The World Overall

One Financial | Andrei Wogen| finance.wogen@gmail.com|For the Week of: 07/19

(The opinions and analysis below are solely those of the author, Andrei Wogen. They do not in anyway
represent the views or beliefs or opinions of the second or third parties which are used to distribute this
report)

Last Week in Review

USD Looking at the retail sales data last week, it would appear that
the US consumer is still a ways off from recovering from the weakness
seen in the earlier part of this year. The weakness in the number was
broad too with only 5 of the 13 sub-categories, including autos, gaining
for the month of June. And the gains in these sub-categories was small.
Seems then that there is some work to do then in terms of the US
consumer, which still is the biggest driver of the overall US economy.
However Yellen didnt seem too concerned at this point as her tone was
quite hawkish and signaled that rate hikes are coming and, barring any
sort of surprise weakness in the US economy or some other event, it will
be this year. September or December. The Fed also seems to not care too
much about inflation, according to Yellen anyway. Yellen mentioned in
her testimony that the Fed sees the low inflation as temporary and due
to transitory factors. So they expect the low inflation to pick up soon.
Inflation though continues to remain low in the US as seen last week
when inflation data was released. On the whole, too the economy in the
US is still weak from my view of things and it will be interesting to see
whether or not Yellen and company get their wish and be able to raise
rates this year.
CAD The Bank of Canada pulled another surprise out of its hat last
week as it cut rates for the second time this year as the weakness in the
Canadian economy surprised them. With oil continuing its decline,
this is putting more pressure on the Canadian economy than the Bank
originally anticipated it would. Oil businesses are cutting back on
investment more than the Bank was expecting as well. So in terms of
this the Bank seems to maybe be behind the curve some in their policy
changes and this could, in my opinion, be the reason for more rate cuts
later this year. But really the main reason for another rate cut coming
from the BoC will be a weakening Canadian economy and this will
largely depend on oil continuing its decline. On the data front, inflation
came in better than expected overall which pushes back on further rate
cut expectations. This improvement was seen in both headline and the
core reading. Will be interesting to see what the BoC has to say about
this and how it acts in terms of its policy.
EUR As for data last week, it was mixed to lower with sentiment
numbers from the Euro Zone and Germany coming in weaker as did
French CPI while German, Spain and Euro Zone inflation data remained
level and Italys rose a bit. Euro Zone industrial production numbers
though showed a decline for the month of May with month-to-month
declining into negative territory. Some weakness there then. But, as we
heard from the ECB last week during their press conference, the Euro

