Week Ahead – Sino-US Tensions Come to the Fore

Hong Kong the Focus of Deteriorating US-China Relations

This week the focus has been less on the pandemic itself and instead on economies reopening, recovery funds and the intensifying US-China conflict.

What started with the US blaming China for the severity of the pandemic has evolved and is likely to deteriorate further in the coming weeks and months.

This is expected to be a common theme next week. With the President facing an election in November that only six months ago looked a foregone conclusion, the China bashing may be turned up a number of notches.

Key Economic Releases and Events

Sunday 31 May

UK Time Country Relevance Indicator Name Period
02:00 China (Mainland) Low NBS Non-Mfg PMI May
02:00 China (Mainland) High NBS Manufacturing PMI May
02:00 China (Mainland) Not Rated Composite PMI May

Monday 1 June

01:00 South Korea Low Trade Balance Prelim May
01:30 Japan High Jibun Bank Mfg PMI May
01:30 South Korea High IHS Markit Mfg PMI May
01:30 Thailand Medium Manufacturing PMI SA May
02:45 China (Mainland) High Caixin Mfg PMI Final May
06:00 India High IHS Markit Mfg PMI May
07:00 Russia High Markit Mfg PMI May
07:30 Sweden Medium PMI Manufacturing Sect May
08:00 Turkey High Manufacturing PMI May
08:00 Hungary Low Manufacturing PMI SA May
08:15 Spain Medium Manufacturing PMI May
08:30 Czech Republic Medium Markit PMI May
08:45 Italy High Markit/IHS Mfg PMI May
08:50 France High Markit Mfg PMI May
08:55 Germany High Markit/BME Mfg PMI May
09:00 Euro Zone High Markit Mfg Final PMI May
09:30 United Kingdom High Markit/CIPS Mfg PMI Final May
09:30 Hong Kong Low Retail Sales YY Apr
10:00 Turkey High ITO Istanbul Retail Prices May
14:30 Canada High Markit Mfg PMI SA May
14:45 United States High Markit Mfg PMI Final May
15:00 United States High ISM Manufacturing PMI May
15:30 Mexico High Markit Mfg PMI May
23:45 New Zealand Medium Terms of Trade QQ Q1

Tuesday 2 June

00:00 South Korea Medium CPI Growth MM May
00:00 South Korea Medium CPI Growth YY May
00:00 South Korea Medium GDP Growth QQ Revised Q1
00:00 South Korea Medium GDP Growth YY Revised Q1
01:30 Indonesia High IHS Markit PMI May
02:30 Australia High Current Account Balance SA Q1
05:30 Australia High RBA Cash Rate Jun
07:30 Switzerland Medium Retail Sales YY Apr
08:00 Czech Republic Low Final GDP YY Q1
08:00 Czech Republic Low Final GDP QQ Q1
08:00 Hungary Low Trade Balance Final Mar
08:30 Switzerland Medium Manufacturing PMI May
09:00 Norway Medium Manufacturing DNB PMI SA May
10:00 Denmark Medium PMI Manuf May
13:00 New Zealand High Milk Auctions 2 Jun, w/e
21:30 United States Not Rated API weekly crude stocks 25 May, w/e
Indonesia High Inflation YY May
Indonesia Medium Inflation MM May

Wednesday 3 June

01:30 Japan High Services PMI May
01:30 Hong Kong Medium IHS Markit PMI May
02:30 Australia High Real GDP QQ SA Q1
02:30 Australia High Real GDP YY SA Q1
02:45 China (Mainland) High Caixin Services PMI May
06:00 India High IHS Markit Svcs PMI May
06:45 Switzerland Medium GDP QQ Q1
06:45 Switzerland Medium GDP YY Q1
07:00 Russia High Markit Services PMI May
07:30 Sweden Low PMI Services May
08:00 Turkey High CPI MM May
08:00 Norway Low Current Account Q1
08:15 Spain Medium Services PMI May
08:15 South Africa High Std Bank Whole Econ PMI May
08:45 Italy Medium Markit/IHS Svcs PMI May
08:45 Italy Not Rated Composite PMI May
08:50 France High Markit Serv PMI May
08:50 France High Markit Comp PMI May
08:55 Germany High Markit Services PMI May
08:55 Germany High Markit Comp Final PMI May
08:55 Germany High Unemployment Rate SA May
09:00 Italy Medium Unemployment Rate Apr
09:00 Euro Zone High Markit Serv Final PMI May
09:00 Euro Zone High Markit Comp Final PMI May
09:30 United Kingdom Medium Markit/CIPS Serv PMI Final May
09:30 United Kingdom Not Rated Composite PMI Final May
10:00 Euro Zone High Unemployment Rate Apr
13:15 United States Medium ADP National Employment May
14:00 Singapore Low Manufacturing PMI May
14:45 United States High Markit Comp Final PMI May
14:45 United States High Markit Svcs PMI Final May
15:00 United States Low Durable Goods, R MM Apr
15:00 United States High Factory Orders MM Apr
15:00 United States High ISM N-Mfg PMI May
15:00 Canada High BoC Rate Decision 3 Jun
15:30 United States Not Rated EIA Weekly Crude Stocks 25 May, w/e
Australia High Building Approvals Apr

