Week Ahead UKs New PM ECB and US GDP

The week ahead is set to be a quiet one in terms of macro data, but there will be plenty of company earnings to look forward to. In addition, the UK will welcome its new Prime Minister while the ECB will make a decision on interest rates.

Here is the calendar highlights for the week ahead:

Monday – No major data
Tuesday - Next UK Prime Minster chosen today; no major data
Wednesday: Eurozone flash PMIs
Thursday: German Ifo, ECB (rates expected to remain at zero) and a couple of macro pointers from the US including durable goods orders
Friday: Advance US GDP

From the above, it is clear that there are at least three major scheduled fundamental events to look forward to: (1) the Tory leadership race finale; (2) ECB rate decision, and (3) US Q2 GDP estimate. Let’s take a look at these in turn.

On Thursday, MPs passed an amendment to prevent a Parliamentary shutdown in October ahead of Brexit. The news helped to underpin the beleaguered pound. Whether sterling will rise or fall in the coming weeks will depend on what direction Brexit will head under the new Prime Minister, who will be chosen on Tuesday by Tory MPs. With the parliament already deciding that a no-deal Brexit is a no-go and also taken measures to avoid a parliamentary shutdown during the critical Brexit period in October, this has undermined the hard-line strategy of Boris Johnson, the favourite to take over Theresa May’s job. Obviously a lot can and will happen from now on until the Brexit date, so uncertainty will remain. But with the next PM’s options already limited before they take the job, I have a feeling it won’t make much of a difference how Brexit will be handled whether it is Boris Johnson or Jeremy Hunt at the helm. A win for the former is already priced in, so a potential victory for Mr Hunt could be the real surprise, and may provide some short-term relief for sterling.
Eurozone PMIs and German Ifo will be among the week’s key data from the single currency bloc that the European Central Bank might take into account when deciding on interest rates on Thursday. The ECB has been pushing out its rate hike expectations, but the markets will now be wondering whether the central bank will instead talk up the prospects of loosening – rather than tightening – its monetary policy, and soon. With the Fed set to cut rates in the last week of July, and other major central banks having already loosened their policies or turned dovish, the ECB could very well prepare the markets for more stimulus or even negative interest rates. The euro could drop sharply if that turns out to be the case, while if the ECB is not as dovish as many expect them to be then watch out for a short squeeze rally.
US second quarter Advance GDP estimate is expected to print a meagre +1.8% q/q annualised (that is, quarterly change x4) versus +3.1% in Q1. This should be market-moving data, especially if the actual shows a large deviation from the expected reading. So, hold off your weekend plans until after it is published.

Featured chart: EUR/GBP

Clearly the pound, euro and dollar will all be in focus due to the above fundamental reasons. The EUR/GBP should be the one to watch if you prefer to avoid the dollar until Friday’s GDP is published. But it is worth pointing out that GBP/USD was able to hold above the 2018 low of 1.2440 for the second consecutive week, after slipping below this level in mid-week on both occasions. There is a possibility therefore that the cable may be in a reversal profile now, especially in light of dovish commentary coming out of the Fed. The GBP/USD needs to create a higher high now to confirm the potential reversal. But as far as the EUR/GBP is concerned, well there is a shooting star/gravestone doji candle to watch on the weekly. With rates potentially reversing, traders may wish to zoom into smaller time frames for trading this potential reversal more precisely.

Source: Trading View and City Index.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.