Asian markets opened quietly but then starts to pick up some strength. Nikkei reversed earlier loss and is trading 0.35% higher at the time of writing. HK HSI extends earlier gain and is up 1.25%. Gold seems to be finally starting to have some momentum and is trading above 1350, up 1.2%. WTI crude oil, on the other hand, is mildly lower and is struggling around 49. There is some strengthen seen in commodity currency but movements are limited so far. Major pairs and crosses are generally stuck in tight range. There were more talks about Brexit from ECB officials over the weekend but were ignored by the markets. Trading could be a subdued today with US on holiday.
ECB executive board member Benoît Coeuré said that " it is too early to decide whether Brexit calls for action from the central bank." He urged UK and EU to clarify the time frame and terms of Brexit with clarity to clear up the uncertainties. ECB governing council member Villeroy de Galhau said that "in the short term there is a difficult challenge for the British economic and monetary policy between two contradictory challenges: there is the challenge of inflation, with the effects on inflation of the fall of the pound, which is down 11 percent since Brexit." And, "there is recession challenge with the tendency to see less growth due to the uncertainty impact on investments. And it is always very complicated for monetary and economic policy to be caught in this dilemma."
RBA rate decision tomorrow is the first focus of the week. The central bank is widely expected to keep interest rate unchanged at 1.75%. But there are increasing speculations of a cut in August. It's believed that the lack of a clear winner in the latest election will leave Australia with monetary policy as the major tool drive the economy and weather the headwinds. And, the uncertainties over the impact of Brexit will have a negative impact on investments and hiring. Nonetheless, RBA would likely wait for Q2 inflation, GDP and employment data before making a decision.
Looking ahead, US events will be main focus of the week. FOMC minutes will reveal the discussion on keeping rate unchanged at the meeting before Brexit referendum. Meanwhile, Fed hawks have already restarted to sing about rate hike as post-Brexit worries faded. And solid job data from US could revive the case for a Fed hike in September. Here are some highlights for the week ahead:
- Monday: Australia building approvals; Eurozone Sentix investor confidence, PPI; UK construction PMI
- Tuesday: RBA rate decision, Australia retail sales, trade balance; UK services PMI; Eurozone retail sales; US factory orders.
- Wednesday: Germany factory orders; Eurozone retail PMI; US trade balance, ISM services, FOMC minutes; Canada trade balance
- Thursday: Japan leading indicators; Germany industrial production; Swiss foreign currency reserves; UK productions; US ADP job, jobless claims; Canada Ivey PMI, building permits
- Friday: Japan labor cash earnings; Germany trade balance; UK trade balance; US non-farm payroll; Canada employment