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The Week That Was
The week through August 19, 2016 was a mixed bag for the U.S dollar amid hawkish comments from Fed officials and the dovish tone in the minutes of the FOMC’s July meeting. Meanwhile, crude oil was raging ahead, fueling global stocks to near all-time record highs.
Oil prices were flat on Friday but, finished the week higher yet again, on hopes of a tightening market in the second half of 2016 based on an expected deal between OPEC and non-OPEC producers to freeze output. While the meeting in Algeria is weeks away, the surge in crude prices is bringing U.S explorers/ refiners back into the market.
According to oilfield services provider Baker Hughes, the number of rigs drilling for oil in the U.S. last week increased by 10 to 406 – rising for the eighth week in a row. The 11th increase in the last 12 weeks and counting is a warning about the self-defeating effect of the current rally in prices, as U.S shale producers – who were shut out of the market due to low crude prices – are encouraged to join in again. And the OPEC is now facing a choice between defending market share or defending prices. Last time, the 16 –member cartel chose to defend market share and pushed the market into a global oversupply glut.
Elsewhere, the first set of post-Brexit data released last week indicated that the damage so far to the U.K. economy has been limited. U.K. consumer prices rose more than expected year over year, jobless claims declined, average hourly earnings increased and retail sales jumped 1.4% in July. A weakened currency after the Brexit vote has created an appeal for foreign tourists to increase spending in the UK, especially in jewelry purchases.
The Week Coming Up
Compared to the last week, more U.S data will be released in the next seven days, with new home sales on Tuesday and existing home sales on Wednesday. Both reports are expected to report a slight drop in July from the previous month.
Flash readings for the Purchasing Managers’ Index for the manufacturing and services sectors will be reported in separate reports on Tuesday and Thursday. The consensus figures for the August readings are 52.7 for the former and 52.2 for the latter.
Durable goods orders are also scheduled to be reported on Thursday and are expected to show a 3.5% m/m rebound in July from a 3.9% drop in June. The final estimate for second quarter GDP growth is due on Friday. The reading is forecast to be revised lower to 1.1%.
The most widely anticipated event on the calendar for the markets will not be the speech by Fed Chair Janet Yellen in the annual Symposium organized by the Kansas City Fed, where central bankers from all over the world will gather. Yellen’s words are highly awaited against the background of uncertainty on the Fed’s planned path with regards to rate hikes. The possibility of a rate hike next month and in November are almost zero even after FOMC voting member Dudley emphasized that the central bank could lift rates as soon as September.
Also being watched in the week ahead, oil traders will be focusing on U.S. oil supplies data on Tuesday by the American Petroleum Institute, data over stockpile by the U.S. Energy Information Administration on Wednesday, and U.S. oil rig count by Baker Hughes on Friday for fresh supply-and-demand balance signals.
After a batch of positive data last week, the Office for National Statistics is scheduled to report a second estimate on U.K. economic growth for the three months ending June 30, on Friday. The report is forecast to confirm that the economy grew by 0.6% in the April-to-June quarter – unchanged from the preliminary reading.
In a quiet week for the euro zone, the main data release of significance will be preliminary data on August manufacturing and service sector activity on Tuesday. Also scheduled to be released the same day are PMI readings for France and Germany.
On Thursday, Japan’s Statistics Bureau is set to publish July inflation figures. The forecast is for inflation to fall by 0.4% on a year-on-year basis. Should the headline figure remain negative, this would be the eighth straight month of declines. The country has been struggling to attain its 2% consumer price growth target. A negative reading shall create more pressure on policymakers to support the world’s third largest economy with further policy easing or stimulus measures, as the Japanese Yen is still defying the BOJ by attempting to surge beyond the 100 Yen per dollar threshold.