The World Overall

One Financial | Andrei Wogen| finance.wogen@gmail.com|For the Week of: 07/05

(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 Non-Farm payrolls numbers came in a bit below expectations
and wages took a tumble as well. The participation rate also fell for the
month of June. Overall, the jobs data was a bit disappointing and the
wages part in particular doesnt give any increased confidence to the
markets and to the Fed I am sure too, that rates should or will rise in
September. Bets on when rate raises will happen from the Fed fell a bit
from September on the jobs data. As for other data last week from the
States, some encouraging data came for the manufacturing sector as
both ISM and Markit manufacturing data came in higher than previous
and expected. Construction spending also rose more than expected.
Both these data releases are an encouraging sign given the recent
weakness seen in the manufacturing sector of the US. The housing
market though is not looking so good. home prices fell and pending
home sales fell both signs of a slowing down of the housing market. Not
a huge surprise given that rates are already moving higher in the
mortgage industry ahead of an expected rate hike by the Fed but a
concern nonetheless. Lets hope this sector doesnt slow down too much
or else we could very well see some negative knock-on effects especially
with the consumer. Something to keep an eye on there then.
CNY Chinas central bank cut their main interest rate last week as
well as lowered the RRR rate for some banks. Some of the reasons cited
by the central bank for these cuts in rates include low inflation and
great downward pressure on the domestic economy. More cuts are
expected to come too from the central bank as the economy continues to
weaken and the markets within China continue to collapse (Im sure
youve heard of the Shanghai index at some point in the last couple of
weeks). Regarding the markets in China, the Shanghai composite
continues its collapse basically ignoring the cut in rates that the PBoC
did. The question is when will things stabilize. Looking at the difference
between the Shanghai Composites current price level and the Hang
Sangs current price level, in my opinion, there is still ways yet for the
Shanghai index to fall.
EUR Forgetting Greece for a minute, data out of the Euro Zone last
week showed some concerning indications. Sentiment indicators for the
Euro Zone showed yet more weakness, not a huge surprise given the
current situation in Greece. The other important data last week was
inflation data out of the Euro Zone and Germany. Germanys inflation
data was the concerning one as both headline and harmonized readings
came in lower than expected and previous. As for Euro Zone inflation
data, this came in a bit higher than previous. Other weak data included
weaker Germany retail sales and employment data. As for the final

reading of manufacturing data, this came in mixed with some weaker

than the preliminary reading, others better and others as preliminary.
France continued to be the encouraging reading with this sector as the
final reading showed a better reading than the preliminary reading and
therefore confirms that France is out of contraction in its manufacturing
sector. As for services data, the final readings of this data was mixed as
well with German once again weaker than previous as was Spains
reading. Overall then while the fundamentals of the Euro Zone showed
some weakness last week, the Euro Zone economy continues to
improve. Now if we could just get this Greece thing figured out
CAD GDP data for the month of April came in lower than expected
and in negative territory. The big drag was the energy and mining
sectors. This is a concern especially since the BoC has up to this point
pretty much expected that the the economy would improve and that the
drag on the economy from the oil sector in particular was not a concern.
Turns out they may have been wrong. More prints of monthly GDP data
will be watched closely for any more indications of weakness in the
economy. However with inflation continuing to hold up pretty well in
Canada rate cuts probably wont be a done deal. At least for now.
AUD Trade balance data printed worse than expected with imports
improving a bit. Exports though continued to weaken and printed into
negative territory for May. A couple of other conners were in the form of
weaker manufacturing data and weaker house sales and building
permits data. Building permits were weaker from a year ago but
improved a bit from last month.
Greece Well, it would seem that the Greek people have chosen their
fate. After a referendum was held over the weekend, the Greek people
have decided, overwhelmingly (at 61.3% No and 38.69% Yes) to forgo
anymore austerity and demands from the lenders in exchange for what
will basically be a boot from the Euro Zone. A no vote is basically
Greece telling their lenders and the world that they have no desire to
figure out a debt deal or to possibly even pay back their debt. In doing
this too, in my opinion, it means that Greece is basically out of the Euro
Zone. So what are the implications of Greece leaving the Euro Zone?
What will likely happen next? The first thing that will happen is that
communication between Greece and its creditors is basically over. No
more negotiations, no more deal making its all done. There is a very
slight possibility that there will be something in terms of talking
between each of the sides but given the rhetoric of different members of
the Euro Group and Greeces lenders there is a very slim chance of that
happening. So the next thing to happen is the pulling of ECBs ELA
program for Greeces banks meaning that Greeces banks will be out of
money soon and in order to meet withdrawal needs capital controls will
have to continue for the foreseeable future and at some point I expect
Greece will have to print some sort of parallel currency and eventually
the Drachma in order to cover withdrawals and simply too because
with them being kicked out of the Euro Zone, they wont be able to use
the Euro anyway. The printing of Drachmas will probably start to
happen pretty soon too. As for Greeces debt obligations, I dont expect
Greece will be rushing to pay back anyone for the time being. However,
this could be where new negotiations could happen down the road. The
debt will still be there no matter if Greece leaves the Euro Zone or not.
The question is when they will pay the debt back and new negotiations
would likely come in order that Greeces creditors dont lose everything
they are owed. Then of course is the one thing I am focused on:

