US politics, PCE inflation, PMIs, BOC: The Week Ahead

Whether it is Biden stepping aside or Trump grabbing headlines with potential policies, it is difficult to see US politics taking a back seat next week. Already we’re seeing correlations break down and markets move on political assumptions, and we have another four months until the actual election. Fed watchers have the US PCE inflation report to look forward to, and global central bank watchers have flash PMIs. The BOC are expected to cut rates, but will they signal more next week?

The Week Ahead: Calendar

The Week Ahead: Key themes and events

Will Biden stand down?
US PCE inflation
Bank of Canada (BOC) interest rate decision
Global flash PMIs

Will Biden stand down?

In a move that could be a relief to the entire US political landscape, pressure is mounting for Joe Biden to step aside and not run for re-election. Whilst these headlines have been spouting up for a while, they may have more clout now that Biden has Covid. Besides, he literally said the day before being diagnosed that he would not rerun if he was sick. The timing is suspiciously convenient for him to withdraw from the race without losing face. And I wouldn’t be surprised if he does just that over the weekend, if not sooner.

Odds of a Biden victory have nosedived to 4.7%, according to an average of bookies via RealClearPolitics. And with Kamilla Harris tipped to replace Biden for the run to the Whitehouse, her odds have risen to 23.5%. Whilst Trump’s have diminished this past week, he remains the clear favourite with an estimated 59.5% of the votes.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones, VIX, bonds

Bank of Canada (BOC) interest rate decision

There’s a 90% chance of the BOC cutting their cash rate by 25bp to 4.5% next week, according to Reuters pricing. This would mark their second cut this cycle, and there could be another two or three lined up by December if some forecasters are right.

I’m not convinced they’ll signal multiple cuts, even though odds of a cut are high. Although the lower inflation figures we’ve seen of late could warrant them. Just keep in mind that traders were positioned for a much more dovish tone than was delivered at their last meeting, which saw the Canadian dollar hand back earlier gains on pre-emptively dovish bets.

Trader’s watchlist: USD/CAD, CAD/JPY, NZD/CAD

US PCE inflation

With Fed fund futures implying a 92% chance of a cut in September and 55% chance of another in November, it would take quite an upside inflation surprise next week to dispel expectations of multiple Fed cuts over the next year. But if it comes in soft, it could see odds of cuts arriving from December through to March rise above 50%. And as CPI and core PCE inflation rose just 0.1% m/m in May, I’d expect quite a volatile reaction from market should they deflate by crossing beneath the 0% barrier. And that could be a bearish case for the US dollar and yields. Whether that translates as a positive story for Wall Street indices could be down to general sentiment, as for now they’re on the ropes with the VIX reaching a 12-month high amid a complex political landscape.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.