Market Commentary – Week Ahead

Kevin Jock

22nd July 2019

Market Commentary – Week Ahead July 22, 2019

     Another week will be driven by Central Bank activity- global dovishness likely to continue to be the theme. At the end of last week, we saw an influx of EM activity arising from the global dovishness leaking into EM. Headlines expected to come from the usual suspected: USD, EUR & JPY. We also watch TRY, THB, KRW this week.

     On the political front, we saw Shinzo Abe’s victory in Japanese elections over the weekend. Trade negotiations between the Chinese and US may restart after some goodwill gestures over the weekend. The new UK Prime Minister will be announced on Tuesday, most likely Boris Johnson over Jeremy Hunt.

     Tensions between Iran and the U.K. escalated this weekend after the Stena Impero was seized by the Iranian Revolutionary Guard. Tehran said it was “violating international maritime rules”. The event comes weeks after Britain helped seize a tanker carrying Iranian oil.

     Another round of protest here in HK keep tensions high as events turned violent when 100s of masked men assaulted protesters, journalists & residents. The protests are in response to the ongoing political crisis over a now-suspended extradition bill. Hang Seng opened lower. 

     South Africa also in focus after a ruling that the nation’s graft ombudsman Mkhwebane is personally liable for a 15% of the legal fees incurred by the SARB- the review came on findings that he violated the constitution and executive ethics code when he misled lawmakers about a campaign donation. 

Figure 1: USDZAR (source: Thomson Reuters)

Figure 1: USDZAR (source Reuters)

Up Next

     Data is light to the start the week, with the first major event arriving from U.S. housing data during the U.S. Tuesday morning. Data Mid-week comes from NZD Trade Balance, followed by a flurry of PMI data (EUR, JPY, AUD, & USD). The week ends with USD durable goods & US GDP data on Friday, which will be the main data print to watch for the week; expected to fall to 1.8%. ISAM trading desk notes, a stronger than expected drop in GDP will enhance expectations of four rate cuts to occur over the next year. A 2.0% or better reading could see rate cuts fall to two for the remainder of the year, this is ultimately a Trump versus Powell battle.

     The Fed & ECB will likely be seen cutting rates. This causes concern for JPY whose interest rate already sits at zero. JPY’s weak economy & massive government debts incurred by stimulus efforts. Japan also faces political tensions from both the U.S. and South Korea.

     Elsewhere Turkish President Erdogan removed Central Bank Governor Murat Cetinkaya earlier this month. The new gov Uysal hinted almost immediately on the rate cut upon taking office, saying he expected disinflation to continue in 2019 on the back of declining cost pressures. The Turkish central bank is expected to cut its key interest rate by 250 bps on July 25th, the current 24% is crippling the economy and must surely be changing soon. Rate cuts from TRY and RUB are also expected this week. 6 other EM central banks have rate decisions this week but are expected to keep rates on hold.  

     Speech-wise, headliners come from BoJ governor Kuroda speaking in the late U.S. morning at the IMF in Washington. RBA Assistant governor Kent speaks just after rollover on Tuesday then RBA governor Lowe talks on Thursday on Inflation Targeting and Economic Welfare, which is worth paying attention to following the weaker jobs print last week.