Weekly Market Review - July 22-26
This week was quite exciting and full of relevant events. In the UK, Boris Johnson was selected as the new Prime Minister to replace Theresa May. He has three months to lead the country out of the EU.
The British pound reacted negatively on the news, losing 0.56% against the US dollar over the week. However, the worst performers among majors were the Australian dollar, which fell 1.68% against the USD, and the Japanese Yen, down 0.91% against the American currency.
In the cryptocurrency market, Bitcoin declined by over 5.7% over the week. The markets are waiting for a final decision of the US government on Facebook’s Libra.
Here are the most important economic indicators released this week:
German Business Mood Declines
German business sentiment tumbled this month to the lowest level in over six years, according to a Thursday poll by the Ifo institute. The pessimism is fueled by the manufacturing crisis, trade tensions, and the uncertainty surrounding Brexit. The business climate index dropped to 95.7 from 97.5 last month, which was revised upward. Economists expected a slight decline to 97.1. July sees the fourth monthly decline in a row, now touching the lowest figure since April 2013.
South Korean Economy Revives on Government Spending
South Korea’s GDP rebounded in the second quarter, though the economic growth was driven mainly by government spending. Thus, the central bank might consider another rate cut in the near future. The country’s economy increased by a seasonally adjusted 1.1% in the three months through June, compared to the same period of last year. Economists polled by Reuters expected the GDP to grow by 1.0%. Without government spending, the economy would likely have contracted.
Germany’s Business Activity Hit by Manufacturing
Germany’s manufacturing sector continued on a minor note in July. On Wednesday, Markit’s composite purchasing managers’ index (PMI), which monitors both the manufacturing and services sectors, dropped to 51.4 from 52.6 in June. The result is worrying as the two sectors account for over 65% of the German economy. Analysts expected a slight decrease to 52.3. The drop was caused by a decline in manufacturing, which tumbled to 43.1 from 45.0, to the lowest level in seven years.
Eurozone’s Composite PMI Fell More Than Expected
Eurozone’s business activity contracted more than expected this month, driven by a decline in manufacturing. Moreover, the outlook for August looks worse than initially anticipated. On Wednesday, IHS Markit’s flash composite PMI fell to 51.5 from 52.2 recorded in June. Analysts surveyed by Reuters expected a decline to 52.1. The PMI is a good indicator showing the state of the eurozone’s economy. Economists are worried about the impact of trade tensions, Brexit uncertainty, and geopolitical issues.
North Korea’s GDP Collapses
North Korea’s economy last year saw the biggest drop since the 1990s when the country was hit by a famine. The economic decline is a result of international sanctions. Thus, the country’s gross domestic product (GDP) fell 4.1% last year, based on South Korea’s central bank. North Korea’s exports tumbled 86% to only $240 million, while imports declined by 31%. More than 90% of shipments reach China – North Korea’s greatest ally. The country led by Kim Jon-un is still focusing on developing nuclear weapons.
US Initial Jobless Claims Drop by 10k
The number of American citizens applying for unemployment benefits declined 10,000 to a seasonally adjusted 206,000, which is the lowest level in three months. The drop suggests a stable labour market, even if the US economy seems to give up momentum. The Labor Department didn’t revise data for the previous week. On average, analysts surveyed by Reuters expected an increase in initial jobless claims to 219,000 last week ended July 20. The four-week moving average fell 5,750 to 213,000.
Upcoming News to Watch
Next week, several central banks will present their interest rate decision along with the monetary policy, including the Bank of Japan (on Monday), the Federal Reserve (on Wednesday), and the Bank of England (on Thursday). All these events will shake the Forex markets in the short-term. The Fed’s Federal Open Market Committee (FOMC) is expected to cut the rate by 0.25% to 2.25%, which might put additional pressure on the US dollar.
On Tuesday, France will report on its economic growth. Elsewhere, Germany and Australia will release their inflation data.
Also, on Tuesday, China will report on its business activity, releasing the composite PMI data.
Besides the Fed’s rate decision, Wednesday will be a big day as the eurozone will present its GDP and inflation data. In parallel, Spain, Italy, and Canada will also report on their economic growth.
The week will end with the US nonfarm payrolls report – another big driver of the US dollar.
Anatol has been writing for our news site for a year and is the newest member of our team. While he’s new to us, he’s certainly not new to trading with over 10 years’ experience being a professional financial journalist and working in the markets.