Geopolitical Tensions Dominate Market

Weekly Report - 13/08/2017

U.S. Dollar Extends Slide


The U.S. dollar continued to sell-off through most of last week amid a flare up in tensions between the United States and North Korea, which saw investors flock to the relative safety of the Japanese yen and the Swiss franc. Outlook for the greenback dimmed further, after July’s consumer inflation data came in weaker than expected.

Last Week


Markets were volatile across the financial asset board last week. Starting out with the U.S. economy, inflation data was the center of investor attention, with the consumer price index edging 0.10% higher in July after remaining unchanged in the prior month. That lifted the yearly increase in the CPI to 1.70% from 1.60% in June.  Economists surveyed by Reuters had projected the CPI to climb 0.20% in July and rise 1.80% year-over-year. The benign increase in consumer prices is likely to make the Federal Reserve more cautious about hiking interest rates again this year, pressurizing the U.S. dollar against the euro.


Across the Atlantic, industrial production unexpectedly grew in the U.K., with output increasing by 0.50% on the month in June, topping the consensus expectation of -0.20%. Moving eastwards, falling imports helped push German trade balance to 22.30 billion euros in July from 22.00 billion euros in June. It was expected to rise to 23.00 billion euros. Meanwhile, the Reserve Bank of New Zealand stuck firmly to its neutral stance and left interest rates unchanged at a record low of 1.75%. To cap off the week, U.S. crude futures mounted a late rally after data from Baker Hughes showed the number of active U.S. oil rigs rising to 768 last week.


The Week Ahead

In the upcoming week, there is an abundance of key economic data due from across the globe.  Chinese retail sales and industrial production figures for July will be released Monday, with both forecast to decelerate from the year prior.  Also from Asia, Japan’s trade balance for July will be on tap, with exports and imports likely to rise on a yearly basis. In Europe, British consumer price index is projected to edge 2.70% higher on a yearly basis in July, compared to a gain of 2.60% in the prior month. U.K. retail sales are expected to increase by 0.20% on-month in July, versus the 0.60% gain recorded in the previous month.

Elsewhere in Europe, the preliminary estimate of second quarter German gross domestic product will be available on Tuesday. The consensus is for GDP to expand 0.70% quarter-over-quarter, following the 0.60% pace reported in the prior quarter. Any further strengthening in the German economy should increase the pressure on the European Central Bank to begin tightening its monetary policy. Among U.S. data sources, Wednesday will see the release of minutes from the Fed's July policy meeting that should provide more clarity on the central bank's plans to unwind its $4.50 trillion balance sheet. U.S. retail sales data for July will also be in focus. Economists polled by Reuters anticipate a 0.30% rebound in July’s sales figures. Finally, the University of Michigan’s Consumer Sentiment Index for August is forecast to improve to 94.0 from the July reading of 93.4, with the report coming in on Friday.


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