Chinese GDP numbers were slightly better than expected at 7.5% y/y in Q2 (Nordea: 7.4%; consensus: 7.4%; previous: 7.4%). The batch of monthly numbers - investment, industrial output and retail sales - were also released this morning. Most were fairly close to expectations or slightly better. We could see slightly better numbers out of China in the coming months, but seen in a longer perspective, we still believe the Chinese economy is slowing and rebalancing gradually.
Anders Svendsen is a Chief Analyst with Nordea, covering the Euro area economy. He has over 10 years of experience in global financial markets, mainly covering economies and currencies in the burgeoning emerging markets arena.
Anders is currently very focussed on the debt crisis in the Euro area and its implications from an economic point of view as well as analysing the consequences for FX and fixed income markets.
There were no significant news in Fed chair Yellen’s prepared remarks at the semi-annual testimony before the Senate Banking Committee. In line with recent communication, the FOMC sees an ongoing recovery, but also sees substantial slack in the labour market remaining. Thus, a high degree of policy accommodation remains appropriate.
The Policy Board of the Bank of Japan (BoJ) decided unanimously to keep all policies* in place at this morning’s meeting. One Board member, Mr Kiuchi, proposed to make the inflation target a medium- to long-term goal and to set a time frame for the quantitative and qualitative monetary policy easing (QQE) of two years. The proposal was dismissed with the votes 8 to 1. All in all, today’s news are market neutral.
If you are just back from holiday, here are a few bullets on what happened while you were busy…
No big events this weekend and the big markets are roughly unchanged. Relief for Portugal on Friday. Post-World Cup Monday calendar with Euro-area industrial production and Draghi in the European Parliament. Focus on the Fed this week with Yellen's bi-annual testimony to Congress. Plenty of government bond supply again this week.
Fed Chairman Yellen will present the semi-annual Monetary Policy Report to Congress. UK and the Euro-zone will both be out with CPI. The most important Chinese figure in next weeks calendar will be y/y GDP. The BoJ will come out with their Monetary Policy Statement.
The Fed will deliver minutes and Bank of England will have their MPC meeting - likely reaffirming their continued stance. CPI will be out from Norway and Sweden with the latter in focus after a Riksbank surprise cut. Furthermore, China will present trade and inflation data. Find our expectations here...
Today’s US labour market report was very strong. More jobs than expected had been created in June and the unemployment rate dropped significantly. Only wage growth did not accelerate, as we had expected. The market reaction has been significant: 10Y Treasury yields are up roughly 5 bp and the USD strengthened against the EUR. We are still most inclined to believe that stronger wage and price pressures will be the factors that prompt a re-pricing of the Fed, but wage growth did not pick up today.
The NBP kept rates on hold at 2.5% as widely expected. Forward guidance was dropped and the inflation projection was revised down significantly. Neither the statement nor the press conference have made us change our views and we still believe the MPC will soon open the door for a possible autumn rate cut. Markets are pricing in more than one cut already, though.
EM FX performance has been mixed since our latest EM FX Monocle, but our call for stronger CEE currencies vs the EUR and modestly weaker Asian and LatAm currencies vs the USD over the summer seems to play out ok so far. The June EM FX Monocle include a short summary of our overall EM FX view and for each of the following currencies: BRL, CNY, CZK, HUF, INR, KZT, MXN, PLN, RON, RUB, TRY and ZAR.
The RON is back below 4.40, but risks are weighing on the outlook. Banking sector risks in Bulgaria, a weak domestic economy and a weakening inflation outlook, and quarrels with the IMF, all suggest that the downside for EUR/RON is limited.
The so-called waitergate has increased domestic political risks, while the Russia/Ukraine crisis has faded a bit into the background. Markets are taking an increasingly dovish view on the NBP, but much has already been priced in. We still see a gradually stronger PLN towards year-end and higher volatility.
Growth remains weak, inflation remains low and hence we expect the central bank to maintain the EUR/CZK floor at 27.00 in the foreseeable future. CNB Governor Singer has hinted that the floor could be moved higher.
More easing from the central bank. The economic outlook is clearly improving but the inflation outlook has deteriorated. We still see EUR/HUF at 300 in 3M.
The recent rate cut from the ECB pushed the EUR/USD down. Furthermore, has a dovish Yellen paused the Fed funds repricing which altogether leaves the EUR/USD in a range with upward bias for the summer! Alongside that we have updated stories on JPY, FX vol, EM FX, NOK and SEK in this edition of Global FX Strategy. Enjoy!
This is the last financial forecast update before summer. The next scheduled update is 18 August.