contagion. Italy is pegged to be next in the line of countries of that could

follow Greece out the door and then there is the whole financial market
and economic contagion. While the ECB is behind the financial markets
there is little they will be able to do to limit contagion in the form of
businesses and consumer sentiment and overall economic conditions.
That is where the contagion could likely be I think. Time will tell if I am
right. First though markets will have to deal with Greece at it stands
now but dont be surprised if we get a rally in Euro pairs like we saw
last week.

What to Watch this Week

USD This week the main event that everyone will be watching, is the
release of the FOMC meeting minutes from their last meeting. At their
last meeting, the Fed left rates on hold, despite a few remaining calls for
them to raise rates and during Fed Chair Yellens press conference that
occurred at the conclusion of the meeting, she sounded a bit more
dovish than was expected. From what Yellen said, the Fed is continuing
to evaluate things and wants to see more improvement in areas such as
the jobs sector but also in just the broader economy. Therefore I expect
that the minutes will echo this sentiment somewhat. The real question
will come with whether or not rate hikes were even discussed as a
policy move at their meeting or were things just not ready in the Feds
eyes to even really consider raising rates. The more consideration there
was in terms of raising rates the more hawkish I think the markets will
view the minutes. If it looks like the Fed was pretty close in their
meeting last month but just wanted a bit more clarification, this I expect
will put a September rate hike fully in the markets view.
AUD The big event this week for the Australian Dollar and
Australian markets will be the RBA rate decision. With the Australian
economy continuing to weaken along with the commodity sector (and
because of it too in large part) expectations are that the RBA will be
cutting rates again. The question is when. I am personally not expecting
a rate cut this meeting. The RBA has already cut rates twice this year
and from their language last meeting, where they did not cut rates then
either, it would seem that they want to hold off on cutting rates for a
little while longer as they continue to assess the impact of their last rate
cuts theyve done this year so far. I am expecting another cut or two to
happen later this year. September and then again by the end of this year
is what I am betting on. But we have been surprised by central banks
before. As for data, monthly employment data will be in focus.
CNY China inflation numbers are due this week and unless there is
some massive improvement in the data, expectations will continue that
more easing will be coming from the PBoC. The real focus though will
likely continue to be on the Chinese equity markets which continue to
tumble lower and lower in grand fashion. The rate cut from the PBoC
last week I suspect was in part to help stabilize the markets in China but
that didnt work so the question is what will the PBoC try and do if
anything. We may just see the markets do what they will do with little
interference from Chinese authorities. They may not be quite ready to
do so completely but I doubt if they do it will be another rate cut
especially so soon after the one they did last week.
GBP The BoE meet for their monthly meeting this week where no
change is expected in rates. The minutes a week or two later will be in

focus even more I think in terms of how close the BoE, like the US Fed,
is to raising rates.
CAD This week the main event from Canada will be the release of
monthly employment data. After last weeks poor GDP data, it will be
interesting to see how the employment sector is performing. A poor
reading and expectations of more rate cuts to come from the BoC I think
could once again come into play. A better reading though will probably
hold off on rate cut calls. At least for now.

Longer-Term Sentiment Indicator

Asset

Overall Sentiment

Strength Rating

US Dollar

Positive

Euro

Negative

-1

Pound

Positive

Canada Dollar

Negative

-1

Australian Dollar

Negative

-3

Japanese Yen

Negative

-4

New Zealand Dollar

Negative

-4

Economic Calendar
Region

Event/Data

Germany

Expected

Date

Time (EST)

Factory Orders y/y

07/06

2am

United States

Services PMI

07/06

9:45am

Australia

RBA Rate Decision

2%

07/07

12:30am

United Kingdom

Manufacturing Production y/y

1.8%

07/07

4:30am

United Kingdom

Industrial Production y/y

1.6%

07/07

4:30am

United States

FOMC Minutes

07/08

2pm

China

CPI y/y

1.3%

07/08

9:30pm

Australia

Employment Change

-5K

07/08

9:30pm

Australia

Unemployment Rate

6.1%

07/08

9:30pm

United Kingdom

BoE Interest Rate Decision

0.5%

07/09

7am

Canada

Net Change in Employment

07/10

8:30am

Canada

Unemployment Rate

07/10

8:30am