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All eyes on U.S. CPI and Retail Sales this week

Albert Edwards
by Albert Edwards on August 13, 2019


U.S. dollar highlights:

USD stable as fears of a trade war leading to a recession are increasing. The U.S.-China trade dispute is having a negative impact on global economic growth and energy demand (causing lower oil prices). President Trump said trade talks with China next month may fall through. The dollar index increased to provide some support for USD, however, Treasury bond yields keep falling to limit any strength. Political unrest in Hong Kong and Argentina currently causing risk aversion. Consumer Prices for July expecting 0.3% monthly and 1.4% yearly today; meanwhile Core Inflation expecting 2.1% year over year and the Fed target is 2.0%. After cutting interest rates during the last FOMC meeting, the Fed will be monitoring inflation to determine the next step regarding monetary policy.

Canadian dollar highlights:

CAD soft with oil prices lower due to lower global demand amid more OPEC production cuts expected. Consumer Prices and Retail Sales reports are available next week so CAD will be defensive this week. After only 2,200 jobs lost in June, the Unemployment Rate for July increased after over 24K jobs lost last month (versus 12,500 gain expected). Private Businesses expecting to hire 28K last month (available Thursday).

Euro highlights:

EUR defensive after Fitch rating agency confirmed Italy’s rating at BBB with a negative outlook. Political uncertainty and high debt in Italy causing EUR lower. Prime Minister Salvini may team up with the opposition to block the dissolution of parliament and break the European Union’s budget rules. Germany is also expected to contract in Q2, putting more pressure on EUR.

British pound highlights:

GBP under pressure (and currently at a 2.5-year low versus USD) after the U.K. Times reported that parliament members plan to force Prime Minister Boris Johnson to request another Brexit extension. Parliament is on summer break until September 3rd but are still trying to block a no-deal Brexit. Meanwhile, Johnson may bypass parliament and call elections on November 1 (one day after leaving the European Union). Johnson also could lose a vote of no confidence as markets fear a hard Brexit is inevitable. Ireland also reported it would not renegotiate the Brexit backstop.