Thursday 4 June

02:30 Australia High Retail Sales MM Apr
02:30 Australia High Trade Balance G&S (A$) Apr
07:30 Switzerland Medium CPI YY May
08:30 Germany Not Rated IHS Markit Cons PMI May
08:30 France Not Rated IHS Markit Cons PMI May
08:30 Italy Not Rated IHS Markit Cons PMI May
08:30 Euro Zone Not Rated IHS Markit Cons PMI May
09:30 United Kingdom Medium Markit/CIPS Cons PMI May
09:30 United Kingdom Not Rated All Sector PMI May
10:00 Euro Zone Medium Retail Sales MM Apr
10:00 Euro Zone Medium Retail Sales YY Apr
12:45 Euro Zone High ECB Refinancing Rate Jun
12:45 Euro Zone High ECB Deposit Rate Jun
13:30 United States High Initial Jobless Claims 25 May, w/e
13:30 United States Low Jobless Claims 4-Wk Avg 25 May, w/e
13:30 United States Medium Continued Jobless Claims 18 May, w/e
13:30 United States Medium Labor Costs Revised Q1
13:30 United States Medium Productivity Revised Q1
15:30 United States Not Rated EIA- Nat Gas, Change Bcf 25 May, w/e
15:30 United States Not Rated Nat Gas-EIA Implied Flow 25 May, w/e
20:00 Argentina Medium Industrial Output NSA Apr

Friday 5 June

00:01 United Kingdom Not Rated GfK Consumer Conf (Adhoc) Jun
00:30 Japan Medium All Household Spending YY Apr
00:30 Japan Medium All Household Spending MM Apr
05:00 Thailand Medium CPI Headline Inflation May
05:00 Thailand Medium CPI Core Inflation YY May
06:00 Singapore Low Retail Sales MM Apr
06:00 Singapore Low Retail Sales YY Apr
07:00 Germany High Industrial Orders MM Apr
07:00 Norway Medium GDP Month Apr
07:00 Norway Medium GDP Month Mainland Apr
08:00 Spain Medium Ind Output Cal Adj YY Apr
08:00 Switzerland High Forex Reserves CHF May
08:00 Czech Republic Medium Retail Sales YY Apr
13:30 United States High Non-Farm Payrolls May
13:30 United States Medium Private Payrolls May
13:30 United States Low Manufacturing Payrolls May
13:30 United States Low Government Payrolls May
13:30 United States High Unemployment Rate May
13:30 United States Medium Average Earnings MM May
13:30 United States High Average Earnings YY May
13:30 United States Medium Average Workweek Hrs May
13:30 United States Low Labor Force Partic May
13:30 United States Low U6 Underemployment May
13:30 Canada High Employment Change May
13:30 Canada High Unemployment Rate May
13:30 Canada Low Full Time Employment Chng SA May
13:30 Canada Low Part Time Employment Chng SA May
13:30 Canada Low Participation Rate May
14:00 Russia High CPI MM May
14:00 Russia High CPI YY May

Country

US

The focus in the US will primarily be on its confrontation with China, job destruction, and the signs of stabilization in some parts of the economy.  President Trump seems determined to shift the focus away from his handling of the coronavirus pandemic and positioning for a long battle with China on Hong Kong’s security law, sanctions for treatment on Muslim minorities, living up to their end of the phase-one trade deal, and the yuan’s devaluation.  If the US announces fresh tariffs, China will not wait too long to counter, and eventually a tit-for-tat battle will weigh on risk appetite.   

