Financial Markets’ Weekly Recap, July 24-28

More central bank decisions are in the pipeline for the new trading week, with live meetings at the Reserve Bank of Australia and the Bank of England. US data will continue in the spotlight with key employment data, including Nonfarm Payrolls. Canada and New Zealand will also release job market data. Eurostat will release inflation and growth data.

Fed, ECB are defending current policy stance

After the FOMC meeting and expected 25 basis point interest rate hike on Wednesday, Fed’s Neel Kashkari raised fresh fears of witnessing an uptick in unemployment while praising the overall inflation outlook. The policymaker cited a lack of surety about the end of the Fed’s rate hike trajectory but said that the US central bank is, “making good progress”.

Kashkari also ruled out recession fears for the US economy, for now, while hoping that, “remains true”. “US economy has remained resilient amid various shocks, will continue to monitor any future shocks”.

The focus in the US turns to jobs data. On Tuesday, markets will have the JOLTS Job Openings report; on Wednesday, ADP Private Employment; on Thursday, the weekly Jobless Claims and the Unit Labour Cost; and on Friday, the highlight of the week with Nonfarm Payrolls. The economy is expected to have added 180,000 jobs in July, and the Unemployment Rate to have stayed at 3.6%. Also relevant will be the ISM Manufacturing PMI on Tuesday and the ISM Service PMI on Thursday.

In the Eurozone, ECB President Christine Lagarde termed the latest economic output numbers from France, Germany and Spain as “quite encouraging” while speaking to French daily Le Figaro during the weekend. Lagarde also said that these data support their scenario favoring the ECB expectations of witnessing a 0.90% Gross Domestic Product (GDP) growth in the Euro Area this year.

Apart from Lagarde, Germany’s Bundesbank President and ECB Governing Council member Joachim Nagel also crossed wires late Friday while stating expectations of witnessing softer inflation. The policymaker cited stubborn core inflation to defend the hawkish ECB policies while suggesting higher interest rates for longer.


Dollar’s Performance

The US Dollar rose during the week and was among the top performers, supported by US economic data. For the rally to continue, the dollar needs another round of positive data. The DXY notched its second weekly gain after Thursday’s rally following US GDP data and closed above 101.50. Technically, it is not out of the woods yet, but it continues to recover from one-year lows.

US Treasury yields ended the week higher, supporting the US Dollar. The 10-year reached levels above 4.0% but then pulled back, while the 2-year settled around 4.9%. Eurozone bond yields also rose but at a more moderate pace.

EUR/USD dropped for the second week in a row, retreating further from one-year highs. It bottomed at 1.0940 and then bounced back above 1.1000. The main trend is still up, but momentum for the Euro is fading. Germany will report Retail Sales on Monday and Unemployment Rate on Tuesday. The preliminary July Eurozone Consumer Price Index is due on Monday, with a slowdown in the annual rate from 5.5% to 5.2% expected. On Thursday, Eurostat will release the EZ Producer Price Index (PPI), and on Friday, Retail Sales.

GBP/USD finished the week flat, hovering around 1.2850/60 after staging a limited correction. An important event of the week will be the Bank of England Monetary Policy Committee meeting. The central bank is expected to announce a rate hike on Thursday. The debate is whether it will be 25 or 50 basis points. While inflation and wage growth suggest that a 50 bps hike could be the decision, signs of a slowing labor market and the economic outlook favor a smaller hike.

BoJ’s Surprise Move

Following a volatile Friday, USD/JPY finished the week modestly lower, near 141.00 and far from the bottom hit on Friday after the Bank of Japan’s surprise move. The market will look for clues about the next move and how close the central bank is to significantly changing its monetary policy stance. Any signs toward normalization could boost the Japanese Yen.

USD/CHF rose for the second week in a row, extending the recovery from multi-year lows and finishing slightly below 0.8700. Switzerland will release the July Consumer Price Index on Thursday, with a decline in the annual rate expected from 1.7% to 1.5%.

AUD/USD failed to hold above 0.6800 and remained around 0.6600. The pair continues to move sideways. The Reserve Bank of Australia (RBA) will have its monetary policy meeting on Tuesday, with a 25 basis point rate hike expected.

NZD/USD also moves without a clear direction after being unable to break above 0.6400. It approached the 0.6100 support area. Early on Wednesday, New Zealand will release the Q2 employment report, including the Unemployment Rate and the Labor Cost Index.

USD/CAD rose marginally but remains capped by 1.3250. The pair is still biased to the downside. Canada will release the employment report on Friday after showing an impressive 59,900 positive employment change in June.

Crude Oil

WTI crude oil is trading around the $80.20 mark so far in the early Asian session. WTI prices retreat from multi-week highs following the US Personal Consumption Expenditures (PCE) Price Index and the Michigan Consumer Sentiment Index on Friday. Oil traders will keep an eye on the Chinese inflation data and developments about the Chinese stimulus plan for fresh impetus later on the first day of the trading week.

China is soothing world concerns
China signaled additional support for the real estate sector and measures to stimulate domestic consumption amid a sluggish post-COVID recovery. The State Council Information Office of China revealed that Li Chunlin, vice chairman of the National Development and Reform Commission, and officials from the Ministry of Industry and Information Technology, the Ministry of Commerce, and the State Administration of Market Regulation will hold a press conference at 7 a.m. GMT to announce additional measures to boost consumption. The development of the headline might support further upside in the WTI price.

Gold Prices

Gold holds onto Friday’s recovery from more than a two-week low while picking up bids to $1,960 amid the early hours of Asian morning on Monday. The Gold Index justifies Friday’s downbeat US inflation clues and justifies weekend headlines from China, as well as dovish comments from Fed’s Kashkari. Gold marked the first weekly loss in four after the US Dollar cheered upbeat US growth data, as well as the Fed’s readiness for a September rate hike.

Wall Street

Dow Jones Industrial Average led Wall Street higher, notching its longest winning streak in six years. Investors are broadening the market’s breadth, with people starting to take profits in tech and invest in other parts of the markets. The tech-heavy Nasdaq Composite Index has rallied 34.3% this year, outperforming its peers as rate-sensitive Megacap growth companies rose on optimism about artificial intelligence and an end to the Fed’s tightening cycle.