UK Unemployment, US CPI, Chinese Retail Sales and Industrial Production
Currency markets faced relatively low volatility over the past days, with the US dollar declining against other major currencies as seen in the performance of the US Dollar Index (USDX) only by a small margin. The GBP/USD pair managed to stabilize with the pound even briefly trading above the 1.21 threshold on Monday. However the sell-off in the South African rand continued with the USD/ZAR pair at the highest level since September 2018.
Stock markets also continued to decline by the start of the European trading session. In Asia one of the weakest performing key indices was in Hong Kong, where the Hong Kong 50 fell to the lowest level since the start of the year and being clearly outperformed by other indices like the Chinese 50 amid ongoing protests and fears of further escalations.
On Tuesday in the UK data on average earnings and the unemployment rate will be expected. The unemployment has been at a decades low despite concerns about the upcoming exit of the country from the European Union. From the US the NFIB Small Business Optimism Index and CPI data will be expected. Later in the Asian-Pacific trading session industrial production and retail sales data from China is expected.
The EUR/USD is by now trading for a week in a relatively restricted range around 1.12 after strongly recovering from a two-year low, which came at the same time as China allowed for a sizable devaluation of its yuan. In this context markets might also have been relieved to hear a senior official at the PBOC telling Reuters that the central bank is seeing the yuan valuation at an appropriate level.
On Tuesday morning the German consumer price index (CPI) data for July was as expected with a 1.7% price inflation compared to the previous year. Later the German ZEW surveys on current conditions and business expectations will be expected. The current conditions survey showed negative results last month for the first time since 2010 when the economy was just recovering from the fall-our of the global financial crisis.
After a short break in the gold rally at the start of the week, the precious metal continued to rise to yet another six-year high by Tuesday morning. Other precious metals were also trading higher, with silver seeing percentage wise an even bigger price gain than gold.
While the ongoing protests in Hong Kong, where fears of an intervention from mainland China are rising could be a driver of uncertainty and thus increase the need for perceived ‘save haven’ investments, just as important if not more are the policies of central banks around the world and expectations of a possible recession, pushing yields on high grade bonds lower. Yields on 10-year US Treasury Notes further declined to the lowest level since October 2016.
On Tuesday US data on the consumer price index (CPI) in July will be released, with expectations that the annual CPI will rise moderately from 1.6% in the previous month to 1.7%.
Oil prices closed again higher on Monday despite fears what the implications of the trade conflict on the demand for energy commodities like crude oil will be. At the end of the previous week, oil prices were supported by comments from Saudi Arabia, that it would take a more active role to stop the prices from declining even further.
In its recent report the International Energy Agency (IEA) warned that expectations of increased demand for crude oil have already been cut back as the IMF also expected the global GDP growth to reach only 3.2% in the next year with China now seen as a “sole source of significant growth” in terms of crude oil demand with increased demand by 0.5 million barrels per day in the first half of the year while the overall global demand growth was 0.6 million barrels per day.
On Tuesday the American Petroleum Institute (API) publishes its weekly statistics on crude oil stockpiles, followed by data from the Energy Information Administration (EIA) on Wednesday, which will report also the weekly change in crude oil but also gasoline and distillate inventories.
Equities started the week deep in the red with futures markets showing extended losses by Tuesday morning. Especially in the banking (US Banks ETF -2.08%) and financial (US Financials ETF -1.84%) sectors significant losses were seen over the combination of factors such as declining interest rates, concerns about a global economic slowdown and risk from further escalations in Hong Kong.
Shares of Caterpillar (-2.44%) further declined to the lowest level since October last year pushing lower for the fifth week in a row. Caterpillar which sells machinery for operations like construction, mining and agriculture is oftentimes also seen as a ‘canary in a coalmine’ when it comes to the overall health of the economy.
Another company in a downwards trend is the African ecommerce platform Jumia (-7.37). The Nigeria based company is continuing to lose value in almost a straight line for the past weeks, closing lower for six weeks in a row. In the past month the share was adversely affected over claims from Citron Research that the company included discrepancies in its original IPO filing in the US. Also the recent quarterly results of increased losses amounting to $51 million could have affected investors’ confidence in the company that has been operating since 2012.
More quarterly earnings disclosures can be expected this week, when companies like Tilray (Tuesday), Cisco (Wednesday), Alibaba and Nvidia (Thursday) and Walmart (Thursday) will publish their numbers.
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