With last Friday’s blockbuster US nonfarm payrolls report still ringing in their ears (943k vs the forecasted 870k), global investors will be keeping their ears peeled for more hints about how soon the Fed could begin paring back its support measures for financial markets. Such clues may emanate out of either the scheduled speeches by key Fed officials in the first half of the week, or from the headline US consumer price index due mid-week.
Here’s a list of notable market-related events for the week:
Monday, August 9
- Japan markets closed
- China CPI, PPI
- Germany external trade
- Fed speak: Atlanta Fed President Raphael Bostic, Richmond Fed President Tom Barkin
Tuesday, August 10
- Australia business confidence
- Germany ZEW survey expectations
- Fed speak: Cleveland Fed President Loretta Mester
Wednesday, August 11
- EIA crude oil inventory report
- Fed speak: Atlanta Fed President Raphael Bostic, Kansas City Fed President Esther George
- US CPI
Thursday, August 12
- OPEC monthly oil report
- Eurozone industrial production
- UK industrial production, 2Q GDP
- US weekly jobless claims
Friday, August 13
- Eurozone trade balance
- US consumer sentiment
Fed watch still in effect
Note that Atlanta Fed President Raphael Bostic and Richmond Fed President Tom Barkin are voting members on the 2021 FOMC, while Cleveland Fed President Loretta Mester and Kansas City Fed President Esther George are scheduled to become FOMC members next year. Given how much influence each speaker has on the Fed’s next policy move, along with the still-uncertain tapering timeline – it could happen by late this year or early 2022, hence markets will remain sensitive to each speaker’s inclinations and views about the Fed’s eventual tapering.
As for the July inflation print, markets are expecting a year-on-year increase of 5.3% and a month-on-month climb of 0.5%. That would mark a slight cooling off from June’s 5.4% year-on-year and 0.9% month-on-month prints, both of which were their highest readings since 2008!
Although Fed officials have often cited the jobs recovery rather than inflation as their primary consideration for tapering, inflationary pressures that prove to be more persistent than expected would give policymakers added reason to abandon their dovish stance. Hence, a higher-than-expected July inflation print could spur the Fed into tapering sooner rather than later, and such a narrative could spur the US dollar onto a new 2021 high.
Central bank policy outlook also major driver over GBP, EUR
The British pound may offer some resistance to a soaring dollar if its 2Q GDP and June industrial production figures exceed market expectations, while the euro may also push back against the greenback if the Eurozone’s trade balance and industrial production prove stellar this week. Of those two currencies, the pound should fare better than the euro, given that the Bank of England is closer than the European Central Bank in paring back its stimulus measures. To prove the point, EURGBP has just posted a new year-to-date low and could be set for even more declines this week.
Gold forms death cross
This week, also pay close attention to gold, which has an inverse relationship with the dollar. It has just formed a death cross (50-day simple moving average crossing below its 200-day counterpart), and such a technical event often heralds more price declines.
If the selling of gold persists on the back of signs of building inflationary pressures forcing the Fed’s hand into tapering sooner, that could translate into a new year-to-date low for the precious metal provided the bears can drag it below $1680.