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On the international front, with US trade restrictions on China regarding semiconductors and more signs of the flare-up of economic tensions, the overall global outlook is not so bright. On the last day of the week, we were all surprised by the international disruptions of the Internet and computer networks. We expect to see worries intensify further in the coming week, with an adverse effect on tech shares likely to widen.
Next Week's Calendar:
Monday:
New Zealand’s trade data for June
PBoC Loan Prime Rate
Tuesday:
Eurozone’s Preliminary Consumer Confidence for July
CBRT One-Week Repo Rate (July)
Wednesday:
Preliminary PMI figures for July from Australia, Japan, France, Germany, the Eurozone, the UK, and the US
Germany’s GfK Consumer Confidence for August
US Housing data (July)
BoC policy meeting
Thursday:
Germany’s Ifo Indicators for July
UK’s CBI trends for industrial orders for July
UK’s CBI Business Optimism for Q3
US June’s durable goods orders
US Weekly initial jobless claims
US Q2 GDP
Friday:
Japan’s Tokyo CPI rates for July
US consumption rate and Core PCE price index for June
US Final University of Michigan consumer sentiment for July
Wall Street
Published economic data in the US has whipsawed economists, and financial markets have come along for the ride. However, market participants are now convinced that the Fed will cut rates in its September meeting, with an additional cut likely before year-end and a total of 100 bps of easing throughout 2025.
On the earnings front, we have had positive and acceptable reports so far. However, next week will be more important to watch as the tech giants are scheduled to report, and the market will focus on that. This week, we need to watch earnings more closely, especially the releases from Microsoft (MSFT) and Alphabet (GOOGL) on Tuesday, IBM (IBM) on Wednesday, and Amazon (AMZN) on Thursday.
As mentioned earlier, last week’s economic calendar included some optimistic data, indicating that economic activities are going well. However, while they are still holding up, they appear to be decelerating, especially when compared to the same period last year.
The 10-year Treasury yield has edged lower recently, alongside increasing odds of multiple rate cuts this year. The US 10-year Treasury yield ended the week at 4.242%, but earlier last week it fell to around 4.18%.
In the week ahead, we will have Existing and New Home Sales on Tuesday and Wednesday, PMIs on Wednesday, Durable goods orders, and GDP numbers on Thursday to watch. However, the main focus will be on Personal Income and Spending on Friday.
Existing and New Home Sales numbers on Tuesday and Wednesday can give us a bigger picture of how American consumers are spending their money and how housing markets may move in the coming months.
Home prices for both new and existing homes are increasing. It is worth remembering that with a 5.7% annual increase in the median single-family resale price in June, we saw the largest jump since October 2022. This trend is similar to new home sales as well. Despite new offers by sellers and builders, such as price cuts and mortgage rate buy-downs in recent months, higher-for-longer rates appear to be hindering their efforts.
For existing home sales, we expect another decline in July, forecasting a 4.1% dip to about a 4 million-unit pace. As for new home sales, we expect a relatively modest 4% increase to a 644,000-unit pace, following an 11% decline last month.
Before Friday's key data, the GDP numbers on Thursday must also be closely watched. Higher-for-longer rates and the depletion of consumer savings appear to be making their debut. The US economy grew at a 1.4% annualized rate in Q1, the slowest pace since the economy contracted in the first half of 2022. For the second quarter, we expect a slightly better increase of 1.8%, which is still below the 2.4% rate averaged during the last expansion.
Personal Income and Spending numbers on Friday will take center stage. Consumer spending has fallen in recent months. Nominal personal expenditures rose by 0.1% in April and 0.2% in May, both below the average monthly pace in the first quarter. If we adjust for inflation, the spending numbers could be more pessimistic. On the income front, while it advanced 0.5% over the month in May, we expect a slower pace of income growth in the coming months.
We expect consumer spending and income to increase by 0.3% in June. We estimate that the headline deflator rose just 0.1% in June, which would be the second-lowest monthly reading this year. Additionally, the core PCE deflator is expected to see a 0.2% increase in June. On an annual scale, both PCE and core PCE are expected to remain unchanged at 2.6%.
These data will confirm that despite recent optimism in recent weeks, inflation remains sticky. While it cannot change the 25 bps rate cut expectation for the September meeting, it may shift the tone of the statement and the Fed Chair's press conference after the July 30-31 policy meeting to a slightly more hawkish stance.
From a technical point of view, as we can see in the S&P 500 chart, bears have started to move, and now the price is falling toward the key pivot of 5,440. Breaching below this level can open the doors for 5,350 and 5,250 as the next stops.
Forex
With challenges in the US and rate cut expectations for the September meeting, we can expect a weaker US dollar until Friday this week. This allows other currencies to take the initiative and form their own course, creating a more balanced trading mix for market participants. Additionally, with central banks' meetings in Canada, China, Russia, and Turkey in the week ahead, the forex market can experience more volatile days.
