UK politics dominate otherwise minimalist schedule of data & events,
German Trade, China FX Reserves & Wintime Energy to be digested;
Macron policy speech, Draghi testimony and Broadbent speech
- China FX reserve rise underline shift in FX management strategy
- UK politics: key question is whether leadership challenge emerges
- Week Ahead: US and China inflation, run of UK activity metrics and
Japan Orders top data schedule; BoC expected to hike rates
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** EVENTS PREVIEW **
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In terms of scheduled data and events, the week will get off to a very subdued start, and if initial reaction to the resignation of Brexit Secretary Davis and his ministerial colleague Baker, markets appear to be unwilling to take much of a cue from political events, preferring instead to indulge in a display of FOMO (fear of missing out), BTD (buy the dip) and TINA (there is no alternative) in a mini "risk on" charge. Outside of the UK political melodrama, the weekend and overnight news run has been indeed limited, with tensions unsurprisingly reappearing in the US/North Korea negotiations, a slightly better than expected set of German Trade data, while the pick-up in China's FX reserves perhaps underlines that Chinese authorities felt little compunction to stage a stout defence of the CNY in the face of the later June sell-off, which is instructive, but fits well with new PBOC's governor Yi Gang's somewhat sceptical view on the efficacy of intervention. The Perhaps of rather greater significance has been the Chinese authorities to allow the recent run of onshore bond defaults, the latest being Wintime Energy, which gives credence to a shift in policy that had been announced, but which few believed given a long track record of effectively 'papering over the cracks'. Outside of this a policy speech by Macron and Draghi's regular testimony to the European parliament are the only other likely items of note. As for the Brexit drama, it remains to be seen whether the Davis and Baker will open the door to an outright leadership challenge (which the Westminster grapevine suggests will be the case), or whether Mrs May will prevail with the plan hammered out with her Cabinet at the end of last week. The latter is notable for two obvious deficiencies: a) the proposals only cover goods, when 80% of the UK economy is services related, with a good deal of that related to goods trade, and b) hardly seems to recognize the realities of what is a workable solution for the EU.... though the EU may offer rather more leeway, if they judge that they need to give May some support. The latter is all the more likely as a Tory party leadership contest would effectively use up all the time that currently remains for negotiations, and as previously suggested makes the risk of an 'accidental hard Brexit' a very real possibility.
From Marc Ostwald