Zone economy is going along as they have expected it would. In light of

this and in light of the ECBs overall assessment, the Bank left their rates
on hold as well as QE, both as expected. And so, as has been the case for
the last several weeks, attention turned to Greece. A couple of key
things came from ECB Gov. Draghi during the press conference in
regards to Greece. First, the ECB raised the ELA for Greece by 900
million euros which is a good signal for Greece and the situation that is
going on with Greece right now as a whole. Shows that the ECB will
indeed support Greek banks as much as it can in order to help save
Greece from defaulting and/or leaving the Euro Zone. The other, and I
think more important thing we learned last week, is that the ECB is in
favor of a debt haircut for Greece. This really then leaves only Germany
for those that are against such an action. Well, them and a couple of
other more hard-line countries of the Euro Zone such as Finland. But
really, this call by the ECB for a debt haircut for Greece really does put
an interesting spin on things. The IMF last week too voiced the same
opinion after they released a report on Greeces debt sustainability
which showed that, basically, at the moment and with the way things
are in terms of how much Greece owes and when and so on, Greece has
no debt sustainability. Without a debt haircut or some other sort of
drastic measure (including an exit from the Euro Zone) Greece wont be
able to pay off their debt in the time currently demanded and this
includes the current bailout package that Greece is currently working on
receiving and implementing. So the next drama to occur I think will be
between Germany and pretty much everyone else on whether or not to
allow Greece to receive a debt haircut of any sort. As for Greece, their
parliament approved the measures needed that the Institutions
demanded of them to implement last week in order to build trust so
that new discussions can start in terms of when and how much
financing Greece can/will receive. However these reforms, which
included tax hikes, pension cuts, a rise in the retirement age, among
other things, will cripple Greeces economy in my opinion. And the
opinion of many other people much smarter than I. The other big news
though was that the EU Commission approved, in principle, bridge
financing in the amount of around 7 billion Euros for Greece. This
money would be put towards an upcoming bill to the ECB, due this
week, as well as towards paying the IMF bill that was missed last
month as well as help tide Greece over until a longer term deal (3 year
deal at this point) can be hammered out. But in essence this path that
Greece has chosen, to accept more austerity and (at this point) no debt
forgiveness, will simply ruin them in the end. Lets hope some sort of
relief comes soon for Greece, either in the form of debt relief or through
an exit from the Euro Zone.
CNY Based on GDP data last week from China for the second
quarter, it would seem that the Chinese economy is doing better than
some originally thought. Not only did GDP come in better than
expected, but industrial production and retail sales data also came in
better than expected. This is an encouraging sign for China and the
Chinese authorities who have been working quite a bit lately to keep the
economy afloat and from having a hard landing. However one data set
that was not so great was trade balance data. Exports and imports both
continue to their fall and really, with the weakness continuing to be seen
in both of these how can GDP be so great? But that is for another time.
So the question remains, what about going forward? Expectations are
the the Chinese economy will continue its path lower but if last weeks
data is any indication, the path lower could go forward with better,
more stable results. Better in that the path lower in growth will be more

even and controlled avoiding any sort of hard landing, like weve seen
in the Chinese equity markets. The equity markets stabilized a bit last
week and found a bit of support in the Shanghai index, which has been
the focal point of the move lower in Chinese equities over the past
couple of weeks or so. Question is whether this support will hold or not.
More companies have come back online and have started to trade again
over the past week after several hundred companies stock was halted
from trading in order to help contain the falls. Problem is, as these
stocks begin trading again there is big risk that they will all fall even
more than they would have if they were not suspended and so the
downside to the index is probably not over.
GBP Regardless of the low reading in CPI last week, with UK
headline CPI falling to naught percent year-over-year and core not
being much better, wages ticked higher yet again showing strength
strength in the wage area of the UK economy. This is a good sign overall
and employment data last week too overall looked good. Yes, both
unemployment and the number of newly unemployed rose which was
against expectation for both, but at this point this rise in these numbers
is due to more people looking for work and just better employment
conditions in general. It would seem then that the UK employment
sector continues to improve overall and especially those wages will be
what pushes the BoE to raise rates. Probably sooner than when overall
inflation pushes higher. But from the tone of BoE Gov. Mark Carney,
who spoke last week, his main message was that rate hikes from the
BoE is fast approaching. This tone sent the Pound soaring to levels in
GBP/USD not seen in about seven years. We shall see though whether
or not the BoE will raise rates this year or not. Market is currently
expecting a rate hike to come in November.
JPY As expected, the BoJ left their monetary policy on hold but they
also lowered their expectations for both inflation and growth. Not a
good outlook then on the BoJs part and probably is starting to se the
stage for more easing to come later this year which is still expected to
happen by the market. As for data, the industrial sector of Japan
continued to show weakness as industrial production continued to
remain in negative territory for the year-over-year data.
NZD Inflation for New Zealand for the second quarter came in lower
than expected though did rise some from the first quarter. On the whole
though, inflation continues to remain weak and this has increased
expectations yet again for a rate cut to come from the RBNZ during
their meeting this week. Also, some expect rate cuts to happen at least
once more this year and maybe twice more.

What to Watch this Week

NZD This weeks main event, as mentioned in the section right
about, will be the RBNZ rate decision and policy statement.
Expectations are that the Bank will cut rates again this month as
inflation and growth continues to both weaken on the back of lower
commodity prices (particularly in the dairy sector) and weaker Chinese
and Australian growth, both of whom are the biggest trading partners
of New Zealand. Also, I expect there to be yet more jawboning towards
the Kiwi from the RBNZ as it continues to want to see their currency
drop lower.

