Fed’s meeting with their assessment of latest NFP report and economic projections will be the highlight of the upcoming week.
USD
ISM manufacturing PMI for the month of May came in at 43.1 vs 41.5 the previous month. Improvements were seen in all indices with production and employment, which represent consumption, rising the most. New orders and new export orders, which represent demand, improved but at a slow rate and are still deep in contraction territory. Non-Manufacturing PMI came in at 45.4 vs 41.8 the previous month. Business activity showed the biggest jump followed by new orders and new export orders while employment improved only marginally. Still, all of the relevant readings are below the 50 level. Initial jobless claims for the week ending May 29 came in at 1877k for the first reading below 2000k in 2 months. Total number of initial jobless claims climbed to 42.7 million.
Nonfarm payrolls completely surprised expectations by coming in at 2509k vs -7500k as expected. The unemployment rate fell to 13.3% while participation rate rose to 60.8%. Those are still very weak numbers but they represent significant improvement compared to last month. The leisure and hospitality sector showed the biggest gain with 1239k followed by education, healthcare, retail trade and construction jobs. Wages fell -1% m/m indicating that low-earning workers returned to their jobs.
Riots are still raging across America triggered by the murder of Afro-American George Floyd by a police officer. President Trump at first signaled that martial law could be implemented, which would be the first time that it is implemented since the 1992 and Los Angeles riots, however he later eased his tone.
This week we will have inflation data as well as Fed’s meeting. Lower rates are still not an option so there will be no change in rates. Macroeconomic projections and press conference will garner all of the attention.
Important news for USD:
Wednesday:
CPI
Fed Interest Rate Decision
FOMC Economic Projections
FOMC Press Conference
EUR
Eurozone manufacturing PMI for May came in at 39.4 vs 39.5 preliminary on the back of the weaker final German reading. May reading shows improvement from April, but it is rather weak reflecting the prevailing economic conditions in the Eurozone. Markit notes that both domestic and external demand looks set to remain subdued. Additionally, the labour market and profits could deteriorate further thus preventing any meaningful recovery. Final services reading came in at 30.5 vs 28.7 as preliminary reported with composite rising to 31.9 from 30.5 as preliminary reported. Improvements are made from April but they are still in contraction and are lacking strength to push the economy toward meaningful recovery. Recovery of output to pre-pandemic levels may take years according to Markit.
ECB left key policy rates unchanged and it upped PEPP programme by €600bn now reaching €1.35 trillion. PEPP will be extend at least until end of June 2021. Expectations were for an increase of €500bn. Germany has announced a €130bn stimulus package. Two packages combined sent EURUSD rallying to 1.12720 and it moved toward 1.14 by the week’s end. Lagarde stated that Q2 contraction will be unprecedented and that they see 2020 GDP at -8.7%. Rebound of 5.2% is expected in 2021 and 3.3% in 2022. Downward price pressures are expected to continue and inflation target of 2% will not be reached by 2022. They see it at 1.3% in 2022.
This week we will have final Q1 GDP reading.
Important news for EUR:
Tuesday:
GDP
GBP
Manufacturing PMI for May was slightly upgraded to 40.7 vs 40.6 preliminary. Services PMI improved to 29 pushing the composite to 30. Lackluster improvements in PMI readings indicating serious issues with the economy.
Chancellor of the Exchequer Sunak is said to be drawing up plans for an emergency stimulus package in early July, in a further attempt to restart the UK economy. He fears that the UK hospitality sector could lose as many as two million jobs if it is not re-opened by the summer. BOE Governor Bailey encouraged banks to prepare for the failure of trade agreement between UK and EU by the end of the year. BOE executive director for markets Hauser stated that negative rates will not occur in the near-term and if the decision is made to introduce them it will be the right thing to do at that moment. UK Brexit negotiator Frost stated that progress in trade talks has been “limited”.
This week we will have GDP as well as trade balance data.
