May On The Brink And Trump On The Trigger

Market Analysis /
09 Jul 2018


 It's been a big weekend for the UK PM as her Brexit plan seems to be unraveling more by the day. Add this to the Trade War story, the BoC rate decision and Donald Trump's trip to London this week and we could have a busy week on the cards. 



It’s hard to look past trade war fears yet again for the highlights this week. There is a heightened feeling of focus in this area after both the US and China implemented their new tariffs on Friday. The fact that the tariffs levied by both countries have now been implemented doesn’t fundamentally change the issue, but does show that these are not just empty threats.

The economic calendar has a scattering of highlights this week after a mixed US jobs report on Friday. The major highlight will likely be the US CPI data due on Thursday. The number is likely to give investors an insight into the Federal Reserve’s appetite for two more rate hikes this year.  We will then look towards University of Michigan consumer sentiment data on Friday.



It could be another fairly quiet week for the Euro as the calendar looks light of any real headline data. The only announcement of any real note will be the German ZEW sentiment survey due for release on Tuesday morning. There is still a longer-term focus on Monetary policy when it comes to the Eurozone, as the continued rhetoric around tapering continues to lead the ECB onto a more hawkish path, and narrows the gap between the monetary policy in the US.

An easing in political tensions in Germany will help those with Euro risk this week but the lack of data could well see the focus jump to the trade war story yet again.



The meeting of UK government ministers over the weekend has created the biggest risk event for the pound this week. The weekend press broke the news that Brexit secretary David Davis had quit the government, leaving the already messy Brexit negotiations in tatters. The meeting had been considered a key one for Prime Minister Theresa May as we would get an indication of the confidence her party has in her Brexit plan. It was never expected that the Brexit secretary himself would be the one to highlight just how little confidence there is in the current plan, and the state of negotiations so far.

It is yet to be seen how this will affect the Brexit talks going forward, but with a new Brexit secretary in Dominic Raab it is expected the PM will now look to escalate talks to try and claw back the confidence of her cabinet.

On Tuesday, the UK will release its first release of Q2 GDP, the first since the ONS changed the way the calculation is made. The change is being made to improve accuracy, with this week’s figure using 2 weeks more data than its previous incarnation. However it’s calculated it is still expected to be a highlight number.



The all-important July policy meeting is due this week on Wednesday and markets, which had fully priced in a 25 basis point interest rate hike are a little nervous that Governor Poloz could disappoint. There is a feeling that if this were to be the case we would have heard some rhetoric already from either Poloz or any other Bank of Canada officials. So with very little being said the markets remain sure of a hike in rates.

The other school of thought was that weaker than expected economic data could be the other reason to not raise rates, but recent numbers should have been positive enough on the surface to seal the deal. While we can’t rule out a dovish disappointment expectations remain high for the BoC to act, but as always with these markets, those with Canadian dollar risk should be cautious.



AUD price action will still continue to be driven by external events and given the unpredictability of US trade policy, we can never rule out an anti-trade tweet that could have a sizeable impact on global risk sentiment. The domestic calendar has little in the way of meaningful data this week - business confidence on Tuesday, consumer confidence on Wednesday and July consumer inflation expectations on Thursday are second-tier releases to note.

With the Aussie indirectly caught in the crossfires of a US-China trade war, it’s becoming increasingly hard to pinpoint the type of price moves to expect on Aussie pairs. That unpredictability means that there remains a reliance on the US dollar for any meaningful price action outside of Asian trading hours.



It has been a particularly bad few weeks for the New Zealand dollar, having been dominated by US trade chatter and seeing some weaker domestic readings. However, the back end of last week may have seen the currency turn a corner, as the US dollar ran out of steam and global risk sentiment seemed to shift. Despite the better performance of the currency, the domestic data continues to disappoint leaving the picture on monetary policy a little more precarious and the economic outlook rather week. An uptick in readings, although many of them second-tier readings could help to push the Kiwi along this week, as long as Donald Trump doesn’t muddy the waters with a trade-related tweet.




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