Weekly Market Outlook (07-11 August)

UPCOMING EVENTS:

• Monday:
  Canada Holiday, Swiss Unemployment Rate, BoJ’s Summary of Opinions.
• Tuesday:
  NFIB Small Business Optimism Index.
• Wednesday:
  China CPI.
• Thursday:
  US CPI, US Jobless Claims.
• Friday:
  Japan Holiday, UK GDP, US PPI, University of Michigan Consumer Sentiment.

Monday:
The BoJ’s Summary of Opinions will be scrutinised by market participants for
details and clues regarding the BoJ’s monetary policy. Last time, there was
a little hint that indicated a possible change as Eamonn highlighted
correctly here.
In fact, the BoJ implicitly widened the YCC band with a soft cap at -/+0.5%
and a hard cap at -/+1.0%. As a reminder, the BoJ intervened twice last
week as yields on the 10y JGBs breached the 0.60% level. As of now though, it
looks like that the only way is up towards the 1.0% hard cap.

Wednesday:
The Chinese CPI Y/Y is expected to fall into deflationary territory at
-0.5% vs. 0.0% prior, while the M/M reading is seen flat at 0.0% vs. -0.2%
prior. The PPI Y/Y is expected to remain in negative territory at -4.0% vs.
-5.4% prior. Chinese authorities promised
more support for the economy, but we haven’t seen anything of substance yet.

Thursday:
The US CPI Y/Y is expected to tick higher to 3.3% vs. 3.0% prior due to
unfavourable base effects and higher gas prices, and the M/M figure to match
the prior reading at 0.2%. The Core CPI Y/Y is expected to tick lower to 4.7%
vs. 4.8% prior and the M/M reading to print at 0.2% vs. 0.2% prior. The Fed
is focused on Core
inflation; therefore, the Core M/M
figure will be at the top of market’s focus.

The US Jobless Claims remains a key market
moving report as the labour market data is at the top of the Fed’s and the
market’s attention. This week, Initial Claims are expected at 231K vs. 227K
prior, while there’s no consensus yet on Continuing Claims although the prior
week’s reading saw an increase to 1700K vs. 1679K prior.

Friday:
The US PPI Y/Y is expected at 0.7% vs. 0.1% prior, while the M/M reading is
seen at 0.2% vs. 0.1% prior. The Core PPI Y/Y is expected at 2.3% vs. 2.4%
prior, while the M/M figure is seen at 0.2% vs. 0.1% prior.

The University of Michigan Consumer
Sentiment Index is expected at 70.9 vs. 71.6 prior, but the market is likely to
focus more on the inflation expectations figures,with the prior
readings showing 3.4% and 3.0% for the 1-year and 5-year inflation expectations
respectively.