› MARKET REVIEW, JUL 30 – AUG 3 , 2018

MARKET REVIEW, JUL 30 – AUG 3 , 2018


It's been long since there was such a week full of important and extremely volatile events like this. Inflation and GDP of the Eurozone, a meeting of the Federal Reserve on Monetary Policy and the US Labor Market Report are among these events. As usual, Europe will start the week before the release of the EU's inflation as a whole takes place; moreover, Spain, Germany, France, and Italy will report. Data on unemployment in the countries of the block are multidirectional, but in general, the EU is expected to reduce the indicator by 0.1%. It will affect the Eurogroup economy positively. Inflation in the EU will slow at around 2.0% (according to forecasts), while GDP will slow by 0.3% year-on-year.

Slowing inflation and GDP will not allow the ECB to change its rhetoric regarding the curtailing plan of QE and the nearest increasing interest rate in the Eurozone. It will affect the euro in the medium term negatively. GDP and EU inflation will see the light on Tuesday.

On the contrary, the United States is doing well. GDP grew from 2.2% to 4.1% in the second quarter, inflation is on the rise, the labor market is strong. The most important days for this week will be Wednesday and Friday. On Wednesday, the FRS will hold a meeting and announce an interest rate decision. This week no one expects a rate increase by Federal Reserve, but next month, the chances of an increase are quite large with the same stable economic growth. Although the US president criticized the monetary policy of the FRS, the regulator has no choice but to raise the interest rate, which would restrain inflation. Since if it becomes uncontrolled, there will be trouble with the recession in the final.

On Friday, the US labor market will report, traditionally on the first Friday of the month. The number of people employed in the non-agricultural sector (NFP) is stably located in the green zone, but, as in the previous month, an indicator of the average hourly wage, where growth is expected from 0.2% to 0.3%, is equally important. Unemployment will also drop below 4.0%. With a strong labor market and rising wages, the FRS will not have options except to raise the interest rate in September-October.

 MARKET REVIEW, JUL 30 – AUG  3 , 2018


Brexit gives no piece to the British pound. Mark Carney, the head of the Bank of England, gave an interview to the agency Bloomberg this morning. He reported on the Bank's research and its experiences.
"We can choose between a road of protectionism, oriented to bilateral balances of goods and trade, and a way to liberalize global trade in services," Carney said. The first option will cost Britain jobs, growth and stability, and the second one can support a more comprehensive and sustainable globalization.

The Bank of England decided to conduct a Brexit stress-test within nine months. This Thursday, the regulator will raise the interest rate by 0.25%, thereby giving itself more room for "maneuvering" in case of economic complications. The potentially erratic Brexit approaching the Bank forces the regulator to raise the rate above the "emergency" minimum of the financial crisis of 2007-2008.

 MARKET REVIEW, JUL 30 – AUG  3 , 2018


As you know, the Bank of Japan has faced stubborn and extremely low inflation, which stubbornly does not want to grow, despite the ultra-soft rhetoric of the Bank and the five-year policy of qualitative and quantitative easing. The last optimization took place in 2016, which would reduce the interest rate and limit the yield of debt bonds.

Haruhiko Kuroda, the head of the Bank of Japan, has faced an extremely difficult task. The yen “does not pay attention” to the current policy of the regulator; inflation does not grow. The head of the Bank intends to bring the third largest economy in the world out of decades of deflation.

The meeting of the Bank of Japan will take place on Tuesday. There is a lot of information from different sources regarding the change of monetary policy by the regulator. But we will find out how it will take place indeed and not in name tomorrow. Then they will announce a decision on the interest rate of the Bank of Japan, no changes are expected.

 MARKET REVIEW, JUL 30 – AUG  3 , 2018


When the US dollar has strong and volatile news, it also recovers on assets traded in that currency. Gold is no exception. The decline in risks, disagreements and trade strains in the world make gold an increasingly less attractive asset. The rapidly developing US economy significantly increases the appetite for risks, moreover, today the US dollar itself is a defensive asset. The prospect of raising the interest rate by the Federal Reserve is growing every week. And the chance of the nearest increase in September has almost reached 80%.

The week is extremely busy, the continuation of the US-EU discussion on trade moments is expected as well. We will remind that US President Donald Trump agreed not to impose trade duties on European cars and parts, after a conversation with Jean-Claude Juncker that took place last week. In response to these actions, Trump wants the EU to increase imports of American soy and liquefied gas. What consensus will world leaders obtain? China still makes signals that it is open to dialogue with the US, but there have not been any notable successes in China-US relations yet.

 MARKET REVIEW, JUL 30 – AUG  3 , 2018

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