A Week Of Little Economic Data Ahead – Focus Shifts To U.S Presidential Debate, Algiers Meeting Between Oil Producers

Global stocks trimmed weekly gains on Friday, weighed by lower oil prices and the bounce back in the U.S dollar. The Dow Jones ended down 0.71 percent, at 18,261.45, the S&P 500 lost 0.57 percent, to 2,164.69 and the Nasdaq Composite dropped 0.63 percent, to 5,305.75. Still, major indexes posted gains for the week, with the S&P 500 recording its best weekly performance in more than two months.

Stocks took off on Wednesday after the U.S. Federal Reserve decided to leave the low-interest-rate environment intact by keeping rates unchanged, which helped fuel the bull market. The U.S dollar that typically moves in an opposite direction with equity markets, lost ground against most of its peers, as investors forecast that the Fed would not increase its Fed funds rate until December.

Fed Chair Janet Yellen will testify before the House Financial Services Committee on regulation and supervision on Wednesday, and is due to speak via video conference at the Minority Bankers Forum in Kansas City on Thursday. Her comments will be watched closely for any new hints on policy, following repeated speeches saying that the case for a rate hike has strengthened given a steady labor market.

The euro finished the week higher but the pair has been confined between a 1.1120 to 1.13500 range since mid-August. While manufacturing activity in Germany and the Eurozone as a whole accelerated, the service sector stagnated, thus depressing the composite index lower. European Central Bank President Mario Draghi is due to testify before the European Parliament’s Committee on Economic and Monetary Affairs in Brussels on Monday, and is scheduled to speak about current developments in the euro area at the German Bundestag, in Berlin on Wednesday.

There were no major U.K. economic reports released in the past week, but the British Pound was still among a handful of currencies that traded lower against the greenback. The answer to the question of whether the U.K government will trigger Article 50 and start a period of negotiations with the EU regarding Britain leaving the EU, still lingers  in the minds of investors. Last Friday, U.K foreign secretary Boris Johnson said that his government should act as soon as possible and the deal should be sealed before a new round of elections to the European Parliament in May 2019. The calendar remains light next week for the GBP with only revised second quarter GDP numbers due on Friday.

The best performing commodity currency last week was the Australian Dollar. The Aussie was given a boost from the RBA minutes which said that the central bank did not see any serious need to ease in the near future. The Reserve Bank of Australia noted that it sees current monetary policy as being accommodative enough to meet its inflation goals. In the coming week, no major Australian economic data will be reported.

On the other hand, the New Zealand dollar was hit hard by the RBNZ’s dovish monetary bias. The RBNZ made it very clear that “further policy easing will be required” to ensure inflation moves towards the target because the local currency is still too strong.  Similar to the AUD, there are no important data releases for the NZD barring trade numbers scheduled for release at the beginning of the coming week.

The Canadian dollar traded strongly for most of last week, largely thanks to the sell-off in the U.S. dollar and a rise in oil prices. However, the Loonie collapsed on Friday, halting a four-day rally, following a slate of unsatisfying economic data.

Canada’s core inflation rate in August grew at the slowest pace in two years. Consumer prices excluding volatile items such as food and energy, slowed to 1.8 percent from July’s 2.1 percent on a yearly basis, Statistics Canada said. Compared to the same period last year, the overall inflation rate decelerated to 1.1 percent, from 1.3 percent one month earlier. On a month-on-month basis, both economic indicators made no progress.

Not only did inflation readings lag behind forecasts, Canada’s retail sales were reported to fall 0.1 percent in July, versus an estimate calling for a 0.1 percent increase. Core retail sales which strip out automobiles dropped 0.1% in the same period as well.

Continuing the light week ahead, no data for the CAD will be published until Friday, when Canadian GDP numbers are scheduled for release.

Despite an unexpected drop in the weekly crude oil inventory data reported by the U.S. government, crude oil remained vulnerable to any headlines related to the informal talks between major producers next week in Algeria from Monday through Wednesday. The Report by the U.S. Energy Information Administration (EIA) on Wednesday reported that domestic crude inventories fell by 6.2 million barrels last week, for the third week in a row.

Chances of an output freeze deal being reached appeared minimal after Saudi Arabia and its rival Iran failed to reach any consensus after a two-day meeting last week. Furthermore, according market sources, OPEC’s biggest oil producer did not see September as the right time for any significant move. Instead, the freeze talks could be postponed to the official OPEC meeting in Vienna on November 30.

Late on Monday night(early Tuesday in Asia), the markets will turn their attention to the first televised U.S. presidential debate between Democrat nominee Hillary Clinton and Republican Donald Trump. Recent polls have shown a tightening race, with Election Day is only six weeks away.

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