Week of July 28

A light economic calendar over the last week allowed trade announcements to dominate market sentiment, with the ECB deciding to hold, and flash PMIs broadly aligning with expectations.

The economic calendar for next week is significantly more active, featuring interest rate decisions from the Fed, BOJ, and BOC, as well as a first look at Q2 GDP figures and inflation data from the US and EU, culminating in the US NFP.

Week in Review

The main event on the economic calendar was the ECB rate decision last week, which held policy unchanged as widely expected, and reiterated the rhetoric around uncertainty being driven by ongoing trade disputes. The accompanying policy statement showed that recent data supported its June outlook for inflation and the economy, which was understood to signal that the pause in the easing cycle would continue unless there was a major change in trends.

Flash PMIs showed improvement in Europe, coming in slightly above expectations for both Germany and the UK. Japan's manufacturing PMI returned to expansion. US flash manufacturing surprised by falling into contraction at 49.5, instead of the expected 52.6.

The minutes from the RBA meeting, which surprised the markets by keeping rates unchanged, emphasised a cautious approach, adopting a hawkish tone that traders were not expecting. Analysts noted that the emphasis was on inflation instead of the job market.

In geopolitics, the US and Japan agreed to a trade deal that would see tariffs higher than before the Trump Administration came into office, but lower than what was announced on Liberation Day. There was some uncertainty surrounding the actual application of the agreed-upon measures, and automotive makers welcomed the prospect of reduced tariffs. Also in Japan, the elections in the upper house resulted in a divided outcome, with the ruling LDP party failing to secure a majority, fuelling rumours that Prime Minister Shigeru Ishiba would resign. Border clashes broke out between Cambodia and Thailand, with over a dozen soldiers being killed.

Biggest Market Movers

• S&P 500 and Nasdaq score consecutive record highs through the week on optimism around trade deals.
• The GBP/USD was the worst-performing of the major currencies as concerns about a slowing economy weighed on the pound.
• Optimism for a US-EU trade deal had European stocks, as measured by the STOXX 600, rising to a 6-week high.

Top Events in the Week Ahead

The coming week features three major central bank rate decisions, all of which are expected to hold rates unchanged, providing room for much-anticipated news on the US trade deals with the EU and China.

FOMC, BOJ and BOC Expected to Hold

The Fed is widely expected to keep rates unchanged despite increasing political pressure to ease, as the dollar remains weak due to concerns that the US economy might falter. FOMC officials have adhered to the narrative that tariffs cause inflation, which received some support as the June CPI came in hot. The Fed's preferred inflation measure, the PCE Index, will be disclosed after the meeting and is expected to accelerate to 2.8% from 2.7%. Just before the FOMC's rate decision, the first reading of US Q2 GDP will be announced, and is expected to rebound to 2.5% annual growth from -0.5% in the first quarter. Finally, July NFPs are projected to show 105.5K jobs were added, compared to 74.0K a month earlier, with the unemployment rate forecast to tick up to 4.2% from 4.1%. Flirting with the 50-day moving average at $ 3,340 an ounce, gold could extend to support at $ 3,250 or revert towards the weekly high of $ 3,450. Both events are likely to impact the haven.

The BOJ is widely expected to keep rates unchanged despite high inflation as it risks disrupting the fragile economic growth. However, it will likely stick to talking tough on rates in an effort to keep inflation under control. After finding support at the 146.00 handle, USDJPY could extend towards the 200-day moving average, located near 149.50. Conversely, a breakdown could see the pair retest the 50-day moving average, situated near 145.00.

The BOC is also widely expected to keep rates unchanged despite weakness in the economy, as inflation ticked up recently. USDCAD appears to bounce off 1.3600, with resistance above the 50-day moving average at 1.3700 sitting at 1.3800. On the flip side, 1.3538 offers support.

EU Inflation and GDP to Keep Cool

France and Germany will report flash July CPI figures, with both expected to remain below the ECB's target. The Euro Area's first Q2 GDP reading is expected to show the economy slowing to 0.1% from 0.6% in the first quarter. Meanwhile, final PMI readings are projected to confirm that the European manufacturing sector is recovering slowly but remains in contraction. Following EURUSD’s rejection at the 1.1800 psychological resistance and a failure to extend to the peak of 1.1835, the fibre could witness further weakness. Support lies at the 1.1700 and 1.1600 round levels, while resistance above the multi-year high could be seen at 1.1850 and 1.1900.

Other Events, Earnings

Monday has the Dallas Fed manufacturing index. Tuesday includes BOE mortgage approvals data. Australian Q2 inflation figures are expected to be released on Wednesday. Thursday sees the release of Japan's consumer confidence figures, as well as Canada's monthly GDP. For Friday, the University of Michigan consumer sentiment index is expected.

The second-quarter earnings season is expected to peak throughout the week, with notable names on the docket including Welltower, HSBC, Barclays, Visa, UnitedHealth, AstraZeneca, Microsoft, Meta, Qualcomm, Arm, Apple, Amazon, Mastercard, AbbVie, Berkshire Hathaway, ExxonMobil, and Chevron.