The calendar is empty and looks boring … From macroeconomic data it is Canadian and British inflation which looks interesting.
British inflation will be announced on May 16 at 10:30. The previous reading of inflation CPI y/y was 2.3 percent. If we get above value, then pound sterling should strengthen. Actual reading below 2 percent should be a disappointment. Below is a summary of CPI inflation history in the UK.
From 2016, inflation is rising, which in longer term and with current trend will start to put more and more pressure on the Bank of England. Under such conditions, we should watch the bank’s message, which may decide to tighten monetary policy.
Canadian inflation is completely different. Last readings did not impress:
The last reading of CPI inflation reached 1.6%. The response to the data should be softer than on the sterling.
So what should be observed next week? China, why? Because once again they began to scare. The Shanghai Composite Index (SSE Composite Index) has been down in a downward trend for 1.5 months and broke the last resistance. Below is a chart showing the correlation between the S & P 500 and the SSE Composite.
Since May last year both indexes have been moving in the same direction, although this has changed. Greater sales on the Chinese market should translate into increased risk aversion. This will be consistent with a correction on other indices (including the S&P 500 and WIG 20) and transfer of capital to more secure assets.
Markets to be observed
For coming next few weeks New Zealand dollar, which defends itself against the strength of the US dollar can be interesting. NZD has strengthened against other currencies, and place for further gains remains. Due to what ? The answer is simple, the price of dairy products.
The above chart depicts the Global Dairy Trade (GDT) index. The New Zealand economy is dependent on its exports, higher prices translate into a stronger economy. The yellow line shows NZD/USD currency pair, which fights hard not to fall below support. Growth is being slowed by the US dollar but against other currencies (JPY, CHF or EUR) kiwi have strengthened.
On weekly chart New Zealand dollar against the US dollar was in support zone and around the lower band of the downward channel. Such a combination gives a high probability of end of declines and permanent reflection. Nevertheless, it is worth to look at the technical situation with other, weaker currencies.
On the other side, a worrying factor for NZD may be the sell off of industrial metals, which has been continuing for several weeks.
The above chart shows industrial metals index (white), red iron (purple) and AUD / USD (green). On one hand, NZD should be supported by rising dairy prices and on the other hampered by falling industrial metals prices. Nevertheless, the biggest loser will be Australian dollar, because Australian economy is more dependent on them than the New Zealand dollar.
