The US Dollar rebounded last week after the TikTok/WeChat bans stimulated some position adjustments in risk-FX, while US stocks continued higher on fiscal stimulus expectations.
Non-Farm Payrolls were taken positively, although the numbers were skewed due to seasonal adjustments.
Stimulus talks between the White House and congressional Democrats broke down on Friday. So, on Saturday, Donald Trump signed four presidential orders: a partial renewal of unemployment benefits; a suspension of the payroll tax on workers that earn less than $100,000; extend eviction restrictions; ease of education related debt.
President Trump also added that he would try to enact permanent payroll tax cuts if he won re-election.
This development may keep risk assets supported, but Democrats will likely fight these actions.
To note, Tokyo and Singapore are on holiday Monday, so the markets in Asia should be thin. Look to London flows for initial directional clues, although the US session will be the protagonist.
Themes for the Week:
- US Fiscal Debate: after Trump’s executive orders, a deal will still have to be reached in Congress and the situation is still messy. Risk assets will sell off hard if no deal is reached.
- US/China tensions: China’s retaliation is key, after Trump ordered U.S. firms to stop doing business with TikTok and WeChat. Lighthizer and Liu He will meet on Aug 15, when they dial into a video conference to review the trade deal.
- RBNZ: based on last week’s price action, Kiwi may be vulnerable going into the meeting. Some analysts expect an increase to QE up to NZ$ 80 Bln
Data in the Week Ahead:
- UK Employment Change (PMI employment components would suggest a weak number)
- GER ZEW (could come in better as EU data continues to surprise)
- RBNZ Decision (dovish statement expected)
- UK GDP Q/Q (Q2 was when Covid-19 hit the hardest, but the data would suggest that spending and trade were stronger)
- US CPI (no strong bias)
- AU Employment Change (increases in employment were shown across the sector PMIs)
- US Retail Sales (confidence is low, with only redbook reporting stronger sales recently)
On the Radar
It was a choppy end to the week and even though the USD showed some resilience, it still hasn’t broken key levels and simply posted a neutral week. Gold & Silver remain within their strong uptrends, so don’t try to catch tops just yet.
So as we cautioned last week, the USD downtrend isn’t yet broken - simply stalled. So even if we get some temporary pullbacks (perhaps in Kiwi first and foremost) it is to be seen.
The only other (weak) signal comes from GBP which seems to be weakening slightly, although trends remain intact.
Good Luck!