HIGHLIGHTS THIS WEEK
Monday: US Factory Orders
Tuesday: AU RBA Interest Rate Decision, UK/EU/US Service PMI’s, US API Crude Oil Inventories, ECB’s Draghi, Weidmann, IT Vote on Conte
Wednesday: AU GDP, US Weekly DoE Oil Inventories, BoE’s Tenreyro, McCafferty, IT Vote on Conte
Thursday: GE Factory Orders, EU GDP, US Weekly Jobless Claims, BoE’s Ramsden
Friday: GE Industrial Production, UK Industrial & Manufacturing Production, CA Employment Change, US Rig Count, G7 Summit in Quebec, Russia President Putin visits China
A relatively quiet week on the economic data front with Fed speakers now in the blackout period ahead of next week’s FOMC meeting. However, this does not necessarily translate into a quiet week for financial markets as the world awaits the latest G7 Summit and to what type of frosty reception the US President may receive given the latest steel and aluminium levies. With this in mind I foresee commentary related to global trade, alongside on-going political developments in Italy and Spain, to be the dominate themes for the week with the former taking precedence.
You’re hot then you’re cold…
We enter an interesting period in the on-going trade war saga as Trump heads to Quebec on Friday with the possibility of the EU, Canada and China all threatening retaliatory measures to last week’s US trade announcement. As is usually the case ahead of a key event, I would be expecting a lot of headline noise to materialise as the week progresses as officials will be working tirelessly behind the scenes to avoid an escalation in trade tensions. As such, the performance of the S&P is likely to remain sensitive to developments on the issue.
Ahead of the summit it’s interesting to note that US Commerce Secretary Wilbur Ross concludes his visit to China today (watch out for fresh comments) and officials from Beijing have a busy week ahead with Russian President Putin receiving the red carpet treatment for a three-day visit starting Friday.
Keep calm and carry on…
The IT/GE 10-yr bond yield spread has moved back to its tightest level in a week as some degree of political stability is restored for the time being. Tuesday and Wednesday will see both houses of parliament vote on the latest government proposed by the Five Star Movement and League party’s, under PM designate Giuseppe Conte.
If the proposed formation does receive parliamentary approval the Italian situation is far from being concluded with the composition of the two parties only holding a slim 14 votes more than the opposition in a 320-seat senate. This situation may mean that market sentiment regarding Italy will remain bumpy for the foreseeable future and although one negative wave has past, the difficulties in actual governance, and a shared view that appeases both political parties, may result in renewed political uncertainty in due course. The end game still being the difficulty in co-coordinating policy and appeasing external investors on the country’s ability to manage its debt.
Looking elsewhere, the Spanish 10-yr bond yield has seen its biggest one-day fall in two years as markets appear to be reflecting a sigh of relief rather than optimism over the new prime minister Pedro Sanchez.
The net result of both the Italian and Spanish situation may well be some reprieve for EUR/USD. This view may also be supported if the US administration continue to push their protectionist stance to the detriment of the USD, as investor fear of a tit-for-tat response from global partners.
OPEC commentary just getting started…
An article from Bloomberg this weekend talked about how the upcoming OPEC meeting on 22nd June could be a tough one for Saudi oil minister Khalid Al-Falih to manage given the about turn in recent months from extending the existing supply pact to now increasing production in order to stop the rise in prices. The full article can be found HERE.
The bottom line from a trading point of view is that commentary pertaining to the group’s decision will only intensify as the meeting draws closer and in typical OPEC fashion I would be mindful of headline volatility picking up as various ministers start to vocalise their stance. As is always the case, the kingmakers to the deal will be Saudi Arabia and Russia.
To this effect it is worth noting that preceding the official OPEC meeting will be a gathering of major industry CEO’s in Vienna the day before the OPEC meet, followed by arguably the headline act which is the OPEC and non-OPEC meeting the day after on the 23rd of June. Given the emphasis on these events I look for WTI crude to consolidate until more clarity on the fundamentals starts to emerge, with a risk of knee-jerk movement as and when comments from major producers are made.
If you missed the morning briefing, you can review the recording HERE.
Have a great week ahead.