3 Key Economic Stories To Watch This Week

Bank of America analyst Athanasios Vamvakidis sees an eventful week ahead for global investors. In a new report, Vamvakidis discusses what will be moving global markets this week and names three things that traders should be watching out for.

No European Distraction?

According to Vamvakidis, Bank of America is not expecting any major ECB policy news any time soon, so traders who have been watching developments in Greece can bring their attention back across the Atlantic this week and focus on the newest U.S. economic data and the timing/pace of the coming Federal Reserve rate hikes.

From a currency perspective, Vamvakidis believes that the U.S. dollar is “far from stretched,” but that U.S. data is not strong enough, nor is European data weak enough, to trigger another steep downward move by the euro. By the end of the year, Vamvakidis believes that policy divergence will eventually lead to parity between the dollar and the euro, but he believes that the road could be a bumpy one.

What To Watch For

• 1. Europe: The biggest numbers coming out of Europe this week will be the U.K.’s Q2 GDP and the Eurozone’s flash CPI.
• 2. Asia: Continued stabilization of the property and labor markets in China will likely eliminate the need for more drastic policy measures by the Chinese government.
• 3. U.S.: Bank of America believes that the FOMC will continue to be optimistic but will not tip its hand as far as a potential September rate hike is concerned.

Bond Yield Seasonality

The report also included a couple of notes about the bond yield seasonality trends in the U.S., Europe and the U.K. in July and August. When looking at data since 2000, Bank of America found that "bond yields are 20-25% more likely to rally in July and August than any other month in all three countries." The chart below shows that the magnitudes of the July/August moves are also typically quite large.