Fundamental Comment

This Week: US-China trade tensions, GDP; euro area CPI

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This week, investors will keep their eyes on any developments in the U.S.-China trade war, in addition to growth data from major economies and euro area inflation figures.

Politics continue to weigh on financial markets, especially after the latest escalation from U.S. President Donald Trump to impose new tariffs on Chinese imports. 

US Dollar

The U.S. dollar index faced a sell off by the end of last week after hitting an 11-month peak at 95.21, perhaps on some profit taking and fears of a trade war.

This week, eyes will focus on the release of some important economic data from the world’s biggest economy, including final GDP, durable goods, consumer confidence and inflation.

However, other data could grab more attention, most notably the U.S. goods trade balance for May, as Trump pursues narrowing the U.S. trade gap with China and other trading partners.   

After a slight improvement in the trade shortfall in April to $67.3 billion, the deficit could widen again to $68.9 billion in May, according to analysts’ projections. 

Core PCE price index, the Fed’s favorite measure of inflation, could show a stall in the year ended May at 2.0 percent. That would mean stabilizing at the Fed’s inflation objective. 

Market participants will also carefully watch U.S. final annualized GDP, which is expected to show no revision to remain at 2.2 percent in the first quarter.

Weak economic data from the U.S., could spark a downside correction in the dollar, taking in mind any development on the political front.

Euro

The euro got some support at the end of last week after a euro area deal with Greece and the improvement in eurozone’s business activity in June.

The most important data this week will be the euro area flash consumer price index for June.   

Euro area CPI for the year ended June may signal a deceleration to 1.7 percent from a previous of 1.9 percent.

Inflation data is mainly carefully watched by investors as the ECB always build its monetary policy on its trajectory.

The euro could begin an upside correction from an 11-month bottom this week after it found solid support near 1.15 on June 22. 

Pound Sterling

After the rising probability of seeing an interest rate hike by the Bank of England in August, the pound could resume its rebound attempts.

The U.K. lacks the release of important data this week except for the final GDP for the first quarter that may confirm an ease in the expansion pace to 0.1 percent.

It is worthwhile to mention that the pound has come under pressure since early April, amid diminishing expectations of an interest rate hike by the BOE in August and worries about Brexit talks.

But it gained some support last week after three MPC members called for an interest rate increase to 0.75 percent.  

Commodities

Gold slumped last week despite the escalating trade tensions as the rise in the dollar, rebound in stocks and investors preferring other safe havens forced the yellow metal to dip to a six-month trough of $1261.35 an ounce. 

The precious metal will probably get its direction this week from the dollar’s movements, where the beginning of a downside correction in the dollar is likely to create more demand on gold as an alternative investment.

Regarding oil, it rebounded from a two-month low last week as U.S. crude stockpiles slipped while U.S. production did not rise.

U.S. crude inventories may have dropped by 1.3 million barrel in the week ended June 22 after a fall of 5.9 million barrel a week before, according to the U.S. government EIA report forecasts.

Investors will also start the week by digesting OPEC’s decision regarding their output increase after the deal reached in Vienna on Friday. 

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