CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
ECB: Pandemic focus
With the euro gaining ground again versus the US dollar, attention in the FX markets will be on the European Central Bank (ECB) meeting on Thursday.
Market participants are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices.
The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting and the assumptions for growth contained in the ECB’s September look out of step with reality.
Weakness in Friday’s PMIs highlight the concern among businesses, particularly in services. The threat of a double dip recession is real, and Christine Lagarde recently commented that the resurgence of the virus is a clear risk to the economy.
Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December – albeit it may choose to increase PSPP rather than PEPP – for the markets these acronyms won’t matter too much – it’s the size and duration of the liquidity injection that matters, not how it is presented.
Lagarde may drop some hints in the press conference to increasing PSPP/PEPP envelopes in December, but will not over-commit. Moreover, with progress on delivering on the fiscal side slow, the ECB will feel obligated to step up.
To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.”
As far as the currency goes (why else are we bothering?), the line in the sand for the central bank was 1.20 on EURUSD – a level that prompted chief economist Philip Lane to comment that “the euro-dollar rate does matter”.
Traders should pay attention to any nod to currency worries from Christine Lagarde – another run at 1.20 looks credible, particularly if there is a Democrat clean sweep in November’s elections as this is seen as a headwind for the dollar and likely positive for the euro due to better trade relations.
Fundamentally it will be more of the same from the ECB with it stressing it is ready to do more and the momentum is with the doves to ease more.
Meanwhile, there are also meetings of the Bank of Japan and Bank of Canada taking place this week.
Week Ahead: FOMC minutes, Walmart earnings, next PMI round in focus
US discounters Walmart and Target, and home improvement retailers Home Depot and Lowe’s report their earnings this week. With the exception of Target, these stocks have dramatically outpaced the S&P 500 this year. The global monetary policy outlook also gets an update this week thanks to minutes from the FOMC, ECB, and RBA, while flash PMIs for August will help shape the Q3 growth outlook.
Earnings: Walmart, Target, Home Depot, Lowe’s
Discounters like Walmart and Target, and home improvement retailers Home Depot and Lowe’s have raced higher since the market bottomed-out in March. Walmart is 11% above 2020 opening levels, although that pales in comparison to Home Depot’s 28% surge and Lowe’s 30% rally. Target is the exception, although with year-to-date gains of 5% the stock is still fractionally outperforming the wider market.
According to Bank of America analysts, Target and Walmart could post strong earnings, thanks to broadened revenue streams, a timely shift to eCommerce, and shrinking expenses – with Q1 bearing the brunt of Covid-related costs.
Home Depot and Lowe’s have raced higher as investors bet on strong demand from consumers fed up of the homes they’ve been stuck inside for months. Both were able to stay open in Q1 while other businesses had to close, helping boost sales growth. Markets will be looking to see whether this moderated in Q2 as a whole as other firms opened their doors.
FOMC and RBA minutes, ECB accounts
We’ll get plenty of insight into the current state of mind of the world’s central bankers this week thanks to the latest meeting minutes from the Federal Open Market Committee, European Central Bank, and Reserve Bank of Australia.
The Fed, ECB, and RBA all left policy unchanged at their most recent meetings while reiterating their commitment to doing whatever it takes to keep the economy supported. The minutes will provide more information on their respective outlooks and how concerned policymakers are over second-wave risks.
Flash PMIs to help shape Q3 outlook
Now that the Q2 GDP data for the world’s major economies is in (in preliminary form at least), the focus can turn to the outlook for Q3. The next set of flash PMIs from Markit cover August, and will help to shape expectations of the pace of recovery this quarter.
The latest manufacturing, services, and composite numbers will be released for the Eurozone, UK, and US. July’s composite readings indicated economic activity in the Eurozone had expanded by the fastest pace in just over two years, while the UK expansion was the fastest since June 2015.
UK inflation, retail sales
Price growth in the UK came in slightly above forecast in June, rising from 0.5% to 0.6% on the year versus expectations of a slip to 0.4%. However, inflation is still running at a four-year low, and analysts do not believe June’s rise was the start of a sustained uptrend. Spare capacity in the economy is expected to keep a lid on price growth or see the rate slow even further.
Retail sales showed a larger-than-expected rise in June, jumping 13.9% on the month and following on from a 12.3% rebound in May. Despite the strength, many high street stores have announced jobs cuts recently. Data from the British Retail Consortium points to further sales growth in July, but with online still driving a huge portion of this the threat to the UK high street remains.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|07.15 UTC||Daily||European Morning Call|
|12.00 UTC||17-Aug||Master the Markets|
|From 15.30 UTC||18-Aug||Weekly Gold, Silver, and Oil Forecasts|
|17.00 UTC||19-Aug||Using candlestick charts to form the basis of your trading analysis|
|17.00 UTC||20-Aug||Election2020 Weekly|
Top Earnings Reports this Week
|22.30 GMT||17-Aug||BHP Billiton – Q4 2020|
|Pre-Market||18-Aug||Walmart – Q2 2021|
|Pre-Market||18-Aug||Home Depot – Q2 2020|
|Pre-Market||19-Aug||Lowe’s Companies – Q2 2020|
|Pre-Market||19-Aug||Target Corp – Q2 2020|
|After-Market||19-Aug||NVIDIA – Q2 2021|
|After-Market||20-Aug||Ross Stores – Q2 2020|
Key Events this Week
Watch out for the biggest events on the economic calendar this week:
|01.30 GMT||18-Aug||RBA Monetary Policy Meeting Minutes|
|06.00 GMT||19-Aug||UK Inflation|
|14.30 GMT||19-Aug||US EIA Crude Oil Inventories|
|18.00 GMT||19-Aug||US FOMC Meeting Minutes|
|11.30 GMT||20-Aug||ECB Monetary Policy Meeting Accounts|
|12.30 GMT||20-Aug||US Weekly Jobless Claims|
|14.30 GMT||20-Aug||US EIA Natural Gas Storage|
|06.00 GMT||21-Aug||UK Retail Sales|
|07.15 – 08.00 GMT||21-Aug||Eurozone Flash PMIs (Composite, Manufacturing, Services)|
|08.30 GMT||21-Aug||UK Flash PMIs (Composite, Manufacturing, Services)|
|12.30 GMT||21-Aug||Canada Core Retail Sales|
|13.45 GMT||21-Aug||US Flash Manufacturing PMI|