Next week will feature various interesting economic reports and events, which should, in connection with the ongoing geopolitical events, keep market participants busy despite the summer holiday lull. GDP numbers from some major developed economies, the UK inflation report and US retail sales will be the most important to watch.
Starting with the euro, Eurozone GDP flash estimate for the second quarter due out on Thursday, will likely show that the economy of the 18-member area barely grew during the second quarter. The quarter-on-quarter growth figure is expected to come in at 0.1% and any miss will mean that the economy stagnated or even worse, contracted. In view of the geopolitical spat between Russia and the European Union, investment and consumption could suffer a setback in coming quarters, which could put the Eurozone economic recovery in jeopardy. On Thursday, final inflation numbers for July will also be released and the preliminary flash estimate of 0.4% growth is expected to be confirmed. A miss there may also be painful for the euro, as it would intensify pressure on the European Central Bank to do more.
It will be an important week for sterling as Bank of England Governor Mark Carney will present the bank’s quarterly Inflation Report on August 13th in a press conference. Doubtlessly Carney will be grilled on the bank’s views ranging from the economic outlook, the labor market, inflation, house prices and most crucially, interest rates. Carney is expected to give some indications whether or not the bank is thinking of raising interest rates before the end of the year as some analysts expect. UK employment numbers are also released on Wednesday, making it a crucial day for sterling. Two days later, the second release of UK second quarter GDP will come out. Economists are not expecting revisions as the figure will likely remain at 0.8% quarter-on-quarter.
A number of Japanese reports may affect the yen, which enjoyed a rise because of its safe haven status this week. Japanese GDP for the second quarter, due for release on Wednesday, will likely show a 1.8% quarter-on-quarter contraction because of the negative effect of the April sales tax hike. Although the economy is expected to recover from the second quarter slump, the Bank of Japan sounded less upbeat this week, as it expressed concern over exports and industrial output. Japanese economic weakness could be put aside however and the yen could continue to rally if risk aversion takes hold.
Finally, the US dollar may have a relatively quiet week, as only advance retail sales and industrial output for July, together with preliminary University of Michigan consumer sentiment, will be on tap. Retail sales, to be released on Wednesday, are expected to grow by a relatively robust 0.3% month-on-month pace and industrial output (Friday) to be similarly healthy by growing 0.4%. Overall there have been positive economic releases for the US, which have been helpful for the US dollar and next week is not expected to be different.