Event Risk: ECB Rates Decision – No move expected market watching for commentary around ECB QE programs
Watching: German CPI, Eurozone PMIs, European GDP, German IP
Data: May produced better than expected economic data with has stabilised the EUR’s decline. However, there is a clear scepticism in markets and economists alike about Europe’s ‘growth recovery’ due to the US-China trade issues and a President threating European tariffs this growth does not appear sustainable – EUR headwinds.
ECB: Expect dovish communications from the ECB this week and when you coupled this with carry trade funding issue for the EUR over the medium term the EUR remains a bearish play.
The interim caveat is that if risk assets continue to unwind slightly one should expect an unwind some of EUR funded carry trades, so some possible buy backs. A ‘sell the dips’ trade might be a good option.
AUD Event risk: RBA Rate Decision – question is how many cuts will the bank enact in 2019 not if they will cut on Tuesday as it’s a certainty.
Watching: Retail Sales, GDP, Trade balance, Home Loan application data
GDP: First quarter GDP is likely to follow the final half of 2018 with below trend growth. Last week’s CAPEX data underperformed both the market consensus and the RBA’s forecasts which confirms the markets expectations that Wednesday release will be 1.6% year-on- year.
Rates: Markets has a ‘locked in’ 2 rate cuts come December 2019 with a 40% chance of a third all this is AUD negative.
However, there is a caveat, bulk commodities are outperforming forecasts, iron ore hit over US$100 a tonne last week and there are signs net exports will continue to support overall GDP. Economic weakness is present, it just might not be as large as some are forecasting.
JPY Watching: Tokyo CPI, IP, Capital Spending, Labour Cash Earnings, Leading Index
Risk off: In a market of risk aversion and global risk JPY does remain attractive. The issues of the US-China trade war, global growth and the constant yield inversions across the global bond markets have FX markets looking to safe haven plays. Sentiment indicators suggest the JPY is nowhere near ‘extreme’ levels, thus there is further room in USDJPY and JPY crosses.