Weekly Outlook: 2015, August 23 - August 30

Barclays - After The Shocks: Signals, Noise And Pent-Up Cash

"Once again summer vacations have been interrupted, this year by developments in China, Greece and commodities while the implied probability of a September Fed hike has oscillated around 50%. Amid the volatility, markets have been generally resilient and risk exposures have been pared back from elevated levels. Indeed, inflows into money markets have been $91bn the past six weeks, near a post-crisis record, pointing to elevated risk aversion.

As investors prepare for the last four months of the year and that pent-up cash likely gets put back to work, we highlight a few of the key signals that we are watching across macro, market and positioning measures that seemingly point to a bottoming in select growth and growthlinked assets. However, China remains an overhang on those assets that are most exposed to further slowing and CNY depreciation.

Money market inflows of $91bn the past six weeks signal considerable risk aversion. Composite equity positioning has declined notably and is now modestly underweight, corroborating the view that cash levels have been increased."

"The commodities selloff looks to be nearing an end. Oil prices have overshot our strategists’ bearish forecasts as well as our macro model estimate of fair value. Industrial metals are down 20% since mid-May, similar to the ~20% peak-to-trough corrections since 2011.

Our call remains that the Fed will hike in September. US dollar positioning is still extremely long but US 2y rates positioning is also very long. This disconnect suggests hedging in rates likely provides a cleaner option for risks around Fed lift-off.

EM equity MF and HF positioning is still elevated, driven by Asian overweights, which keep Asian stocks (and FX) vulnerable to the further 6% CNY depreciation we expect."


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The US dollar suffered in a week that saw doom and gloom in global markets. Will this continue? German Ifo Business Climate, US CB Consumer Confidence, US Durable Goods Orders and GDP data from the US and the UK are the main highlights in Forex calendar. Join us as we explore the market-movers for this week.
The Federal Reserve released its July meeting minutes, revealing a dispute over the rate hike timing. Despite clear signals from some Fed officials calling for a rate rise in September, many policy makers still believe such a move is premature. In her capacity as the chair and the leader, Janet Yellen will be the driving force behind September’s decision. Will we see a rate hike in September? The chances look more slim with growing worries about China and fresh political uncertainty about Greece. The euro is clearly positioned as a safe haven currency and enjoys the crisis, alongside the yen. Dollar longs are on the other end.

1. German Ifo Business Climate: Tuesday, 8:00. Business sentiment improved unexpectedly in July following two monthly declines upon an agreement between Greece and its creditors. The Ifo business climate index edged up to 108.0 from a revised 107.5 in June, beating expectations fora 107.6 reading. The Greek crisis resolution and the nuclear deal with Iran boosted sentiment. The survey showed brighter expectations, as well as better current conditions. Business sentiment is forecasted to reach 107.6 in August.
2. US CB Consumer Confidence: Wednesday, 12:30. U.S. consumers were less optimistic in July. The Conference Board’s Consumer Confidence Index declined to 90.9 in July from 99.8 in the prior month, missing forecasts for 100.1. The reading registered its lowest level since September 2014. Current conditions remain positive, but the short-term expectations deteriorated, amid uncertainty concerning the labor market, and volatility in financial markets prompted by the situation in Greece and China. U.S. consumers are expected to be more positive in August. The index is expected to rise to 93.1.
3. US Durable Goods Orders: Wednesday, 12:30. Businesses rebounded after a slow start. Orders for long lasting manufactured goods edged up 3.4% in June after a 1.8% fall in May. Economists forecasted a 3.2% gain. Business investments in manufacturing equipment and software also suggests a pickup in manufacturing in the coming months. However, uncertainty remains since the Durable-goods can be volatile. Meanwhile, orders excluding transportation gained 0.8%, the largest increase since August 2014. Overall, new orders in the first half of 2015 remain weak, down 2% from the same period in 2014. Orders for durable goods are expected to decline 0.5%, while core orders are forecast to gain 0.3%.
4. Jackson Hole Symposium: Thursday, Friday and Saturday. Quite a few central bankers will be making their way to Jackson Hole Wymong for the annual conference. While Fed Chair Janet Yellen will not be attending, some other important figures will be speaking and rubbing shoulders in the corridors. This includes Vice Chair Stanley Fischer, BOE Governor Mark Carney and others. Remarks about the Chinese slowdown ,the euro-zone recovery and of course a potential US Fed hike from the people that matter most will all stir markets.
5. US GDP data: Thursday, 12:30. According to the initial estimate, the US economy grew by 2.6% in Q2, a bounce back from an upwards revised 0.6% in Q1 but certainly not convincing enough. In the second estimate, an upgrade to 3.2% is on the cards. Will a significant upwards revision improve the mood? Ir it the gloom of Q3 here to stay?
6. US Unemployment claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment aid increased mildly last week, reaching 277,000. The 4,000 climb is still consistent with a solid job market. The four-week average increased 5,500 to 271,500. The average number of claims remain near a 15-year low, indicating the US labor market continues to strengthen. However, wage growth has yet to improve. Average hourly pay increased a mere 2.1% from 12 months earlier, far less the 3.5% to 4% gains viewed in healthy economies. The number of jobless claims are expected to reach 275,000 this week.
7. UK GDP data: Friday, 8:30. The UK economy returned to stronger growth in Q2: 0.7% according to the initial read. This was as expected and stronger than +0.3% seen in Q1. A confirmation of this number is on the cards for the first revision.
8. US Goods Trade Balance: Friday, 12:30. This new report from the U.S. Commerce Department was released in July. The event is issued four to seven days prior to the existing report on International Trade in Goods and Services, excluding services or trade in goods on a balance of payments basis. This data is included in the GDP report aimed to improve the accuracy of the first estimate. The Goods Trade Balance for June showed a trade deficit at $62.26 billion.
9. Mark Carney speaks: Saturday, 2:25. BOE Governor Mark Carney is scheduled to speak about inflation Dynamics and Monetary Policy at Jackson Hole Symposium. He may talk about the low inflation trend in the UK and his concerns that inflation might fall below zero again postponing any rate hike initiatives this year.

