Week Ahead: Eyes on RBA and Fed Minutes Before Second Quarter Results Start
It’s a fairly calm week for economic data, but with a few highlights to watch.
Friday’s US NFP report was the highlight of last week, but it certainly didn’t make anything clearer to traders… or policymakers. According to BLS estimates, the US economy created 850K jobs in June, the best reading (after revisions) in 10 months! While the headlines were pretty loud, some of the report’s secondary aspects were more mixed, with average hourly earnings increasing only 0.3% m / m and the unemployment rate hitting 5.9%.
Overall, the report shows that the U.S. labor market continues to heal from the damage caused by the COVID-induced recession, but policymakers (and the population more broadly) would like to see the recovery continue for a few more months. more before you start removing the stimulus. .
Below, we highlight some of the key themes, reports, and charts to watch out for over the coming week (shortened for US vacations):
There are two areas of interest for central bank watchers this week: Australia and the United States. The RBA is meeting on Tuesday and may change some of its asset purchases and yield curve control efforts. While Australia’s economy has enjoyed a relatively robust recovery, aided by continued strong growth in China, 80% of Australia’s population is currently stranded amid fears of a possible COVID outbreak. Vaccination rates in the country have increased recently, but at just under a quarter of the vaccinated population, the Australian economy continues to reopen in spurts, so the RBA is expected to keep interest rates unchanged. until next year at the earliest.
Meanwhile, in the United States, traders will get a much needed glimpse behind the proverbial FOMC curtain when the FOMC minutes are released on Wednesday. Recall that the central bank saw a big hawkish turn towards waiting for two interest rate hikes by the end of 2023 at this meeting, so the market will take a close look at the minutes to see what. which may have scared the decision-makers and tried to know when will announce its reduction plans.
At the time of going to press, we are still awaiting an exit decision from OPEC.
The much-anticipated OPEC + meeting was postponed for a day until Friday after a preliminary deal was reportedly stalled at the last minute the day before. The UAE was reportedly opposed to a plan to ease the cuts and extend them until the end of next year. As always, tension exists between the rich Middle Eastern countries with vast reserves who generally take a longer-term perspective and the poorer peripheral members of the group who prefer to maximize their short-term income by exporting more oil immediately. .
While short-term rates signal the risk that the Fed may raise rates earlier and / or more aggressively than expected at the last Fed meeting, the benchmark 10-year US Treasury bond has fallen by around 10 basis points last week to settle at nearly 1.44%. In essence, bond traders are signaling that they are not worried about inflation taking hold, a view shared by Fed officials.
Traders and policymakers will be watching economic data closely going forward, but if long term interest rates continue to fall, there will undoubtedly be a ripple effect across all global markets. On the one hand, falling interest rates can eventually become an obstacle to the dollar’s uptrend. Likewise, lower yields tend to benefit growth stocks over more value-oriented stocks and could even raise the price of gold by lowering the opportunity cost of capital.
It will be another slow week for earnings before getting into the thick of the second quarter earnings season later in the month. Key releases we’ll be watching include Ocado, Purplbricks, Sainsburys, B&M, Firstgroup, Fuller Smith & Turner, Jet2, and Levi Jeans.
It’s a fairly calm week for economic data, but with a few highlights to watch. For AUD and ASX200 traders, Tuesday’s RBA meeting will be worth watching, although Governor Lowe and the company are unlikely to make any immediate changes with Sydney stuck on COVID fears. We’ll also get more details on what prompted the Fed’s big hawkish change last month in Wednesday’s FOMC minutes. Finally, the G20 meeting on Thursday and Friday will make headlines, although the immediate impact on the market may be limited.
- Australia: Retail sales (May)
- United States: public holiday
- Canada: BOC Business Outlook Survey
- Australia: RBA Monetary Policy Meeting
- Australia: speech by RBA Governor Lowe
- Germany: ZEW Economic Sentiment Survey
- United States: ISM Services PMI
- Europe: European Commission economic forecasts for the third quarter
- Canada: Ivey PMI
- United States: JOLTS Jobs
- United States: FOMC meeting minutes
- Global: G20 Meetings (Day 1)
- Australia: speech by RBA Governor Lowe
- United States: initial jobless claims
- United States: crude oil inventories
- Global: G20 Meetings (Day 2)
- Europe: speech by ECB President Lagarde
- United Kingdom: speech by BOE Governor Bailey
- CA: Employment report (June)
Chart of the week: AUD / USD
Source: StoneX, TradingView
With the RBA meeting and Australian retail sales, it’s worth learning about the AUD / USD. The currency pair hit a new year-to-date low around 0.7450 on Friday before rebounding above 0.7500 at the time of writing. More generally, rates spent the entire first half of the year forming a broad “rounded top” or “complex head-shoulders” pattern; in any case, it is clear that the long term trend of the AUD / USD has changed from an uptrend (higher highs and higher lows) to a downtrend (higher highs and lower lows). Going forward, the key levels to watch will be old support turned to resistance at 0.7590 and old support turned to support at 0.7400, with a general bearish bias towards this support level.
With the earnings season and economic data set to accelerate after The week ahead is a great time to review longer term charts and themes to make sure you don’t get caught up in the daily deluge of information in the weeks to come.
Have a good weekend and good luck with your trading!