Brexit, Trade Talk and Economic Data out of the Eurozone in Focus Today

Earlier in the Day:

January inflation figures out of Japan were the only material stats released through the Asian session this morning.

Outside of the numbers, RBA Governor Lowe gave testimony to the House of Representatives Standing Committee on Economics.

For the Japanese Yen,

The annual rate of core inflation picked up from 0.7% to 0.8% in January, which was in line with forecast.

Figures released by the Ministry of Internal Affairs and Communications also revealed that consumer prices rose by 0.3% in January, month-on-month. The rise in prices reversed a 0.2% fall in December.

In spite of the uptick, core inflation continues to sit well below the BoJ’s target. Further monetary policy easing could be on the cards, as the Japanese economy struggles on amidst the ongoing trade war between the U.S and China.

The Japanese Yen moved from ¥110.678 to ¥110.684 against the Dollar upon release of the figures. At the time of writing, the Japanese Yen stood at ¥110.79, down by 0.08% for the session.

For the Aussie Dollar,

RBA Governor Lowe gave testimony to the House of Representatives Standing Committee on Economics.

Salient points from the initial statement published on the RBA website included:

• The central scenario is for GDP growth of around 3% for this year and 2.75% for 2020. The numbers are lower than those expected at the previous hearing in August.
• Labour market conditions have performed better than expected. The unemployment rate is expected to move lower to around 4.75% over the next couple of years.
• Inflation has come in lower than expected. By 2020, inflation is forecasted to reach 2.25%.
• The economy is benefitting from increased spending on infrastructure and a pickup in private investment. Strong growth in jobs is also supporting spending, as is the sustained low level of interest rates.
• There are 2 major areas of risk globally that the RBA continues to monitor.
  • Political risk: Includes trade and technology tensions between the U.S and China; Brexit; the rise of populism; and the strains in some Western European economies.
  • The Chinese economy. Growth has slowed by more than the government had been expecting.
• Domestically, the Board has been monitoring household spending and developments in the housing market.
• The underlying trend in consumption is softer, impacting growth. Weaker consumption was attributed to:
  • A protracted period of relatively low growth in aggregate household income. Since 2016, aggregate disposable income has grown at an average rate of around 2.75% per year. Down from 6% over the preceding decade.
  • A decline in housing prices in the largest cities.
• Forecasts are for disposable income to increase and wages are rising more quickly in almost all industries.
• The change in outlook for consumption has caused the Board to revise its outlook on policy to take a more neutral stance.
• In spite of the neutral position, the Board still expects to make further progress towards its goals.
• As was the case 6-months ago, there is no strong case for a near-term change in the cash rate.

While there was very little in the initial speech to catch the markets off-guard, news of Chinese port Dalian banning the import of coal from Australia did some damage in the session. Lowe looked to reassure investors over the ban, stating that a port ban on Australian coal would have no ‘dramatic effect’ on the economy.

The Aussie Dollar moved from $0.70953 to $0.70906 during the early part of an extended speech. At the time of writing, the Aussie Dollar stood at $0.7091, down by 0.01% for the session.

Elsewhere,

At the time of writing, the Kiwi Dollar was down by 0.49% to $0.6768, the reversal coming off the back of the China ban on Australian coal imports.

The Day Ahead:

For the EUR

It’s another relatively busy day on the economic calendar. Key stats scheduled for release include finalized 4^th quarter GDP numbers and February business sentiment numbers out of Germany and finalized January inflation figures for the Eurozone.

Barring a deviation from prelim GDP numbers out of Germany, we would expect the business sentiment and the Eurozone’s month-on-month consumer price move to be the key drivers from the data perspective. Forecasts are skewed to the negative for the EUR.

Outside of the numbers, market risk sentiment will continue to be the main driver. Trade talks between the U.S and China will be in focus through the day.

Later in the day, ECB President Draghi will be speaking, with yesterday and today’s stats likely to give good reason to maintain the dovish tones that continue to peg back the EUR.

At the time of writing, the EUR down by 0.03% at $1.1333.

For the Pound

It’s another quiet day on the data front. Brexit chatter will provide direction, with no material stats scheduled for release to distract the markets from Brexit.

Hopes of a delay to Britain departing the EU continues to provide near-term support. In a normal world, the political environment in the UK would be sinking the Pound, as members of both sides of the leading political parties shift allegiances to the newly created Independent Group.

The British government failed to make progress in Brussels on Thursday and time is running out for the British PM. Theresa May will need to show progress next week else face the prospect of losing control of the Brexit process.

There will be one last chance, as both sides of met again next week in a bid to salvage the deal.

At the time of writing, the Pound was down by 0.12% at $1.3028.

Across the Pond

It’s a quiet day on the data front, with no material stats scheduled for release out of the U.S.

The focus will be on U.S – China trade talks, with any commentary from the Oval Office also needing consideration.

On the policy front, FOMC Member Williams will be speaking later today. Following some disappointing stats out of the U.S on Thursday, any dovish comments could put the Dollar back under pressure.

At the time of writing, the Dollar Spot Index was up 0.04% to 96.642.

For the Loonie

December retail sales figures will be released this afternoon.  Core retail sales numbers will be the key driver, which are forecasted to be Loonie negative.

Outside of the numbers, market risk sentiment and impact on crude oil prices will continue to be the key driver. The markets will be looking for more positive news from trade talks between the U.S and China

The Loonie was down 0.06% to C$1.3240, against the U.S Dollar, at the time of writing, a pullback in crude oil prices weighing early on in the day.