Trade will kick off in Australia on Monday with news that for the first time, at least publicly, European leaders are starting to talk about some sort of Greek default.
On Friday Reuters reported “Senior EU officials have formally discussed for the first time a possible Greek debt default as negotiations between Athens and its creditors have stalled ahead of an end-month repayment deadline.” The report said that of the three scenarios under discussion this week “the least likely, they think, is a successful cash-for-reform deal next week in time to meet end-June legal deadlines.”
That suggests forex markets might have an interesting week with Greece and the US data conspiring to push the US dollar higher. That means the Euro will be under pressure, which will also weigh on both the Aussie and Kiwi dollars. Complicating issues was the fact that the Aussie and Euro rallied off their lows on Friday night.
But the big event this week is the FOMC meeting and accompanying statement, with any hints that the Fed is about to tighten rates keeping the US dollar strong.
Before the FOMC meeting, local traders have to navigate two speeches by senior RBA officials and the release of the Minutes to this month’s RBA Board meeting. Monday at 5.30pm Christopher Kent, Assistant Governor (Economic), will be talking at the Australian National University in Canberra. Then Tuesday morning at 7.55am Guy Debelle, Assistant Governor (Financial Markets), will be presenting at the launch of Financial Integration in the Asia Pacific: Future of Australian Financial Services, Breakfast in Sydney.
Traders will be looking for any clues as to whether Kent and Debell have any more to add to the pessimistic outlook Glenn Stevens delivered last week.
On Tuesday 11.30am, the RBA meeting Minutes will be released. After Stevens left the door open to another easing it seems likely that the easing bias, apparently absent in the Governor’s statement earlier this monthly, will be more obvious in the minutes.
Wednesday sees the release of Westpac’s leading index of economic activity for Australia. While not a top tier release, traders will be watching to see if it can help clear away the economic fog that sees a coincidence of very strong employment growth alongside weakish consumer confidence and an uncertain GDP outlook. In its preview, Westpac said:
The 6mth annualised growth rate of the Index lifted from –0.02% in March to +0.43% in April, a positive sign after persistently weak, below trend readings throughout 2014 although the growth pulse is still not strong. Unfortunately the May update is likely to be weaker.
The back end of the week is fairly barren domestically. But traders still have plenty of catalysts from offshore to trade off.
ECB president Mario Draghi is speaking on Monday night. With all the turmoil around Greece and the big surge in EU bond rates this is a key event for the week. Indeed, Westpac’s chief economist Bill Evans has been in Europe of the past couple of weeks and wrote in a note to clients that:
The dominant global theme has been risk aversion – “capital preservation”. Recent volatile events in bonds and currency markets have driven this sentiment.
Particularly, the increase in European government bond rates (German 10 year bonds from less than 10bps to more than 100bps) has triggered concerns for investors. This has also undermined consensus views for a weakening Euro and strengthening USD.
So Draghi’s speech will be watched closely.
Likewise, the spread compression between EU and US bonds has certainly taken the pressure off the Euro, which makes both Draghi and the FOMC statement all the more important for forex market direction and trade.
CPI in Germany and the UK are important releases Tuesday as are German and EU ZEW surveys.
The Bank of England’s vote cut is released on Wednesday night our time. Wouldn’t it be good if we got an RBA vote cut as part of the minutes. Then we’d get a much better feel for where the bank really is at.
But Thursday 4am AEST is the big one for the week. The Fed statement is likely to address the obvious strength in the labour market and what appears to be improved growth momentum since the increduibly weak (reportedly weak anyway) Q1 2015 GDP in the US.
That’s a risk for Aussie and Euro longs, a risk for US bonds which have clearly broken higher and maybe a risk for US stocks. But improved economic momentum isn’t necessarily a risk to stocks via interest rates at these levels. Even if the Fed hikes 1%, rates will still be super low in the US and there is strong potential for the economy to counter-balance the Fed.
Akin Oyedele has written up a piece on One of Wall Street’s top bulls who just circulated this fantastic presentation on the markets saying the S&P will end the year above 2300.
ECB LTRO Thursday is the key that day for Europe before the release of US CPI, which is super important in the context of when the first Fed hike will be.
Friday is all about Japan and Canada. The BoJ has a meeting and announcement in our time zone and then in Canada retail sales and CPI data will be released.
Here is Westpac’s excellent calendar of all the key events and data for the week.