Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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US early report
Michael O’Neill
FX Trader, Loonieviews.net
This morning’s Q2 GDP data was well-hyped ahead of the release, and it did not live up to its advance billing. Part of the reason may have been that, other than durable goods orders, there wasn’t any top-tier data available. Another reason may have been President Trump talking about GDP, in Pittsburg, yesterday. There wasn’t any shortage of articles about analysts upgrading their predictions to as high as 5.0%. It was probably just the heat. US Q2 GDP which was forecast to rise 4.1%, did precisely that. The FX reaction has been underwhelming. EURUSD barely budged, and USDJPY dropped 0.20 points
It has been an interesting week. The Trump/Juncker meeting surprised sceptics and ended with promises to lower trade barriers. The European Central Bank meeting concluded without giving any new information much to the disappointment of a few traders who were hoping for clarity as to the timing of an ECB rate hike. Comments from various Japanese officials have reopened chatter about the Bank of Japan ending quantitative easing. All of that made for erratic and somewhat noisy G-10 FX markets that are finishing the week the same way they started – rangebound, as evidenced by the US dollar index chart, below.
The stage is set for a wild and wacky week ahead. The Bank of Japan, Federal Open Market Committee and Bank of England monetary policy meetings are due. There is concern that the BoJ statement could give rise to speculation that Japan QE will be ending. The FOMC is almost universally expected to leave rates unchanged, and the odds are 89% for a September 28 rate hike. The Bank of England is on course to raise rates 0.25% on August 2 .
In addition to central bank meetings, Tuesday is month end. Forecasts are for good sized selling of sterling, CAD and AUD against the US dollar.
There is plenty of top-tier data. Eurozone flash PMI’s are out on Tuesday, as is Canada GDP. The week will end with the US employment report. Nonfarm payrolls are forecast to rise 195,000.
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