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US Dollar - " From the more extreme scenario, an intensified sense of risk aversion would continue to loosen long-Dollar exposure that was simply looking to take advantage of carry. Yet, as fear turns to panic amongst speculators, the repatriation of foreign funds to ‘square up’ will be swamped with funds flowing into the US financial system seeking the safety of Treasuries, money markets and the Dollar itself."

EURUSD - " We thus look to the coming week as a critical test of financial market strength and, by extension, whether or not the US Dollar will continue lower against the suddenly-resurgent Euro. On its own merits the Euro looks like a sell given a recent flare-up in political risks surrounding Greece and the fact that short-term European interest rates remain negative. Yet fear is a much stronger emotion than greed, and similar episodes of S&P sell-offs would likely send the EUR/USD to further highs as speculators rush to dump short positions."

GBPUSD - "In contrast, the Fed Minutes from the July 29 interest rate decision suggests that the bar remains high for a September liftoff as the committee highlights a growing number of downside risks to the economic outlook. Indeed, the renewed decline in energy prices may become a growing concern for the committee as it struggles to achieve the 2% target for inflation, and the slowdown in global growth raises the risk for a further delay of the normalization cycle especially as Chair Janet Yellen remains in no rush to remove the zero-interest rate policy (ZIRP). That said, dovish remarks from Mr. Fischer may curb the appeal of the dollar, and the greenback may face additional headwinds ahead of the next interest rate decision on September 17 as market participants push back bets for a shift in Fed policy."

USDJPY - "In the scenario of continued weakness in Asia, long Yen remains an attractive target. The 120 level in USDJPY will likely illicit some thought from the Bank of Japan, and this level has previously been listed as an ‘area of interest’ for the bank; but whether any action actually takes place is the bigger question. There is a grouping of support in the 119.50-120.50 area, including the 61.8% retracement from the 1998-2011 movement that saw the pair trade from 147.66 all the way down to 75.55."

AUDUSD - "On the external front, US economic news-flow takes top billing as home sales, consumer confidence and updated GDP figures cross the wires. As before, the outcomes are likely to be judged in terms of their implications for the likely timing of the Fed’s first post-QE interest rate hike. Improvements are expected across the board, but the implications of such outcomes may prove somewhat counter-intuitive."

GOLD - "Looking ahead to next week, fresh commentary coming out of the Fed Economic Symposium in Jackson Hole, Wyoming may fuel further volatility in interest rate expectations amid the ongoing deterioration in global market sentiment. In addition, the second revision on 2Q GDP will also be in focus with consensus estimates calling for an upward revision to an annualized rate of 3.2% q/q, up from 2.3%. With the threshold for a 2015 rate hike drifting higher, a weaker-than-anticipated print could further exacerbate the decline in the greenback and heighten the appeal of bullion."

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