The Week Ahead – Brexit, the ECB, China GDP Numbers and Trade in Focus

It’s not just China’s economy that the markets are concerned with. An end to the government shutdown and more progress on trade talks is needed.
Bob Mason
Week ahead

On the Macro

For the Dollar, key stats are limited to December existing home sales on Tuesday, prelim January private sector PMI and the weekly jobless claims figures on Thursday and advanced December durable goods figures on Friday. Expect the durable goods and private sector PMI figures to have the greatest impact on the data front. Outside the numbers, trade talk and the extended government shutdown will also influence. The Dollar Spot Index ended the week up 0.70% to $96.336.

For the EUR, stats include economic sentiment numbers out of Germany and the Eurozone on Tuesday, prelim January private sector PMI numbers out of France, Germany and the Eurozone on Thursday and business sentiment figures out of Germany on Friday. Outside the numbers, the ECB’s first policy decision of the year is slated for Thursday, with the Draghi press conference likely to be on the dovish front, irrespective of the stats through the week. The EUR/USD ended the week down 0.92% to $1.1363.

For the Pound, key stats are limited to employment numbers due out on Tuesday and January industrial trend orders on Wednesday. We will expect some response to the earnings and claimant count figures, while direction through the week will ultimately be hinged on Brexit. Will there be a plan B and will there be support for it, or is it going to be another Referendum? These are the questions ahead of a scheduled 29th January parliamentary vote. The GBP/USD ended the week up 0.22% to $1.2872.

For the Loonie, November manufacturing and wholesale sales figures on Tuesday and November retail sales figures on Wednesday will provide direction, following the jump in inflation. Impressive numbers could reignite hopes of a more hawkish BoC, particularly if progress is made on trade talks between the U.S and China. The Loonie ended the week up 0.05% to C$1.3260 against the U.S Dollar.

Out of Asia, it’s a busier week ahead.

For the Aussie Dollar, a quiet week ahead leaves December employment figures due out on Thursday the key driver. Elsewhere, China’s GDP figures on Monday will also influence, any weakness to be AUD negative, though the blow could be softened should trade talks progress and agreements start rolling out. The Aussie Dollar ended the week down 0.65% to $0.7168.

For the Japanese yen, economic data includes December trade figures on Wednesday and January inflation figures out of Tokyo on Friday. Barring anything particularly impressive, we can expect China’s GDP numbers, progress on trade talks, Brexit and corporate earnings to have the final say on the Yen. The BoJ’s first monetary policy decision of the year is not expected to deliver any surprises. The Japanese Yen ended the week down 1.20% to ¥109.78 against the U.S Dollar.

For the Kiwi Dollar, stats are limited to 4th quarter inflation figures due out on Wednesday that will influence. Direction through the week will ultimately be down to market risk sentiment however, which will be in the hands of China’s 4th stats on Monday and updates from the Oval Office and Beijing on trade talks. The Kiwi Dollar ended the week down 1.30% to $0.6743.

Out of China, it’s a big week on the data front, with key stats including 4th quarter GDP, December retail sales, industrial production and fixed asset investment figures, the numbers due out on Monday morning. While we can expect heightened sensitivity to any weaker growth numbers, the markets may be able to stomach it should the U.S and China wrap up trade negotiations with a concrete agreement.

Geo-Politics

Brexit: Hopes are that there will be an extension and a deal for Parliament to vote for on the 29th January. Expect the Pound to be particularly sensitive to chatter from Parliament. If there’s no talk of an extension and if Plan B looks very much like Plan A, the Pound could be in for a rough ride, the only saviour being more talk of a second referendum that would be Pound positive.

U.S – China Trade War:  Updates were positive at the end of last week and there may well be more progress in the week ahead to provide support for risk appetite. The markets will likely need something more concrete than the odd statement from a U.S administration that has been known to issue contradictory messages.

U.S Government Shutdown: The extended and longest government shutdown in U.S history will have begun to take its toll on the economy and, if there’s no resolution in sight, the Dollar could begin to pay. Things are fluid at the time of writing, as compromises get rejected.

The Rest

On the monetary policy front,

For the EUR, Thursday’s ECB policy decision will be in focus. Economic data released ahead of Thursday’s press conference unlikely to have a material impact on Draghi’s outlook. While policy will be on hold, with the ECB unlikely to give any indications on when it will make a move, Brexit, the U.S government shutdown, economic data out of China and progress on trade talks will also provide reasons for caution.

For the Japanese Yen, expect no surprises here, there’s little to no cause for the BoJ to change course.

DAVOS: World leaders, with the exception of Trump, Theresa May and Macron, will be there and it may turn out to be a dull affair without Mogul present to ruffle the feathers.

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