Week ahead - All about US interest rates

FX_IDC:USDCNY   U.S. Dollar / Chinese Yuan
Markets appeared to have changed their tune regarding Fed interest rate outlook after US data released on Friday showed retail sales in April jumped by most in a year. Even before the data release, a significant minority was expecting Fed to move rates in June/September if wage price inflation strengthens.

The week ahead is a busy one for the markets as US CPI             and Fed minutes will provide clues on inflation and on how fast the central bank may push up rates this year. It is a busy week for UK as well, with CPI             , Employment data and Retail Sales scheduled for release.

US data - CPI             and Industrial Production is due for release on Tuesday, FOMC April Meeting Minutes Wednesday and a raft of Fed speakers with Dudley Thursday. Regional PMI indices, initial jobless claims and housing data is due as well.

UK data - CPI             is due on Tuesday, Employment data Wednesday and Retail Sales Thursday.

Eurozone – Quiet week ahead, with just CPI             and trade balance scheduled for release.

Japan – GDP due on Thursday.

Australia - RBA May board minutes are due on Tuesday and the employment report Thursday.

China – Dismal retail sales, industrial production and fixed asset investment was released over the weekend.

Dollar bulls will be glued to the economic calendar this week as a strong rebound in monthly inflation could increase the odds of a Fed June rate hike. Furthermore, a clue regarding a possible rate hike in June could come via April Fed minutes due on Wednesday.

G7 meet in Tokyo on Friday

Another global event - G7 Finance Ministers and Central Bank Governors meet Friday would be watched out by traders. Treasury Secretary Jacob Lew is widely expected to tell Japanese officials to stop threatening to depreciate the yen amid. Note that aggressive monetary easing (intended to weaken currency) by Bank of Japan and other central banks could easily force Fed to delay rate hikes despite improvement in the domestic data. Hence, strong words from US could bring easing madness to a halt (at least temporarily) and pave way for Fed rate hike.

Iron price is falling again… and so is Yuan

Iron ore prices fell 5.2% on Friday taking the total weekly loss to 13% amid steel oversupply concerns and regulators announced measures to curb speculative trading in iron ore. Prices hit a 16-month high in April before losing ground. Prices now hover around 6-week low.

Weakness could persist this week, given the weak China data released over the weekend. This could also add pressure on the Aussie, which is silently losing ground over the last two weeks.

Meanwhile, Chinese Yuan is weakening again. On Friday, the offshore currency, also known as CNH             , hit the lowest since in three months as the People’s Bank of China set the Yuan reference rate against the dollar at 6.5246, the weakest since March 4.

As per Xinhua news, “The central parity rate of the Chinese currency Renminbi, or the Yuan, weakened 97 basis points to 6.5343 against the US dollar             today”.

However, the decline so far has been moderate. Moreover, markets are slowly digesting the fact that Yuan is likely to be on a slow and steady declining trend. Nevertheless, decline in Yuan puts downward pressure on other EM/Asian currencies and Japanese Yen             as well.

UK corporate results due this week

Monday – British Land Company

Tuesday – Land Securities Group

Wednesday – Burberry Group, SABMiller

Thursday – National Grid
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