The first week of the month is always dense with tier one data for the major markets to ponder, with PMIs and Non-farm Payrolls set to feature highly. However, add in the geopolitical tensions of trade tariffs and the migrant issue across the EU and there is a raft of factors set to impact. We consider the outlook for forex, equities and commodities markets this week.
What a rollercoaster of a first half! No, I’m not talking about the World Cup (although Germany’s failure at the group stages is hard to believe). I refer to the wild ride on financial markets during the first six months. Initial positivity of near rampant proportions has been replaced by a fear of what might be as rhetoric over a burgeoning trade war continue to impact. Q1 dollar weakness flipped to Q1 strength, whilst expectations of major central banks such as the ECB, BoJ and Bank of England making decisive moves to narrow the policy divergence with the Fed have been put on ice. Donald Trump’s drive for a policy of protectionism (i.e. trade tariffs) and isolationism (pulling out of the Iran nuclear accord) has made the difference. However, after tracking higher throughout Q2, could the outlook for the dollar be about to shift? I spoke last week about the extreme levels of economic surprises of the US versus the rest of the world, and interestingly US data is beginning to show signs of surprising to the downside. Consumer Confidence, core Durable Goods Orders and the final US Q1 GDP have all recently missed. We will know a lot more after the raft of tier one data this week (ISM, payrolls and wages). Dollar strength has been due to the Fed’s continued tightening, but could Trump’s protectionism be about to hit the dollar? The Fed’s Bostic suggests it could mean the Fed may have to pull back from four hikes this year. Fed Chair Powell is a hawk but bond markets seem unconvinced. This could begin to weigh on the dollar if Eurozone data begins to pick up as a lot is now priced in.
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