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by Darius Anucauskas

Weekly Outlook: July 22 – July 26: UK Election, EU and US PMIs, ECB Meeting

It will be an important week for the UK’s political life, where on Tuesday Conservatives will be announcing a new Prime Minister. Also, the eurozone and the US will release their preliminary manufacturing and services PMIs on Wednesday. The ECB will take centre stage on Thursday, where they will announce their interest rate decision, followed by a press conference from Mario Draghi.

Monday will be a relatively quiet day from the economic data perspective. But on the political front, we could see headlines surrounding the UK Prime Minister announcement, which should take place on Tuesday. Some movement in the British pound could be visible, unless traders and investors will hold on and wait for the election results.

On Tuesday, the only economic data release worth the attention may be the change in the US existing home sales number for the month of June. The expectations are that the figure will come out way less than the previous +2.5% , at +0.2%. On the positive side, if the number shows up the same as the forecast, it will still be above zero, which is still slightly on the optimistic side.

Political-wise, UK should be announcing their new Prime Minister who will succeed Theresa May. It is vastly believed that the person, who will steer Britain further will be Boris Johnson. Some major bookmakers are giving odds of roughly 29 to 1 that Johnson’s closes opponent, Jeremy Hunt, could seal the deal. That is quite a high odd to beat, which means that the Conservative party members are more likely to give the driver’s seat to Boris. As we know, Boris Johnson is quite an outspoken British politician, in favour of the United Kingdom leaving the EU as soon as possible. The current deadline for Britain to leave is October 31st. As we also know, Mr Johnson is in favour to leave EU on that day, no matter if there is a deal in place, or not. But in the end of last week, UK lawmakers approved certain proposals, which could make it more difficult for the next prime minister to have a no-deal Brexit.

Wednesday will be a PMI day for both manufacturing and services, with a few countries delivering their preliminary numbers. First, it will be France, where manufacturing and services PMI are believed to have ticked down a bit, from 51.9 to 51.6 and from 52.9 to 52.6, respectively. 15 minutes later it will be Germany’s turn, where the data is forecasted to come out mixed. The preliminary manufacturing PMI is expected to have grown slightly, from 45.0 to 45.2, but the services number is believed to have gone down a bit from 55.8 to 55.3. Half an hour later, the eurozone as whole will release the same indicator stats, where manufacturing is expected to have remained the same, at 47.6, but the services PMI is forecasted to have fallen a bit, from 53.6 to 53.3. Fifteen minutes after the US opening bell, the US will present their preliminary manufacturing and services PMIs as well. Both numbers are expected to have grown slightly from the previous. The manufacturing figure is believed to come out at 51.4, against the previous 50.6. The expectation for the services figure is to be just higher by a tenth of a percent, going from 51.5 to 51.6. If the actual numbers come out in line with expectations, then there might not be a significant effect on the local currencies. But if we get numbers, which are better than the forecasted ones, that could support the local currencies against their major counterparts.

In addition to the PMIs, the US will release the new home sales change number on a MoM basis for June, which is believed to have increased significantly, going from -7.8% in May to +6.6% in June. Also, the US will provide us with their crude oil inventories number, For now, there is no forecast, but if it comes out higher than the previous -3.116M, then this means that there are more oil barrels held by US firms, which may push oil prices lower.

Thursday will also be a relatively interesting day, given that the main news will be surrounding the ECB and its interest rate decision. It will be accompanied with the monetary policy statement. Around 45 minutes later, Mario Draghi will hold a press conference, where he will share his views on the state of the EU economy. But this meeting will be carefully watched, as the Bank is willing to cut rates any time soon. Currently, the projection is that ECB will keep their interest at the same 0.0% at this meeting. But there is speculation in the money markets that there is a good chance the Bank might cut its deposit rate by 10 bps during Thursday’s meeting, going from the current -0.4% to -0.5%. This is because during the previous meeting in June, Mario Draghi noted that the ECB is willing to add more stimulus, in order to lift inflation, which is currently at +1.3%. That number is a bit on the lower side of what the Bank would like to see, given that their target is somewhere slightly below +2.0%. As we know, last week, there was a report from Bloomberg, stating that the ECB staff are thinking of reconsidering their inflation target, explaining that with the current state of the economy, the target is becoming unrealistic. Certainly, for now, those are just rumours, but something like this would come in line with the possibility of cutting rates. Such a move might be bad for the euro, as it could sell off against its counterparts.

In terms of other Thursday’s news, Germany will release the figures of its Ifo Business Climate Index for July. The number is believed to have declined slightly from 97.4 to 97.1. Turkey is expected to cut its interest rates, where the one-week repo rate for July is believed to have gone down from +24.00% to +21.50%. Meanwhile, there are no forecast available for the overnight borrowing and lending rates, but the previous ones were at +22.50% and +25.50% respectively. Given that the Turkish central bank now has a new head, it is clear that rates will be cut. The only questions is, will it be in line with expectations. In between the ECB interest rate decision and Mario Draghi’s press conference, the US will release its monthly core durable goods orders figure for June, which is believed to have declined by two tenths of a percent, from +0.4% to +0.2%.

Finally, on Friday, during the Asian morning, Japan is releasing its Tokyo core and headline YoY CPI figures for July, which are expected to have declined by a tenth of a percent, going to +0.8% and to +1.0% respectively. Also, we will be getting the advanced US GDP growth rate number for Q2, which is forecasted to have declined quite significantly, going from the previous +3.1% to +1.8%.

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