Markets continue to trade in summer mode, with price action being driven by headlines out of China and US treasury yields. China continues to make efforts to boost its economy and surprised markets overnight by keeping its 5-year loan rate unchanged while agreeing a small cut to the 1-year rate with markets hoping for more.
The single currency remains on the backfoot with EURUSD struggling to move above 1.09 after data released this morning showed that German producer prices fell more than expected in July. This week we look forward to the release of key PMI surveys which will likely provide fresh insight into the impact of recent ECB tightening on the economy. The headline reading fell in July from June and is expected to fall further, suggesting that GDP growth was decelerating at the start of the quarter. The euro area economy is heavily reliant on China, so recent challenges out of China will likely further impact the outlook in the bloc. Elevated inflation remains a headache for the ECB, and signs that growth is slowing are unlikely to prevent the central bank from hiking again, with a final 0.25% increase likely in September.
It is a fairly quiet week for US data, with home sales data in the coming days, ahead of Durable Goods and Initial claims due out on Thursday. On Friday, the attention shifts to Fed Chairman Jerome Powell’s speech at the Jackson Hole symposium. Markets expect Powell to emphasize the need to keep interest rates higher for longer as the central bank continues to battle inflation.
Have a good week.