Important news for GBP:
Friday:
GDP
Manufacturing Production
Industrial Production
Trade Balance
AUD
RBA has left the cash rate at 0.25% as widely expected. This accommodative approach will be maintained as long as it is required. The rise in iron ore prices as well as risk appetite in the markets led AUDUSD up over 5% in May. Q1 GDP came in at -0.3% q/q and 1.4% y/y, both in line with expectations. This is the first contraction in 9 years. Q2 will be a worse reading as the full effect of the lockdown is shown, which will put Australia in recession for the first time in 29 years. April retail sales came in at devastating -17.7% m/m due to the countrywide lockdown. Trade balance showed a smaller surplus of AUD8800m due to the higher drop in exports (-11%) than in imports (-10%).
Official manufacturing PMI from China for May came in at 50.6 vs 51.1 as expected. Non-Manufacturing PMI came in at 53.6 and helped keep composite PMI at 53.4, same as the previous month. All three readings came well in expansion territory with new orders category picking up. Caixin manufacturing PMI returned to expansion territory with 50.7 reading. Caixin services PMI leaped back into the expansion territory with 55 from 44.4 the previous month. Composite also returned to the expansion territory with 54.5 reading completing the V-shape recovery for Caixing PMI.
This week we will get inflation data from China.
Important news for AUD:
Wednesday:
CPI (China)
NZD
GDT auction came in 0.1% for a second consecutive positive auction. Kiwi was the best performer of the week gaining more than 250 pips vs USD bouncing from 100 DMA and breaking through 200 DMA.
CAD
BOC has left rate at 0.25% as widely expected as they have emphasized in their recent statements that they see 0.25% level as effective lower bound. Q2 GDP is expected to show a decline of 10-20%. They see the economy resuming growth in Q3. Short-term funding conditions have improved. Therefore, BOC is reducing the frequency of its term repo operations to once per week, and its program to purchase bankers’ acceptances to bi-weekly operations.
Trade balance in April came in at -CAD3.25bn. Exports plunged -29.7% m/m while imports plunged a bit less -25.1% m/m. Crude oil exports fell -55.1% m/m. Interesting data is that Canada recorded its first service surplus since 2007. Canada historically runs deficits on travel services due to residents seeking warm weather abroad, however the majority of foreign travel has been shut down amid virus outbreak which led to the lowering of travel services deficit.
Employment change in May surprised to the upside by coming in at 289.6k vs -500k as expected. The great majority of those jobs were full-time (219.4k) with part-time job also showing an increase (70.3k). The unemployment rate grew to 13.7% for the highest unemployment on record. Participation rate rose to 61.4%.
JPY
Capex for the Q1 surprised and came in at 4.3% y/y vs -5% y/y as expected. On the other hand, company profits in Q1 dropped -32% y/y for the biggest drop since Q3 2009. This huge drop in profits will lead to a drop in Q2 Capex. May manufacturing PMI came in at 38.4 as preliminary reported but down from 41.9 in April. Services PMI came in at 26.5 vs 21.5 the previous month and composite climbed to 27.8 from 25.8 the previous month. Both readings show an improvement but it is very anemic. Demand for services for in Japan continues to crumble while employment falls the sharpest in a decade.
This week we will have final Q1 GDP reading as well as earnings data.
Important news for JPY:
Monday:
GDP
Tuesday:
Labour Cash Earnings
CHF
SNB total sight deposits for the week ending May 29 came in at CHF681.6bn vs CHF679.9bn previous week. Deposits increased at a slower pace since EURCHF crossed the 1.07 level. Retail sales in April plunged -19.9% y/y since the entire country was under lockdown. Q1 GDP showed contraction coming in at -2.6% q/q and -1.3% y/y. Headline inflation in May came in at -1.3% y/y with core coming in at -0.6% y/y. Both came in as expected but both showed a drop compared to April’s numbers indicating mounting deflationary pressures in the economy.
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Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that MT4.VAR. and MT4.ECN. accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.
