The Week Ahead

The Week Ahead

All eyes on China and US economic data. The ECB and Bank of Japan discuss rates. California votes on cap and trade. Investments in Iran safe for now. All in The Week Ahead.

All eyes on China and US economic data

Today China released its second quarter GDP data showing a 1.7 percent increase in growth from the first quarter. This exceeded expectations, marking a 6.9 percent year-on-year growth, and makes it very likely that China will achieve its 6.5 percent annual target. While this is a positive short-term trend, analysts should still maintain a close eye on growth in the long-term amid eventual expectations that growth will begin to slow.

Ahead of the release, China’s statistics bureau stated that it revised GDP calculation methods to include inputs from healthcare, tourism and the “new economy.” Given the expectations that GDP growth is expected to continue to slowdown in the long-term, these revisions could be an effort by authorities not only to improve accuracy to bolster overall declining figures. China last revised its GDP calculations to include research and development spending which increased 2015 GDP by 1.3 percent.

In addition to figures from China, key second quarter earnings reports from U.S. companies will be released next week representing nearly 70 major S&P 500 companies, including Netflix, Johnson & Johnson, Qualcomm, and Microsoft. Eyes will be particularly focused on the financial sector – the second largest sector within the S&P 500 – with Bank of America, Morgan Stanley and Goldman Sachs releasing their reports. Analysts may anticipate better than expected earnings per share as reported by several financial institutions, including JP Morgan, last week . However, as the chances of a further rate hike this year by the Fed diminish, key bank profits from interest income are expected to decrease, diminishing some of the medium-term outlook in the financial sector.

The ECB and Bank of Japan discuss rates

On Thursday, The ECB will hold its interest rate meeting where no significant announcements or policy changes are expected in the short-term. However, analysts will still listen to the post-meeting press conference closely for any subtle signs of changes in attitude toward the banks current dovish stance. The bank is largely expected to slow the pace of its bond-buying program later in the year, corresponding to medium- and long-term tightening, and Thursday’s meeting may provide more concrete hints to this affect. “The ECB is trying to achieve an exit from QE without a tantrum,” said ABN Amro economist Nick Kounis. This means that any tapering policies going forward will be slow and calculated to minimize adverse market reactions.

Other regional economic data to be released this week includes Germany’s ZEW Economic Sentiment, due Tuesday and Germany’s producer price index and the Eurozone current account, out on Thursday.

Similarly, the Bank of Japan (BoJ) will hold rate meetings on Thursday and is expected to maintain rates firmly unchanged. With positive trade data expected to be released Wednesday, the BoJ meeting is expected to be upbeat, revising growth forecasts upward. However, with the Japanese consumer price index still low, inflation targets are expected to be revised downward.

While European and Japanese monetary policy will most likely remain similar immediately following these July meetings, this could mark the beginning of a longer term divergence between the two. While the BoJ remains firmly committed to keeping its monetary policy loose, Europe is expected to begin tightening, matching US policy which has already begun to do so.

California votes on cap and trade

On Monday, the California legislature is expected to vote to extend its cap and trade program to 2030, forcing companies to buy permits to emit greenhouse gases. The current program will expire in 2020 and Governor Jerry Brown needs a two-thirds vote to pass the bill. Democrats suffer internal fractions within the party over the bill and they will still be just short of a super majority in order to pass it, meaning they need to bring moderate Republicans onboard. Business groups, including utilities, technology companies, and manufacturers have come out in support of the extension while some conversation groups have criticized it as not being strong enough.

The program is the largest in the nation and second in size worldwide only to the EU’s Emissions Trading System based on the amount of emissions. With California seen as one of the leaders on climate change in the US and around the world, the outcome of the bill will mark the ability of the state and Governor Brown to continue leading in this area. The significance of the bill is only heightened given the recent decision of the US to pull out of the Paris Climate Agreement.

Investments in Iran safe for now

Early next week, President Trump is expected to recertify the 2015 Iran nuclear deal, confirming that Iran is still complying with the agreement, making any short term changes in Iran policy unlikely — the administration is required to make this certification to Congress every three months. However, the administration is still conducting an Iran policy review which may still effect relations in the medium to long-term – then candidate Trump repeatedly promised to rip up the Obama-era deal while on the campaign trail.

Any significant policy changes by the Trump administration could dampen some of the considerable investment flows into the country that have come as a result of lifted sanctions, most notably in the oil and gas sector. The Iranian government is reported to be negotiating 200 billion USD in oil and gas projects with close to 30 foreign companies. France’s Total and,China’s state oil company, CNCP, signed a multi-billion dollar deal last week to develop the South Pars gas field and talks with British Petroleum, Malaysia’s Petronas and Russia’s Gazprom and Lukoil are ongoing.


The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

This edition of The Week Ahead was written by GRI Senior Editor and Analyst Luke Iott.

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