AUD This weeks main event will be CPI data and could help
determine whether or not the RBA will cut rates again during their
meeting in August or September. With commodities moving lower and
Australian growth continuing to weaken I am not expecting a great
number. The other thing pointing to lower inflation reading this week is
TD Securities inflation data, which is a monthly reading on inflation and
therefore a more frequent reading on inflation. This continues to weaken
further and so the overall reading on the inflation front is not looking so
good for Australia. The other important event will be on Monday with
the release of the RBAs meeting minutes. We shall see how close the
RBA was to cutting rates earlier this month.
GBP Key events this week include the BoE meeting minutes and
retail sales data. As for the BoE minutes, in light of the tone and talk we
heard from Gov. Carney last week, it shall be interesting to see how
close the BoE is to raising rates at this point. Based on what we heard
last week from Carney, Id say we are pretty close. Question is, how
close and do other members of the BoE share the same opinion and if
not why not. First thing to watch for are dissenters in the minutes.
Those members that vote for a rate hike. There is a bit of deja vu going
on right now though with the BoE. About this time last year we saw the
same kind of tone coming from them which led to two members voting
for a rate hike by the end of the year. But then the new year came and
the UK economy weakened some and those calls for rate hikes went
away. Seems like this is the path being taken yet again. The one good
thing that could help sustain those calls for rates, if there are votes for
rate hikes, is that the employment picture is looking better as are wages.
But we shall see. The other data will be retail sales data. We shall see
how the UK consumer is performing. Hope the consumer is better in the
UK than they are in the US.
EUR Besides whatever happens in Greece and between Greece and
its creditors this week, data of interest will be July preliminary readings
of the Manufacturing and Services sectors of various Euro Zone
countries. On the whole, Germany continues to weaken while other
countries, including France and Spain, continue to improve overall.
Interest will be on if this trend continues and especially as the ECB
continues to expect improvement in these areas.

Longer-Term Sentiment Indicator

Asset

Overall Sentiment

Strength Rating

US Dollar

Positive

Euro

Negative

-3

Pound

Positive

Canada Dollar

Negative

-2

Australian Dollar

Negative

-3

Japanese Yen

Negative

-4

New Zealand Dollar

Negative

-4

Economic Calendar
Region

Event/Data

China

House Price Index

Australia

RBA Meeting Minutes

Australia

Expected

Date

Time (EST)

07/19

9:30pm

Dovish

07/20

9:30pm

RBA Trimmed CPI y/y Q2

2.2%

07/21

9:30pm

Australia

RBA Trimmed CPI q/q Q2

0.6%

07/21

9:30pm

United Kingdom

BoE Minutes

07/22

4:30am

United Kingdom

BoE Rate Vote

07/22

4:30am

United Kingdom

Inflation Report Hearings

07/22

5am

United States

House Price Index

07/22

9am

United States

Existing Home Sales

07/22

10am

New Zealand

RBNZ Interest Rate Decision

07/22

5pm

New Zealand

RBNZ Rate Statement

Dovish

07/22

5pm

Japan

Trade Balance

5B

07/22

7:50pm

Japan

Imports y/y

-4%

07/22

7:50pm

Japan

Exports y/y

10%

07/22

7:50pm

United Kingdom

Retail Sales ex-Fuel y/y

5%

07/23

4:30am

United Kingdom

Retail Sales y/y

4.9%

07/23

4:30am

Canada

Core Retail Sales

0.8%

07/23

8:30am

Canada

Retail Sales m/m

0.6%

07/23

8:30am

France

Manufacturing PMI

50.8

07/24

3am

France

Services PMI

53.8

07/24

3am

Germany

Manufacturing PMI

51.9

07/24

3:30am

Germany

Services PMI

54

07/24

3:30am

Euro Zone

Manufacturing PMI

52.5

07/24

4am

Euro Zone

Services PMI

54.2

07/24

4am

United States

Manufacturing PMI

53.7

07/24

9:45am

0-0-9

5.40M