On Monday, the ISM manufacturing survey is expected to rebound slightly after having the fastest decline dating back to 1948.  Dramatic weakness with factory output should start to benefit from the staggered reopening of the economy that took place in May. 

Friday’s non-farm payroll report will draw much attention as the unemployment rate is expected to rise to 19.5% after 8-million jobs were lost in May.  May’s jobless rate should be the peak and investors will look forward to focusing on the economic rebound going forward. 

The reopening of the economy trade and promise of more stimulus continues to drive risky assets and as long as lockdowns continue to ease, the economic recovery is expected to remain intact.  

US Politics

US states must decide whether they will continue to move forward with reopening plans even as some are reporting spikes higher with new cases.  The next several weeks will be key in whether the easing of lockdown restrictions continue. 

Another focal point will be the nationwide spread of protests over the police killing of George Floyd.  Protests have erupted and turned violent across the nation.  

UK

The UK is continuing to ease lockdown restrictions, with non-essential shops due to reopen on 15 June. This will see the country returning to something resembling pre-lockdown, although the hospitality industry remains in limbo. 

Europe

The European Commission unveiled its recovery fund plans this week which, alongside the EU budget and the rescue fund, will see €2.4 trillion spent over the next seven year budget. This will consist of the normal €1.1 trillion budget, €540 billion rescue fund and €750 billion recovery fund. The latter is being proposed to be raised in the markets by the EC – the first time it’s done so for an amount of this size – and backed by all 27 members. What’s more, €500 billion will be offered as grants, with the remaining €250 billion as loans. This is something the “frugal four” – Netherlands, Austria, Denmark, Sweden – are not currently on board with.

The ECB meets next week and there are growing expectations for an increase in QE by €500 billion, taking total purchases this year to €1.6 trillion. 

Turkey

Turkey is planning to ease lockdown restrictions from 1 June which will allow beaches, restaurants and more to reopen, while also allowing for the resumption of internal travel. 

The lira has come off its lows since early May but remains vulnerable and the trend has changed over the last few days. If this is extended, we should expect more intervention.

China

China’s CPC passes security law for Hong Kong. US President to hold a press conference Friday. Escalating protests in Hong Kong. Depending on the US response, we could be back in a trade war scenario. USD/CNY fix at 12 year high today , raising prospects of more escalation with the US. outright trade hostilities negative for China and regional equities and currencies.

This weekend, China Manufacturing and non-Manufacturing PMI are releasedr. A large miss lower will see Asia as a whole move sharply lower Monday.

Hong Kong

China announces intention to write security legislation into basic law, bypassing the HK legislature. The US announced the end of special trading status for HK.  This news spells a very real chance that Hong Kong as we know it is over. Renewed street protests. Big winner, Singapore.

India

Nothing of note this week.

Australia

Tuesday RBA rate announcement, expected unchanged. Wednesday GDP. Both the currency and stocks are looking tired after decent rallies. Potential for downward correction. Escalating trade tensions are very negative for Aust. markets and currency.

Japan

Second extra budget announced totalling $1.1 trillion. Market response is muted although Nikkei continues to power higher on global recovery trade. Equities are vulnerable to a sharp sell-off if US-China escalates. No data of significance.

Market

Oil

The oil price recovery has well and truly stalled, with WTI and Brent off a few percent today, after EIA reported another large inventory build on Wednesday. This comes as market sentiment turns south on souring US-China relations. It’s been some recovery for crude prices so a period of profit taking can only be healthy. With economies gradually reopening, there’s plenty more time for upside, assuming it all goes to plan of course. Huge risks remain but the early signs are encouraging.

Gold

Gold is up half a percent in early Friday trade, buoyed by a slight softening of the dollar as it continues to bounce off key $1,700 support. I don’t think anyone is getting carried away just yet, any rally feels like a monumental effort at the moment and even when breakouts occur, there seems plenty of sellers willing to come in and fade the move. We may see more of this in the coming sessions.

Bitcoin

Bitcoin has broken back, and held, above $9,000, although it is coming under a little pressure today. That will come as a relief at a time when it was starting to look a little vulnerable. Post-halving consolidation will be perfectly acceptable, as long as the pre-halving gains aren’t wiped out, which could happen in the event of a break below $8,000. 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam