The World Overall

One Financial | Andrei Wogen| finance.wogen@gmail.com|For the Week of: 06/07

Last Week in Review

EUR The ECB left rates and their QE program in tact last week as
widely expected while on the economic front a mixed to dovish
message was heard from President Draghi. On the one hand the ECB
raised its inflation forecast for this year though for 2016 and 2017 their
forecasts were unchanged and growth forecasts were unchanged for this
year through 2017. Draghi also said that while domestic demand and
overall growth is gaining momentum risks are still to the downside
overall. As for the ECBs QE program, while the Bank is committed to
continuing QE until at least September of next year (or until their 2%
inflation target is sustainably reached) they currently seen no reason to
increase at this time and they are looking through the current volatility
that has been seen in the bond markets around the world. As for data
last week, inflation is improving some as shown by data released last
week for the Euro Zone and Germany though the manufacturing
industry remains mixed as PMI data showed a mixed picture with
Germany in particular, looking weaker. As for overall growth, the
second reading of Q1 GDP
AUD First quarter GDP came in better than expected though the
internals showed a good bout of weakness. Domestic demand, incomes
and nominal GDP were all weak and terms of trade continues to
decline. Consumers and businesses were also weaker and even
government revenue collections were weaker for the first quarter. The
only two real positive things that helped lift the GDP number were
better exports and a build in inventories. Overall though it would seem
that the Australia economy continues to weaken. Second quarter growth
isnt looking so good either as last week Retail sales data came in flat
month-over-month and the Australias trade deficit widened to the
biggest on record. All this weakness is just more confirmation that the
RBA will need to ease further. I am expecting though that they will want
to wait until later this year.
INR Indias central bank cut its main interest rate by 25bps for a third
time this year in order to help boost investment and credit. This rate cut
was meant as a front-loaded cut and the RBI Gov. Rajan appealed to
commercial banks to continue to pass through the cuts in rates and also
appealed to the government to keep inflation expectations in tact
through good management of food price policies in particular. The main
concern though and which prompted the RBI to cut rates last week is
the current low investment environment that continues to be present in
India. Now the Bank says it will wait for more data to see how the rate
cut has affected things before moving again.
PLN The Polish Central Bank maintained its interest rate last week as
it said that the current economic recovery that is going on in Poland

right now, mostly due to the recovery being seen in the Euro Zone right
now, will reduce the risk of inflation remaining below the Banks target.
However the Bank also warned that inflation will likely stay negative
for some time yet. The overall economy too, though improving some,
still suffers from weak demand and a continuing negative output gap.
On the whole then, while the Bank left rates on hold this meeting, their
overall tone on the economy and inflation remains quite dovish though
dont expect any more easing from the Bank. When the Bank cut rates
last, in March of this year, they said that that was the last easing
measure it would do, despite their dovish forecasts for inflation. We
shall see..

BRL Brazils central bank raised their interest rate by 50bps to

13.75%. This puts the total amount of rate hikes that the Brazilian
central bank has done since embarking on its tightening cycle last April
2014. This rise in rates was done due t the macroeconomic scenario and
the outlook for inflation. The decision was unanimous in its decision.
Inflation continues to be a problem in Brazil especially due to
government price hikes which has spilled into slower economic growth
overall. Couple this with continued political turmoil, the outlook for
Brazil remains bleak.
MXN The Mexican central bank held rates steady despite lowering
their inflation forecasts. The Banks inflation expectations for 2015 and
2016 were reduced to below the Banks 3% target. Reductions in the
prices of energy and telecommunications have help contribute to the
lower inflation. A lower Peso, pushed lower along with other emerging
market currencies due mostly to US Fed rate hike expectants pushing
the US Dollar up, has caused inflation as expected by the bank but not
enough to keep inflation expectations from being lowered. But if a
lower Peso does continue to occur, this could increase inflation
expectations and therefore higher rates could be in order in the coming
months. As for the economy, Mexico continues to improve gradually
with the employment sector continuing to improve which has helped
consumption improve in turn.

What to Watch this Week

USD The only real important data this week will be retail sales data
for May being released on Thursday. Overall, consumer consumption in
the US has been weak lately and so, as with last months data an
improvement will be looked for in the data and will be an encouraging
sign for the Fed too.
AUD The monthly employment data from Australia will be in focus
for the Aussie markets. Employment in Australia continues to remain
rather mixed but overall is weakening as the mining industry continues
to wind down and the rest of the economy is having trouble picking up
the slack. Improvement in the employment sector will be one of the
keys to whether the RBA will have to ease further later this year or not.
Speaking of the RBA, the other key event this week will be a speech that
will be given by RBA Gov. Stevens at the Economic Society of Australia
in Melbourne. So the economy will be a topic and given the RBAs

recent actions in cutting rates and in their dovish tone, focus will be on
what he has to say especially in terms of monetary policy if that is
talked about at all. The other data of interest this week will be business
confidence which has been weakening as of late pointing to continued
weakness in the business sector. This weakness in the business sector
was seen last week as CAPEX numbers for the first quarter came in
lower than expected.
NZD This week the main focus for the Kiwi and New Zealand
financial markets will be the RBNZs monetary policy meeting and
decision. The question is, after raising rates three times last year, will the
Bank cut rates now instead. Overall economic conditions, including
inflation, have been weakening quite a bit since late last year and more
and more calls for a rate cut have been coming. This would be a pretty
big turn around for the Bank but given the current environment in New
Zealand, economically speaking, a rate cut can not be out of the
question. If they do cut rates, focus will be on what the Bank expects
going forward, whether a cut in rates will be seen as the beginning of a
rate cutting cycle or whether it will be more of a one-off event at least
for the time being. Also, focus will be on the Banks general assessment
of the New Zealand economy and inflation prospects going forward.
CNY Inflation data for the month of May will be the main data out of
China this week and a lower number I suspect will help revive and
reinforce the recent huge uptrend that has been seen in China stocks as
of late. Other data of focus will be industrial production and retail sales
data which will be important given the overall weakness that persists in
the Chinese economy.
JPY The second reading of first quarter GDP will be in focus for
Japanese markets this week. The first reading looked pretty good
actually as both annualized and quarterly readings came in above
expectations. Therefore, any improvement in the data will be a good
sign for the Japanese economy which continues to remain weak overall.
However there has been some improvements recently which have
helped push back the need for any more BoJ easing. At least for now. It
would seem that the whole world had a pretty good first quarter in
terms of growth, it is the second quarter which is looking like it will be
weaker and so this is where the focus is right now, including for Japan.
EUR Greece. Yes, this small nation continues to be a big story for the
markets right now as the government continues to push back on
demands for reforms by the Troika in order to unlock more funding.
The government also continues to do everything it can to NOT pay the
IMF or anyone else for that matter, with news towards the end of last
week that they will be bundling payments to the IMF which would hold
off any payments to the IMF till the end of June this year. They also did
not pay their June 5th payment to the IMF. On the whole, things still
remain fragile and in the end there will be losses for more than just
Greece. The lenders too will likely have to budge, especially if parties
like Germany really do indeed want Greece to stay in the Euro Zone.
That is the real question though.does the Troika really want Greece to
stay in the Euro Zone and does Greece really want to stay in the Euro
Zone? The latter question seems to be a yes if looking at the people for
the answer but not so much so if looking at the government and this
was proved in a small way last week as news surfaced that the Greek
government is looking to hold snap elections if their Creditors do not
budge. As for the Troika though, I am not sure if even they know the

answer to that question yet but in the next couple of weeks I think
things will (finally) be made more clear for both sides.
USD No matter which way you slice it, the May jobs report last week
as better than expected overall and shows a pretty strong jobs market in
the US. The Non-Farm Payrolls number came in better than expected
and wages came in better as well and so some good signs of the strength
that exists in the US jobs market right now. The one part of the overall
jobs report that was a little worse than expected was the unemployment
rate which ticked a little higher. However this is not a concern as a tick
higher in the jobless rate with such a large gain in overall jobs is very
likely an indication that more people are getting into the jobs market to
look for jobs. A good sign therefore going forward for both the jobs
market and overall US economy but also in terms of Fed rate hikes. The
US Dollar continued its bull run on the jobs report release as the market
increased its rate hike expectations, this time putting September as the
next possible date for a rate hike.
CAD The Canadian jobs market also showed some improvement as
data released last week showed a larger than expected gain in jobs for
the month of May. The participation rate also ticked higher as did
wages. Both good signs and a positive indication of the overall
Canadian economy especially given last weeks dismal GDP report. One
note of caution though on the jobs report is that this tends to be a very
volatile report and so while the jobs market looks pretty good this
month caution should be given for next months data.

Overall Sentiment Indicator

Asset

Overall Sentiment

US Dollar

Positive

Euro

Positive

Pound

Positive

Canada Dollar

Positive

Australian Dollar

Positive

Japanese Yen

Negative

New Zealand Dollar

Neutral

Strength Rating

Economic Calendar
Region

Event/Data

Expected

Date

Time (EST)

Japan

Q1 GDP Annualized

2.4

06/07

7:50pm

Japan

Q1 GDP q/q

0.8

06/07

7:50pm

China

Trade Balance

44.95B

06/07

n/a

Germany

Trade Balance

19.4B

06/08

2am

Germany

Industrial Production y/y

06/08

2am

China

CPI y/y

1.3

06/08

9:30pm

China

Producer Price Index y/y

-4.5

06/08

9:30pm

Australia

Investment Lending for Homes

06/08

9:30pm

United Kingdom

BoE Inflation Report Hearings

06/09

5am

Australia

Westpac Consumer Confidence

06/09

8:30pm

Australia

RBA Gov. Stevens Speech

06/09

10:50pm

United Kingdom

NIESR GDP Estimate (May)

06/10

10am

New Zealand

RBNZ Interest Rate Decision

06/10

5pm

New Zealand

RBNZ Press Conference and Monetary Policy Statement

06/10

5pm

Australia

Employment Change

06/10

9:30pm

Australia

Full Time Employment

06/10

9:30pm

Australia

Employment Rate

6.2%

06/10

9:30pm

China

Retail Sales

10.1%

06/11

1:30am

China

Industrial Production

6%

06/11

1:30am

United States

Retail Sales ex. Autos

06/11

8:30am

United States

Retail Sales Control m/m

0.5%

06/11

8:30am

United States

UoM Consumer Sentiment

91.5

06/12

10am

3.5

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