It’s looking like a relatively muted start to the week’s trade on Wall Street after a quiet session across Asia. The region is heading into a series of holidays to mark the Lunar New Year, which has served to suppress activity although the prospect of economic and corporate releases from the US as the day unfolds ought to ensure some volatility is seen in the near term. November’s Durable Goods figure will be under scrutiny as this is expected to show something of an uptick. Any failure to deliver here could ultimately benefit equities as it will once again validate the Federal Reserve’s need to take a patient approach to policy tightening.
Earnings news will likely be dominated by numbers after the close on Monday from Google’s parent Alphabet. There are hopes that some of the company’s emerging businesses such as the self-driving car division Waymo may be able to offer up some excitement here and depending as to what degree the company splits out details, there’s the potential for read across into competitors’ performances too.
The sense is that the U.S. economy might not be as weak as the recent market negativity suggests, and therefore if markets start pricing in a stronger economic growth we could expect a stronger Dollar over coming weeks and months.
Market sentiment with regards to the outlook for Eurozone economic growth has deteriorated to the extent they are no longer expecting an interest rate from the European Central Bank (ECB) in 2019, rather pushing the date of the first rise well into 2020. The Euro has fallen alongside these expectations. Therefore, it would seem that risks are to the upside in the event of data being better than expected expectations: should markets get the sense the Eurozone has turned a corner we could well see the Euro come back.
While this week's data is second-tier in nature, it is nevertheless likely to be of greater interest than usual owing to the above dynamics. The main release for the Euro will probably be retail sales on Tuesday at 10.00 GMT. Given current market concerns about waning Eurozone growth the data could be critical in gauging the state of the Eurozone consumer and high-street spending is a major component of GDP.
Brexit will be the primary focus for Sterling markets in the week ahead with focus likely to be trained on whether Prime Minister May can squeeze any compromises out of the EU in regards to the Irish backstop. MPs have voted to seek an "alternative arrangement" to guarantee the Northern Ireland border stays open after Brexit.
Getting an agreement on this seems like it could well be a long way off as there is a seemingly hard deadlock in place between the UK and EU on the matter, and its yet to be seen if this week will give us any new information on the matter.
Away from Brexit it will be the Bank of England (BOE) rate decision, with this incarnation taking more market attention as its also the quarterly inflation report. Data has been mixed recently and if the BOE’s assessment is negative it could weigh on Sterling - likewise a more resilient outlook would strengthen the Pound as it would make a case for multiple interest rate hikes in the event of Brexit uncertainty being removed.
January employment data out on Friday is probably the main release for the Canadian Dollar in the coming week. Recent weak GDP data raised doubts as to whether the Bank of Canada (BOC) would raise interest rates as - higher rates tend to support the currency. If the jobs data out on Friday is disappointing, it could be another nail in the coffin of higher interest rate hopes and result in downside for the Canadian Dollar. This is a theme around a number of central banks at the moment with a global slowdown on the cards.
Another consideration for the Loonie this week is the rising price of oil, which took the sting out of the poorer growth figures as it suggests better growth ahead on the horizon.
The main domestic event for the Australian Dollar is the Reserve Bank of Australia (RBA) interest rate decision on Tuesday at 3.30 GMT, and the publication of the RBA’s official statement on monetary policy on Friday at 12.30.
There appears to be no clear consensus on what the RBA is likely to do with monetary policy - or rather a wide range of differing views. Previous expectations had been for the RBA to cut interest rates eventually on falling inflation and growth projections, however, slightly higher-than-expected inflation data in Q4 reduced the possibility of an RBA rate cut.
The outlook for trade talks between China and the U.S. is a huge factor which is likely to impact on the Kiwi this week, which is sensitive to the outlook for growth in the Chinese economy owing to it being its largest trade neighbor. The fact that the ratings agency Standard & Poors upgraded the New Zealand economy last week helped the Kiwi to outperform, and showed positive signs around the New Zealand economy.
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