Weekly Market Outlook (17-21 July)

<p>UPCOMING EVENTS:</p><p>Monday:
PBoC MLF.</p><p>Tuesday:
US Retail Sales, Canada CPI.</p><p>Wednesday:
New Zealand CPI, UK CPI.</p><p>Thursday:
PBoC LPR, Australia Jobs Report, US Jobless Claims.</p><p>Friday:
Japan CPI, UK Retail Sales.</p><p>Monday:
There’s no expectations for the PBoC to cut the MLF rate as the recent comments
by the PBoC deputy governor Liu Guoqiang last Friday indicated that there’s no
fear of deflation as they expect inflation to have a U-shaped recovery in the
second half of the year. The Medium-Term Lending Facility Rate (MLF) is the
main rate at which the central bank lends to big commercial banks. The MLF acts
as a guide for the Loan Prime Rate (LPR). </p><p>Tuesday:
The US Retail Sales are expected to increase by 0.5% vs. 0.3% prior, while the
Core measure is seen at 0.3% vs. 0.1% prior. The Control Group is expected to
rise by 0.2% vs. 0.2% prior. The US data has showed strength lately and the
last week the big miss in US Core CPI coupled with the big jump in Consumer
Sentiment on Friday, is giving the soft-landing narrative a tailwind. The
Retail Sales report should miss by a very big margin to cause fear in the
markets at this point. </p><p>The Canada CPI Y/Y is expected at 2.9% vs.
3.4% prior and the M/M figure at 0.3% vs. 0.4% prior. The Bank of Canada is
focused on underlying inflation measures for its policy decisions, so the data
points to watch are the Core CPI and the BoC’s favourite measures: CPI-common
expected at 5.0% vs. 5.2% prior, CPI-trimmed expected at 3.6% vs. 3.8% prior and
CPI-median expected at 3.7% vs. 3.9% prior. </p><p>Wednesday:
The New Zealand CPI (Q2) Y/Y is expected at 5.9% vs. 6.7% prior, while the Q/Q
reading is seen at 0.9% vs. 1.2% prior. The RBNZ last week left its official
cash rate unchanged at 5.5% as expected as the central bank aims at “remaining
at the restrictive level for the foreseeable future to ensure that consumer
price inflation returns to the 1-3% annual target range”. </p><p>The UK CPI Y/Y is expected at 8.2% vs.
8.7% prior and the M/M figure is seen at 0.4% vs. 0.7% prior. The Core CPI Y/Y
is expected at 6.8% vs. 7.1% prior, while the M/M reading is seen at 0.4% vs.
0.8% prior. Last time both the employment and inflation reports surprised to
the upside and prompt the BoE to surprise with a 50-bps rate hike. This time
the employment report surprised on the wages side but missed on the jobs side,
so if we see a miss in the data, the BoE should go ahead with a 25-bps
increase. On the other hand, if the data runs hot again, they should hike by
another 50 bps. </p><p>Thursday: The PBoC is likely to change the LPR rates
only if it surprises with a change in the MLF rate on Monday. </p><p>Last time the Australian Jobs report
surprised to the upside across the board. This time the expectations are for
Employment Change to increase by 17.0K vs. 75.9K prior and the Unemployment
Rate to remain unchanged at 3.6% and the Participation Rate at 66.9%. The RBA
would like some softening in the labour market to bring inflation back to
target. </p><p>The US Initial Claims are expected at 243K
vs. 237K prior and Continuing Claims at 1725K vs. 1729K prior. The US Labour
Market remains very strong and we haven’t seen any notable sign of weakness yet
with Jobless Claims still running near record lows. </p><p>Friday:
The Japan CPI Y/Y is expected at 3.5% vs. 3.2% prior and the Core Y/Y reading
is seen at 3.3% vs. 3.2% prior. The CPI ex-Food &amp; Energy Y/Y is expected at
4.2% vs. 4.3% prior which is the highest reading in four decades. The BoJ is
still stuck with its dovish monetary policy, and they haven’t hinted to any
change at the upcoming meeting. Nevertheless, there are expectations for a
tweak in the YCC policy as the BoJ is seen raising its FY2023 inflation
forecast above 2% and a former BoJ director said that he expects the central
bank to widen the YCC band from -/+ 0.50% to -/+1.00% at the July meeting.</p>

This article was written by Giuseppe Dellamotta at www.forexlive.com.