As we approach the midpoint of the third quarter, global markets continue to be driven by a combination of economic indicators, central bank posturing, and geopolitical events.
The landscape is shaped by factors ranging from inflation concerns to the complexities of international relations. Let's dive into a recap of the significant events from the past week and what to anticipate in the coming days.
Global Economic Overview:
The Week That Was:
US CPI came in softer than expected, but the core CPI rate of 4.7% y/y shows inflation remains elevated.
Mary Daly and other Fed members offered mixed signals about the potential for a rate hike.
UK's economic data surpassed expectations, indicating the economy isn't slowing as anticipated.
China's data showed signs of slowing growth for Q3 with declining imports, exports, and deflationary CPI.
WTI oil prices surged due to supply concerns and demand increases.
US-China tensions escalated with the US restricting investments in some Chinese technologies.
Moody's Rating agency downgraded ten small-to-medium sized US banks.
RBA's Philip Lowe hinted at further tightening, but Australian consumer spending has sharply declined.
The Week Ahead:
US (FOMC Minutes): Although the market expects an 89% probability of the Fed holding interest rates in September, any surprise details in the FOMC minutes could prompt swift market reactions.
China: Recent data hasn't matched early 2023 expectations, pointing to a challenging Q3 start. Markets are now waiting for evidence of the promised economic stimulus. Upcoming data, including new loans and retail sales, will be under scrutiny. Relevant markets to watch include USD/CNH, China A50, Hang Seng, Nikkei 225, USD/JPY, and AUD/JPY.
UK: Following robust recent data, next week's CPI report is highly anticipated. If inflation remains high, it could pressurise the BOE to continue with rate hikes. Markets of interest include GBP/USD, GBP/JPY, EUR/GBP, and FTSE 100.
Canada: After 12 rate hikes this cycle, the Bank of Canada's upcoming inflation report will be pivotal. If the inflation data remains high, it might pave the way for another rate hike. Relevant markets to monitor include USD/CAD, CAD/JPY, and NZD/CAD.
Australia: Key reports for the coming week include the RBA minutes, wage price index, and labour force report. Though employment has been robust, any signs of weakness could influence the RBA's decisions and impact the AUD. Markets to watch: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, and ASX 200.
The US dollar continues to demonstrate resilience amidst mixed momentum indicators.
Despite skepticism around Beijing's economic data, China's economic challenges, especially in the property sector, suggest more support might be necessary.
Japan faces declining consumption and wage growth, influencing its government bond yields.
The UK's inflation trajectory and labour market metrics indicate challenges for the Bank of England.
Eurozone's data in the coming days is not anticipated to influence ECB decisions significantly.
Canada's economic performance faces challenges, including a potential disconnect between oil prices and the Canadian dollar's strength.
Labour disputes in Australia could influence global LNG production.
Navigating the world's economic landscape requires a holistic understanding of both retrospective data and forward-looking indicators. As the past week has shown, the interconnectedness of global markets ensures that a shift in one region can have ripple effects elsewhere.
Investors and policymakers alike should be on their toes, preparing for potential surprises, and remaining adaptable in the face of an ever-changing global economy.
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