USD
Despite the decline on Wednesday, the US Dollar Index closed the week slightly higher as it recovered on Thursday and Friday. Selling stocks and increased demand for cash were among the reasons for the positive movement in USD value on Thursday and Friday.
Besides the economic factors and stock market conditions discussed in detail above, it is important to note that the US geopolitical situation is also unstable at the moment. Although Mr. Trump currently has a greater chance of winning the election, his victory would mean more support for policies, such as lower taxes and interest rates, which could support economic growth and stock markets. However, this could also lower the US dollar value and increase inflation. It is still too soon to discuss the election results, especially as we await President Biden's potential withdrawal from the election campaign, which fuels further uncertainty.
On the data front, this week we will have GDP, personal income, and spending numbers, which will shed more light on the next Fed movements, particularly regarding the second possible rate cut later this year. For this week, we can expect soft downward pressure until Friday, and then, depending on the data, we can determine the next move.
From a technical point of view, we can see a short-term recovery in the overall downtrend, with the first resistance at 104.60 and the next target around 103.60 for this week. On the flip side, if the DXY can recover above 104.60 and hold above that level, 105.20 will be the next target.
CAD
With the Bank of Canada's (BoC) interest rate decision this week, CAD will be one of the important currencies to watch. As the latest published inflation data in Canada had mixed signals, with CPI falling but core CPI increasing, we can expect the BoC to hold the current rates but signal a potential rate cut in its next meeting. Therefore, since the holding policy is the most estimated and expected decision and is already priced into the market, the main driver for the Loonie's price will be the Bank of Canada's forward guidance.
Due to the weakness in the labor market and economic growth in recent months, there is a possibility of a surprise 25 basis point rate cut. Should the BoC cut rates instead of remaining on hold, we can expect the Loonie to lose ground.
From a technical point of view, USDCAD is moving in a soft uptrend, with the next target around 1.385. On the flip side, if we see weaker USD or hawkish policies from the BoC, the Loonie could change direction, targeting 1.35 by the end of the week.
Gold
While in its weekly change, the price closed almost where it opened on Monday, during the week it reached our weekly target and printed a new all-time high above $2,480. The weaker US dollar and lower US yields over the past week seem to have polished the shiny metal, making it more attractive. Despite the correction seen on Thursday and Friday, overall market conditions with higher risks and uncertainty across the markets still support gold's safe-haven demand, potentially moving prices higher.
In recent months, global gold reserves have increased by 17.5 tons, estimated at a value of $1.4 billion. Interest was not just in physical gold, but also in financial instruments related to it. According to the World Gold Council (WGC), global exchange-traded investment funds (ETFs) backed by gold have recorded inflows of funds for the second month in a row. All these data indicate the renewed interest of investors in gold as a reliable asset in conditions of economic uncertainty.
From a technical point of view, gold is trying to create a new pivot around $2,350. Additionally, we have $2,400 as a psychological level, and holding above this level could play a strong role in pushing the price higher.
Oil
These days, oil prices depend on specific factors such as Chinese data, stock market behavior, and geopolitical tensions.
On the geopolitical front, there is good news about a potential ceasefire in Gaza. US Secretary of State Antony Blinken mentioned that a long-sought ceasefire between Israel and the Palestinian militant group Hamas was within sight. The importance of this ceasefire is that, if it happens, the Iran-backed Houthi rebels could ease their attacks on commercial vessels in the Red Sea in support of Hamas, which could decrease oil prices.
On the other hand, published data in recent weeks show that China's economy in Q2 2024 grew 4.7% year-on-year—well below the primary forecast, and consensus expectations, and a notable slowdown relative to Q1. Weak domestic consumption seems to be the primary driver of China's softening economic momentum, compounded by global economic conditions leading to less demand for Chinese products. On Monday, the PBoC will have its interest rate decision meeting. While we do not expect any changes in the rates, they may announce additional supportive policies, which could add to economic optimism and support oil prices.
From a technical point of view, the uptrend has been disrupted, and the break below $80 has increased downside risks. We have a key pivot at $78, and breaching this level could send prices much lower. However, if prices return above $80, they could target $84 in the short term.
BTC
Bitcoin had several positive news events this week, including strengthened expectations of Trump's victory in the election. He has recently made some positive comments about digital currencies, especially BTC. Additionally, the latest on-chain data and surveys show that Mt. Gox creditors plan to hold BTC. In a poll on Reddit, a group of holders who have finally received their Bitcoin compensation from the defunct Mt. Gox exchange shared their plans regarding selling their recovered BTC. More than 50% said they are not willing to sell any BTC.
Also, recently, vocal Bitcoin proponent and cofounder of MicroStrategy, Michael Saylor, took to his account on the X platform to make a bullish Bitcoin statement. His post intrigued the community because it included an image of Homer Simpson, who is “bullish on Bitcoin.”
Overall market sentiment is positive for this digital asset. From a technical point of view, bulls above $62,000 seem encouraged to reach their next target of around $72,000.
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