Global Macro Preview For This Week

Global Macro Preview For This Week

World leaders are meeting, central banks are announcing policy, and impactful data will be released through the week. This will offer a cornucopia of different opportunities for traders to stake out different positions.

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This week represents one of the most active periods in recent memory for economic events, data, and policy.

Global macro themes will run throughout the week and either shift or pivot current trending across multiple asset classes, including forex, stock indices, and commodities.

 

Here is a quick preview of the highlights:

 

G7

The week really began over the weekend, creating a 9 day period of high impact news and data flow.

We now know the G7 summit has been characterized as tense, with the strong current of division flowing from the US decision to begin imposing tariffs on allies.

As the meeting wore on and traders attempted to digest the impact on world trade and economic expansion, there seemed to be little to no consensus on major issues for the G7 member nations, which could be problematic long term for stock indices and capital markets, as well as major currencies like the dollar, euro and yen.

There could be a risk off mood to open the week, with most traders in wait and see mode given the other upcoming events.

 

Trump / Kim

The long awaited summit is taking place early in the week, with the US delegation touching down in Singapore on Sunday.

It is hard to forecast what will result when such unpredictable world leaders get together with so much at stake. If things are perceived as going poorly, then we would expect a flight to safe havens like gold, the yen, dollar, and Swiss franc.

If things go well, it is generally expected for risk assets to rally when global political tensions de-escalate.

 

US CPI

Tuesday brings the May reading for the consumer price index in the United States.

April’s print was disappointing, with core CPI, which excludes food and energy, up only .1% month over month, with softness in airline prices and new cars producing a dampening effect.

We see only a very modest recovery this month, with an uptick of .2% over last month, which translates to a 2.2% increase for core CPI and a 2.8% increase for headline CPI. Much of the increase in the headline number is due to an increase in energy prices over prior year.

We see continued pockets of softness in US pricing data and there is downside risk to this number.

Traders in USD should be on watch, as another disappointment will produce volatility.

 

UK CPI

The surprise of the week could come from the United Kingdom, as the Consumer Price Index is released on Wednesday.

Inflation in Great Britain has been disappointing through 2018, and we see that trend accelerating in the back half of the year.

After the Bank of England raised rates a quarter point last November for the first time in a decade, many thought better days were ahead for the UK. However, data has been deeply disappointing since, as the transitory benefits from the drop in the currency value due to Brexit is fully baked into the prior year.

We expect inflation to drop materially below the Bank’s 2% target by the end of 2018 due to a series of monthly step moves down, which will continue this month.

We expect a reading of 2%, which will be a downside surprise for markets, which could put significant pressure on GBP/USD and GBP/JPY.

 

FOMC

The Federal Open Market Committee meets this week and it almost unanimously expected to raise interest rates a quarter point for the second time this year.

The dollar and major dollar pairs like USD / EUR will be on watch for the language from the fed coming out of the meeting. If there is a tilt towards more of an expectation of 4 hikes this year instead of three, the dollar could be on the launch pad.

Also, be aware of the potential for commentary from the fed to have a spillover effect in US equity markets and stock indices like the S and P 500.

 

European Central Bank

There are so many different angles flowing through this week, and it’s hard to say which event is the single most intriguing or impactful. But the one with the most raw economic intrigue and impact might just be the meeting and round of decisions from the European Central Bank.

No one expects a rate hike, and we don’t believe one is realistic before 2020, but talk of a possible end in the near future to the ECB’s quantitative easing (QE program), has euro analysts speculating on how soon it will end and how hawkish Mario Draghi will be on the subject at the upcoming meeting.

We expect a broad outline of the plan for winding down the asset purchase program with a promise to deliver more detail in July.

This should be constructive to the price of the euro, and we’d recommend watching EUR/GBP for a potential uptrend with the expectation of more hawkish language from Draghi versus tepid CPI data from the UK.


 

Bank of Japan

Early Friday in the United States the Bank of Japan will release its decision regarding interest rates. Most important, and its only because no one expects any movement on  the rates, is the official statement of monetary policy covering key data and influential factors.

This should be a non-event, but any positive overtones could finish what might be a strong week for the Japanese currency.


Other markets to watch:


Oil

There is no doubt oil is under pressure with raging domestic production, speculation OPEC will raise production limits, and incremental storage builds during what should be peak consumption season in the US.

The weekly report from the Energy Information Agency should be watched closely this week. If they report more builds in both refined gasoline and oil in storage, oil could approach $63.25 by the end of this week.

 

Bitcoin

Bitcoin plummeted by a double digit % over the weekend, as news of a hack in South Korea combined with a growing investigation around price fixing in the US has created instant headwinds for any potential rally in the digital currency.

We do see technical conditions improving over the second half of 2018, however, these issues will need to be cleared from sight soon.

While the South Korea hack story should fade soon, the CFTC investigation in the US could re-emerge unpredictably.

The level around $6700 established as a support zone in early February has held, and we could see a bounce in bitcoin through this week.

 

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