A QUICK LOOK AT GLOBAL FINANCIAL MARKETS
Though not any contagion effect has brought about from Brazil political crisis, it seems that such events remind investors that fragilities in emerging markets prevail and might not worth taking the risk for return. On top of Trump’s move to fire FBI Chief, it is revealed on Thursday that Brazil President Michel Temer was also involved in a corruption scandal which incriminated several businessmen and political figure in the country. Yet, some strategists think there is room to go in emerging market assets as US dollar losing value, despite the fact that Asian and European markets turned to a somewhat more cautious trade following the turmoil in Washington and Brazil.
Taiwan: Apart from outside factors that drive domestic markets, it will be a heavy week in Taiwan in terms of data agenda. Unemployment, export orders, industrial production and retail sales will be announced this week in Taiwan. There is no consensus for unemployment but data to be announced on Monday at 8:30 a.m. (UTC+8) registered 3.84% in March. Export orders to be announced at the same day at 4:00 p.m. is expected to accelerate to 14.05% in April from 12.3% in March. Industrial production and retail sales will be announced on Tuesday. There are no market consensus but data were 3.2% and 1.7% respectively in April. Better than expected results would support the market rally in Taiwan triggered by technology shares. Stock market Taiex surged above 10,000 ten days ago, for the first time since the dotcom bubble in 2000, though it fails to hold there as of last Friday.
India: Foreign reserves will be announced in India, which may not be market mover but is important for general economic situation. There is no consensus estimate for reserves at the week to May 12 however previous release was $375.7 bln and a reduction may create negative market impact.
Brazil will announce its mid-month inflation this week on Tuesday at 9:00 a.m. local time (UTC-3). Inflation is expected to come down to 3.74% by mid-May, down from 4.41% registered a month ago. Realization in line with market consensus will support rate cut decision. Yet, Fed is preparing for at least two rate hikes this year which is likely to push up dollar and weaken real, potentially hurting inflation over the medium term.
Turkey: In Turkey only two important releases will be May capacity utilization rate (CUR) and real sector confidence (RSC) to be announced by the CBRT on Tuesday at 14:30 local time (UTC+3). There is no consensus about the data but we will follow whether the realization will exceed previous reading. CUR in May 2016 was 77.7% and seasonally adjusted CUR in April 2017 was 78.8%. RSC in the meantime will give more hint about the real sector’s sentiment amid concerns over whether business environment has improved after several measures to support economic activity. RSC in April 2017 has been 106.3 in seasonally adjusted terms while it was 110.2 in last year May.
Russia: There are other important releases to be followed in Russia this week. Unemployment rate will be announced on Monday at 10:00 a.m. local time (UTC+3). Market consensus for April unemployment rate is 5.5% whereas it was 5.4% in the previous month. Retail sales which recorded 0.4% drop over previous year in March is expected to recover to 0.2% in April. Market impact would be positive should data comes better than expectations, as it would signal that recovery in economic activity continues.
It’s been a quite volatile week with both political and financial triggers. US President Trump’s firing of FBI Director and NY Times’s report that revealed his order of the Director to stop investigating links between Trump and Russian officials during election campaign raised the tension in global financial markets. One reason that market stress showed up was also the raised concerns over whether Trump would be able to return the agenda to promised fiscal stimulus. Shift to political agenda from stimulus actions also drew back the probability of another rate hike of Fed next month. Note that probability markets attach to Fed raising rates fell below 60% last week from 90% a week ago. Accordingly, dollar posted biggest fall since last August.
US: Data agenda is quite heavy this week in US. Amid Fed Governor speeches, GDP growth, durable goods orders, PMI, new and existing home sales and FOMC minutes will be the main market movers. Kashkari and Harker will speak on Monday at 10:00 a.m. while Kashkari will speak again at 6:45 p.m. Brainard and Evans at the same day will take the stage at 7:30 and 9:10 p.m. (UTC-4).
Manufacturing PMI to be announced on Tuesday at 9:45 a.m. is expected to edge up to 52.9 from 52.8 in April. Service PMI is expected to remain flat at 51.3. New home sales will be announced on Tuesday at 10:00 a.m. local time. It is expected to decrease to 1.0% in April from 5.8% rise in March. Fed’s Kashkari and Harker will again speak on Tuesday at 3:15 and 5:00 p.m. respectively.
Existing home sales will be the release of the day on Wednesday while FOMC minutes to be announced at 2:00 p.m. will also be widely followed. Existing home sales is expected to show some weakness with 1% drop m/m in April, following 4.4% increase in March. FOMC minutes on the other hand may reveal some detail about how Fed Governors consider shrinking balance sheet. Any hint regarding time and/or magnitude would have significant market impact.
Kashkari and Bullard will speak on Thursday at 6:00 and 10:00 p.m. local time respectively.
Both GDP and durable goods orders will be announced on Friday at 8:30 a.m. Previous estimate for 1Q17 at 0.7% disappointed markets and consensus for new estimate is 0.9% against the previous quarter’s 2.1%. Higher than expected realization would support rate hike expectations in June which is distorted by the tension in US. Durable goods orders excluding transportation in the meantime is expected to show some recovery with monthly increase of 0.4% in April, up from -0.2% registered in March. Better than expected results will also support DXY and bond yields in US.
Dollar Index (DXY)
Eurozone: There are no top tier data releases to revert strong standing in EUR/USD this week in Eurozone. PMI data will be the main release to be followed this week. Manufacturing PMI to be announced on Tuesday at 8:00 a.m. is expected to remain flat at 56.7 in April compared to a month ago while service PMI is expected to slightly increase to 56.5 from 56.4 according to preliminary numbers. In line with or better than expectations will point to recovery in European economy. This may support EUR/USD which is trading slightly above 1.12. Additionally, Draghi will speak on Wednesday at 12:45 local time which might be another trigger for the movements of EUR/USD.
UK: In UK, second estimate of GDP growth for the first quarter will be the main release of the week. No change from previously announced 0.3% q/q is expected by the market and it stands for 2.1%, slightly higher than 1.9% registered in the previous quarter. First estimate was lower than market consensus of 0.4% and another negative surprise would weigh on GBP/USD which breached 1.30 on the upside.
Japan: In Japan, markets will be following trade balance to be released on Monday at 8:50 a.m. local time (UTC+9) and flash PMI for manufacturing on Tuesday at 9:30 a.m. Exports in April are expected to post 7.8% y/y growth which is quite lower than the previous month realization of 12.0%. Imports are also expected to show some weakness with 14.8% y/y growth against previous release of 15.8%. Lower imports than previous month combined with higher deceleration in exports might be a negative sign economic activity, though not alarming. Hence, realization in line with market consensus may slightly push USD/Yen parity up.
06 Jul 18 (Fri)
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