Expectations have been mounting that the Bank of Japan will launch fresh stimulus measures next week but the Fed will likely stay put. It will also be busy on the data front for Japan and the US, while second quarter GDP data for the Eurozone, the UK and the US should also attract attention.
Will the BoJ pull the trigger?
Starting the week on Monday, trade figures for Japan are expected to show a further deterioration in exports in June. Exports are forecast to contract by an annual rate of 11.6% in June. It will be a packed day on Friday with a flurry of data releases as well as the Bank of Japan’s policy decision.
Household spending is forecast to show some improvement in June, rising by 0.4% month-on-month after falling by 1.5% the previous month. Preliminary industrial production figures are also expected to show a rebound, increasing by 0.7% m/m in June. Retail sales growth is expected to remain negative though, while inflation is forecast stay unchanged. Annual CPI, excluding fresh foods, is expected to remain steady at -0.4%, well below the BoJ’s target of 2%.
The BoJ will announce its July policy decision on the same day with most analysts expecting the central bank to cut its main policy rate from -0.1% to -0.2%. There is also consensus among economists that the size of the asset purchases will be increased from 80 trillion to 85 trillion annually. A smaller-than-expected stimulus or inaction will likely send the yen skyrocketing in the currency markets and would potentially threaten the 100 mark against the dollar.
First glimpse at Eurozone Q2 GDP
The post-Brexit sentiment surveys will continue next week starting with the German Ifo on Monday. The Ifo business climate index is forecast to drop from 108.7 to 107.5 in July. The European Commission’s economic sentiment index for the Eurozone is out on Thursday and is expected to decline from 104.4 to 103.7 in July.
Flash Eurozone inflation figures will follow on Friday as well as the preliminary GDP estimates. Flash CPI is expected to stay unchanged at 0.1% year-on-year in July with core CPI also remaining muted at 0.8%. The first estimate of GDP growth for the second quarter will likely show the Eurozone economy continuing on its recovery path but growth is expected to halve from the first quarter’s 0.6% rate to 0.3% in the second quarter. The euro is unlikely to see a major reaction to the data as the focus has already shifted to post-Brexit indicators for any possible hit to the Eurozone economy.
UK growth to edge higher in Q2
With unemployment falling to an 11-year low in May, GDP growth figures out on Wednesday are expected to confirm that the British economy went into the EU referendum on a solid footing. Growth is forecast to have picked up from 0.4% quarter-on-quarter in the first three months of the year to 0.5% in the second quarter. However, growth is expected to slow down sharply in the second half of the year as UK businesses face uncertainty over the country’s future direction following the vote to leave the EU. The data may provide some temporary support to the pound if it comes in as forecast or better.
US Q2 GDP expected to be solid but Fed to stand pat
The US calendar will be a busy one over the coming week, which will include housing data (new homes sales on Tuesday, pending home sales on Wednesday), as well as sentiment surveys (consumer confidence on Tuesday, Chicago PMI and final University of Michigan consumer sentiment on Friday). Also coming up are the latest durable goods orders on Tuesday. They are expected to show a second consecutive month of decline, falling by 1.1% m/m in June.
The focus though will fall on the FOMC decision on Wednesday and the advance GDP estimates for the second quarter on Friday. The Fed is not expected to announce any changes to its policy at its July meeting. But given that this will be the first meeting since the Brexit vote, the FOMC statement will be closely scrutinized to see whether the Committee sees significant enough risks from Brexit to stay on hold for the rest of the year.
With the US economy showing increasing signs of returning to robust growth, the Fed’s cautious policy stance may become difficult to maintain. Preliminary GDP figures are expected to confirm a turnaround in US growth next week. Second quarter growth is forecast to have accelerated to a 2.6% annualized rate from 1.1% in the first quarter, led by a strong rebound in consumer spending. The growing positive outlook for the US economy has driven the dollar to 4-month highs recently.
Australian inflation could trigger another rate cut
Australian inflation figures for the second quarter will be watched closely next Wednesday as the unexpectedly weak number for the second quarter prompted the RBA to make a surprise rate cut in May. Annual CPI is forecast to ease further in the second quarter from 1.3% to 1.1%. With the RBA on high alert for any signs of weakening in the country’s inflation rate, this could prove enough to justify another rate cut in August. The Australian dollar is already under pressure from such expectations and will likely be sensitive to the inflation data.
