The Week Ahead: The Middle East, Central Banks, and the Chinese Economy in Focus

News from the Middle East will likely fuel an investor flight to safety on Monday. The US dollar and the Japanese Yen will be the targets for investors fleeing riskier assets. Nonetheless, investors should consider economic data and central bank commentary throughout the week.

The US Dollar

On Monday, US retail sales and NY Empire State Manufacturing Index numbers will put the US dollar in the spotlight. Following the hotter-than-expected US CPI Report, the retail sales figures will likely have a more significant impact. Upward trends in consumer spending could fuel demand-driven inflation and delay Fed interest rate cuts.

The housing sector and industrial production numbers will be in focus on Tuesday. Recent US economic indicators raised expectations the US could avoid a recession.

Economists consider the housing market a litmus test of the US economy. Downward trends in building permits and housing starts may signal a weakening demand environment. With investors monitoring the macroeconomic environment, industrial production numbers also need consideration.

On Thursday, jobless claims and Philly Fed Manufacturing Index numbers warrant investor attention. An unexpected spike in initial jobless claims could have more impact. Deteriorating labor market conditions would affect wage growth, reduce disposable income, and curb consumer spending.

Beyond the numbers, investors should monitor FOMC member commentary. Fed Chair Powell is on the calendar to speak on Tuesday. FOMC members Mary Daly (Mon), Loretta Mester (Wed), Michelle Bowman (Wed), Raphael Bostic (Thurs), and Austan Goolsbee (Fri) will also deliver speeches.

The EUR

On Monday, industrial production figures for the Eurozone will influence buyer appetite for the  EUR/USD. Better-than-expected numbers could indicate an improving macroeconomic backdrop. However, the numbers are unlikely to affect the ECB rate path. The manufacturing sector accounts for less than 40% of the Eurozone economy.

Trade data for the Eurozone and ZEW Economic Condition numbers for Germany and the Eurozone will be in focus on Tuesday. Trade data will give the markets a view of the demand environment in Q1. The ZEW Economic Sentiment could have more influence, with the ECB expecting economic conditions to improve in H2 2024.

On Wednesday, finalized inflation figures for the Eurozone will garner investor interest. Revisions to preliminary numbers could influence the ECB rate path. The markets expect a June ECB rate cut.

German producer prices also need consideration on Friday. Producer prices are a leading indicator of inflation and may influence the timing of an ECB interest rate cut.

Following the ECB monetary policy decision, investors should track ECB member chatter. ECB Chief Economist Philip Lane is on the calendar to speak on Monday. ECB Executive Board Members Piero Cipollone (Wed), Isabel Schnabel (Wed/Thurs), and Luis de Guindos (Thurs) will also deliver speeches.

The Pound

On Tuesday, UK labor market data for February will impact buyer demand for the Pound. Weaker labor market conditions and softer wage growth could increase expectations of a Bank of England interest rate cut.

With inflation being the focal point, UK inflation figures for March also need consideration on Wednesday. Softer-than-expected inflation would further influence investor bets on a Bank of England rate cut.

On Friday, UK retail sales figures for March will warrant investor attention. Upward trends in consumer spending could fuel demand-driven inflation and affect the timing of a BoE rate cut.

Beyond the numbers, investors should consider Bank of England commentary. Bank of England Governor Andrew Bailey is on the calendar to speak on Tuesday and Thursday. Monetary Policy Committee members Sarah Breedon (Mon), Megan Greene (Wed), Jonathan Haskel (Wed), and Sir Dave Ramsden (Fri) will also deliver speeches.

The Loonie

On Monday, housing start and wholesale sales figures from Canada will put the Loonie in focus. Weaker-than-expected numbers may pressure the Loonie but are unlikely to influence the Bank of Canada rate path.

However, inflation figures for March will warrant investor attention on Tuesday. Softer inflation numbers could raise investor expectations of a Bank of Canada rate cut.

Following the inflation report, Bank of Canada commentary also needs consideration. Bank of Canada Governor Tiff Macklem is on the calendar to speak on Tuesday.

The Australian Dollar

Australian labor market data for March will impact the buyer appetite for the Aussie dollar. Weaker labor market conditions could affect wage growth and disposable income levels. Consumers could curb spending on non-essential items, dampening demand-driven inflation. A softer inflation outlook could support investor bets on an RBA rate cut.

From elsewhere, economic indicators from China also need investor consideration. Q1 GDP, industrial production, retail sales, fixed asset investment, and unemployment numbers will be in focus on Tuesday.

The Kiwi Dollar

On Wednesday, inflation numbers for the first quarter will impact buyer demand for the Kiwi dollar. Hotter-than-expected numbers could affect investor expectations regarding an RBNZ rate cut and near-term trends for the Kiwi dollar.

Economic indicators from China will also move the dial.

The Japanese Yen

On Monday, machinery orders for February could impact buyer demand for the Japanese Yen. The Bank of Japan could maintain zero interest rates in a weak macroeconomic environment.

Trade data for March will draw investor interest on Wednesday. Trade terms could give more guidance on the global demand environment.

On Friday, inflation figures for March will warrant investor consideration. The numbers coincide with the spring wage hikes. Hotter-than-expected numbers could influence the Bank of Japan rate path.

Investors must also monitor Bank of Japan commentary and comments from the Japanese government on the Yen.

Out of China

On Tuesday, the Chinese economy will be in the spotlight. Q1 GDP numbers will impact the appetite for riskier assets.

Additionally, investors must consider industrial production, fixed asset investment, retail sales, and unemployment numbers.

Weaker-than-expected data could fuel investor expectations of a fiscal stimulus package from Beijing.