. Also, other clues we have that point to the situation being stagnant on the Brexit front, were the EU officials noting that the UK may have to wait to next year to find out how much access they will have in the European market. In our view, the two sides will need to work on compromises in order to get a deal done. We also believe that as we cross into the fall season talks and negotiations will be elevated and intensified. Thus we do not expect any big surprises on the Brexit front at the moment. In any case, time is running out for both sides and as long as no progress is made the pressure continues to build up for both economies. Even though both the UK and the EU have confirmed through financial releases that their economic circumstances are still fragile, progress on the Brexit front could lift further optimism for the future. We would expect traders to be very interested on any headlines coming out of the negotiations both positive and negative. As per the UK’s economic performance and according to comments made by BOE’s chief economist Andy Haldane, the UK economy is recovering on a faster pace than expected and has so far managed to regain nearby 50% of the losses suffered during the pandemic. He noted that a significant increase was observed from online retail sales and growth in the services and manufacturing sectors. As per financial releases, the upcoming week will be rather quiet for the UK. We have noted only the Nationwide house price readings for August with an unspecified range between the 28th and 31st for the numbers to come out. On the same day, Bank of England Governor Andrew Bailey speaks at Kansas City Federal Reserve Bank’s Economic Policy Symposium 2020. GBP/USD moved higher on a weekly basis and until the moment that this report is written, reaching 2019 high levels. Most analysts believe that GBP is taking full advantage of the weakness of the greenback. Yet, the important UK Inflation data released in the previous days indicated an increase in consumer prices which tends to support the currency overall.

EUR – GDP readings and Consumer Confidence

In the past days, the ECB meeting minutes was released with valuable information for traders to consider. The ECB seems to have signaled some worries as per the block’s future unemployment rate. It was clearly stated that the unemployment rate could see an increase in 2021 rather than 2020 as previously forecasted. The forecast by the ECB implies that some sectors of the economy could suffer in the following months and so the situation remains very uncertain reflecting the global sentiment. However, some positive factors were also included in the minutes, as the ECB saw an improvement in the latest financial data and that the figures were even better than previously expected. Overall, the ECB repeated that high uncertainty continued to be present for the euro area and that much of this uncertainty is due to the virus. Moving to financial releases from the Eurozone, on the 25th we get the German GDP for Q2 and the German Ifo data for August. On the 28th we get the French GDP for Q2 and the French CPI (EU Norm) Preliminary for August. On the 28th of August we get the Eurozone Consumer Confidence Final for August. Other financial releases from Europe include the Norwegian GDP for Q2 on the 25th and the Swiss KOF Indicator for August and Swedish GDP for Q2 both on the 28th.

AUD – Capital Expenditure in focus

Concerns over RBA’s measures to boost economic activity have come to surface. As the central bank has given $90 billion to help banks support small businesses and households, the move has not proven to produce the expected results. Borrowing, was considered a tool to help restore growth yet even though Australian banks may have the economic ammunition to support businesses and individuals, lending has remained low which creates further concerns for the RBA. The news may force RBA to use other measures available to stimulate the economy. Yet, in our view the news tends to be negative for the currency. On a different perspective the AUD remained rather solid against the USD during the current week even though the pair lost the gains it made on Monday and Tuesday falling into a sideways motion. The most important financial release from Australia in the upcoming week is the Capital Expenditure for Q2 released on the 27th of August.

Data from other parts of the world

Please note other financial releases from other parts of the world include the Japanese Tokyo CPI rates for August, and the Canadian GDP figures all to be released on the 28th of August.

General Comment

The FOMC may have sparked a fire with the recent meeting on Wednesday. We do not know exactly what the FED has in mind but from its wording it seems that they are willing to further adapt to the current difficult circumstances. The FOMC maybe indirectly stating that some of the methods they used so far to re-establish economic stability or create economic activity may need to be reviewed and in some cases changed. That is what the market reaction is also telling us, in our opinion. Especially Gold’s movement lower indicates in our view a change in sentiment as the precious metal sensitivity to risk or uncertainty is displayed through its price action. Is this the turn of the tide for the USD? In any case, the global economy is finding difficulty to stabilize due to the fact that even though the virus outbreak still persists, economies do not have the capacity to enact further lockdowns or close their borders. Their economies have suffered greatly so far and another hit could prove detrimental.

Disclaimer:

This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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