Will the BoJ pull the trigger?
Starting the week on Monday, trade figures for Japan are expected to show a further deterioration in exports in June. Exports are forecast to contract by an annual rate of 11.6% in June. It will be a packed day on Friday with a flurry of data releases as well as the Bank of Japan’s policy decision.
Household spending is forecast to show some improvement in June, rising by 0.4% month-on-month after falling by 1.5% the previous month. Preliminary industrial production figures are also expected to show a rebound, increasing by 0.7% m/m in June. Retail sales growth is expected to remain negative though, while inflation is forecast stay unchanged. Annual CPI, excluding fresh foods, is expected to remain steady at -0.4%, well below the BoJ’s target of 2%.
The BoJ will announce its July policy decision on the same day with most analysts expecting the central bank to cut its main policy rate from -0.1% to -0.2%. There is also consensus among economists that the size of the asset purchases will be increased from 80 trillion to 85 trillion annually. A smaller-than-expected stimulus or inaction will likely send the yen skyrocketing in the currency markets and would potentially threaten the 100 mark against the dollar.
First glimpse at Eurozone Q2 GDP
The post-Brexit sentiment surveys will continue next week starting with the German Ifo on Monday. The Ifo business climate index is forecast to drop from 108.7 to 107.5 in July. The European Commission’s economic sentiment index for the Eurozone is out on Thursday and is expected to decline from 104.4 to 103.7 in July.
Flash Eurozone inflation figures will follow on Friday as well as the preliminary GDP estimates. Flash CPI is expected to stay unchanged at 0.1% year-on-year in July with core CPI also remaining muted at 0.8%. The first estimate of GDP growth for the second quarter will likely show the Eurozone economy continuing on its recovery path but growth is expected to halve from the first quarter’s 0.6% rate to 0.3% in the second quarter. The euro is unlikely to see a major reaction to the data as the focus has already shifted to post-Brexit indicators for any possible hit to the Eurozone economy.
UK growth to edge higher in Q2
With unemployment falling to an 11-year low in May, GDP growth figures out on Wednesday are expected to confirm that the British economy went into the EU referendum on a solid footing. Growth is forecast to have picked up from 0.4% quarter-on-quarter in the first three months of the year to 0.5% in the second quarter. However, growth is expected to slow down sharply in the second half of the year as UK businesses face uncertainty over the country’s future direction following the vote to leave the EU. The data may provide some temporary support to the pound if it comes in as forecast or better.
US Q2 GDP expected to be solid but Fed to stand pat
The US calendar will be a busy one over the coming week, which will include housing data (new homes sales on Tuesday, pending home sales on Wednesday), as well as sentiment surveys (consumer confidence on Tuesday, Chicago PMI and final University of Michigan consumer sentiment on Friday). Also coming up are the latest durable goods orders on Tuesday. They are expected to show a second consecutive month of decline, falling by 1.1% m/m in June.
The focus though will fall on the FOMC decision on Wednesday and the advance GDP estimates for the second quarter on Friday. The Fed is not expected to announce any changes to its policy at its July meeting. But given that this will be the first meeting since the Brexit vote, the FOMC statement will be closely scrutinized to see whether the Committee sees significant enough risks from Brexit to stay on hold for the rest of the year.
With the US economy showing increasing signs of returning to robust growth, the Fed’s cautious policy stance may become difficult to maintain. Preliminary GDP figures are expected to confirm a turnaround in US growth next week. Second quarter growth is forecast to have accelerated to a 2.6% annualized rate from 1.1% in the first quarter, led by a strong rebound in consumer spending. The growing positive outlook for the US economy has driven the dollar to 4-month highs recently.
Australian inflation could trigger another rate cut
Australian inflation figures for the second quarter will be watched closely next Wednesday as the unexpectedly weak number for the second quarter prompted the RBA to make a surprise rate cut in May. Annual CPI is forecast to ease further in the second quarter from 1.3% to 1.1%. With the RBA on high alert for any signs of weakening in the country’s inflation rate, this could prove enough to justify another rate cut in August. The Australian dollar is already under pressure from such expectations and will likely be sensitive to the inflation data.