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The Week Ahead – Geopolitics, Powell, the RBNZ and Economic Data in Focus

It’s a big week for the markets. UK politics and trade are in focus on the geopolitical front, with the RBNZ also in action. Stats will also influence.
Bob Mason
Light Board

On the Macro

For the Dollar:

It’s a relatively busy week ahead on the economic calendar, though it’s a particularly quiet start to the week.

The markets will need to wait until Wednesday for the first set of meaningful stats from the U.S, with October inflation figures due out.

Following the last FOMC Statement, the core annual rate of inflation would need to see a marked pickup to question the FED’s forward guidance.

While the Dollar will respond to the figures, the Dollar may not be as sensitive as usual…

Wholesale inflation figures due out on Thursday, along with the weekly jobless claims figures will likely have a muted impact on the Greenback.

At the end of the week, the focus will shift to October retail sales figures that will have the greatest impact on the Dollar.

While forecasts are Dollar positive, anything weaker than forecast would weigh on the Dollar.

With the manufacturing sector continuing to struggle, domestic consumption and service sector activity remain key contributors to growth.

November’s NY Empire State Manufacturing Index, October industrial production figures and September business inventories will likely have a muted impact on the day.

Outside of the numbers, geopolitics will also need monitoring. Progress towards the signing of a phase 1 agreement and impeachment chatter will be in focus.

For the Dollar and the broader markets, there is also FED Chair Powell’s testimony to Congress on Wednesday. Powell’s views on the economy and monetary policy will have a material impact.

Ahead of Powell’s testimony, U.S President Trump is scheduled to speak at the Economic Club in New York. Expect plenty of reaction to Trump’s comments. Expect plenty of chatter on trade and a likely nudge for the FED to deliver more easing…

The Dollar Spot Index ended the week up by 1.15% at $98.353.

For the EUR:

It’s another busy week ahead on the economic data front.

German and Eurozone economic sentiment figures kick off the week on Tuesday.

Following news of rising job cuts in Germany, a further slide in Germany’s ZEW Economic Sentiment Index would pin back the EUR. Forecasts are EUR negative.

On Wednesday, the Eurozone’s industrial production figures will provide direction ahead of German GDP numbers on Thursday.

Expect a EUR bounce should Germany’s economy avoid a contraction in the 3rd quarter. A contraction, however, following the stall in the 2nd quarter, will certainly be a test for the EUR.

Barring deviation from 1st estimates, the Eurozone’s 2nd estimate GDP numbers due out later in the day will unlikely influence.

On Friday, the Eurozone’s October finalized inflation figures and September trade data will also provide direction.

Positive for the EUR should be a widening in the trade surplus. On the inflation numbers, barring a market shift from prelim, the focus will be on the month-on-month headline number.

From elsewhere, expect geopolitics and the latest UK General Election polls to also provide direction.

The EUR/USD ended the week down by 1.33% to $1.1018.

For the Pound:

It’s a busy week ahead on the economic calendar.

On a particularly busy Monday, 3rd quarter GDP numbers and September manufacturing production figures will have the greatest impact on the Pound.

3rd quarter business inventories and September industrial production and trade data will likely be brushed aside.

The Pound will come under more pressure should the economy contract in the 3rd quarter and production figures disappoint…

On Tuesday, employment figures will also have a marked impact. Expect wage growth and claimant count numbers to have the greatest influence.

With October inflation numbers due out on Wednesday and retail sales figures due out on Thursday, it could be a rollercoaster of a week for the Pound.

On the geopolitical risk front, the UK General Election polls could ultimately overshadow the stats…

The GBP/USD ended the week down by 1.33 % to $1.2774.

For the Loonie:

It’s a particularly quiet week ahead on the data front.

September’s new house price figures on Thursday and foreign securities purchases on Friday will likely have a muted impact on the Loonie.

From elsewhere, stats out of China on Thursday will influence, however, with October industrial production figures due out.

Updates from Beijing and Washington on phase 1 of the trade agreement will also provide direction in the week.

On the monetary policy front, BoC Governor Poloz is due to speak on Friday. With economic data disappointing, will there be any talk of easing?

The Loonie ended the week down by 0.65% to C$1.3228 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s another busy week ahead.

October business confidence figures due out on Tuesday will provide direction ahead of the all-important wage growth and consumer sentiment numbers due out on Wednesday.

With the RBA’s concern over both wage growth and consumer spending, Wednesday’s figures will have an impact.

The focus then shifts to October employment numbers due out on Thursday. Once more, expect Aussie dollar sensitivity to the employment change figure in particular.

From elsewhere, industrial production figures out of China will also influence.

On the geopolitical risk front, chatter on trade will need monitoring.

The Aussie Dollar ended the week down by 0.59% to $0.6863.

For the Japanese Yen:

It’s a relatively quiet week ahead on the economic calendar.

Key stats include 3rd quarter GDP numbers due out on Thursday and finalized September industrial production numbers on Friday.

We could see the Japanese Yen take a hit should the economy grind to a halt. The BoJ continued to dangle the monetary policy carrot in front of the markets. Dire numbers could ultimately force Kuroda’s hand. Typhoon season certainly didn’t help.

The Japanese Yen ended the week down by 0.99% to ¥109.26 against the U.S Dollar.

For the Kiwi Dollar:

Stats are on the quieter side once more in the week ahead.

Economic data is limited to October electronic card retail sales figures due out on Monday, inflation expectations on Tuesday, and Business PMI numbers on Friday.

While we can expect the Kiwi Dollar to be sensitive to the numbers, the RBNZ Interest rate decision is the main event.

Expectations are for the RBNZ to hold rates steady on Wednesday. The markets are expecting forward guidance to be on the dovish side, however, with further rate cuts on the horizon. That is assuming of course that they don’t cut this week…

A hawkish statement would drive the Kiwi back towards $0.65 levels…

Outside of the stats, chatter on trade will continue to provide direction in the week, with stats out of China also in focus.

The Kiwi Dollar ended the week down by 1.54% to $0.6328.

Out of China:

It’s a relatively quiet week on the economic data front. October industrial and fixed asset production figures due out on Thursday will influence risk appetite on the day.

Outside of the numbers, updates from Beijing on trade talks with the U.S will also need monitoring…

The Yuan ended the week up by 0.59% to CNY6.9928 against the Greenback.

Geo-Politics

Impeachment: Testimony had continued behind closed doors, but are now due to go public in the week ahead. With trade continuing to be the key area of focus, we’ve yet to see any market reaction. This may well change in the coming weeks,  particularly if there are no distractions for the markets. Ultimately, however, the two-thirds of the Senate would need to vote in favor of convicting Trump to remove the President from the Oval Office. This is assuming that a simple majority in the House vote in favor of impeachment. With the Democrats getting some wins last week, things could get interesting…

Trade Wars: Following news on Friday that the U.S administration is unwilling to remove all tariffs, there was some concern over how much impact a phase 1 agreement would have on trade terms. In the early part of the week, further updates will have a material impact on the Greenback and risk appetite. Late on Friday, Trump was reported to have said that there would be no tariff rollback ahead of the signing of the Phase 1 agreement… China will undoubtedly want assurances before entering into a tariff ridden trade agreement. Expect Trump’s speech at the Economic Club to garner plenty of interest…

UK Politics: With the general election campaigns up and running, it’s going to come down to the opinion polls from the weekend. Based on the YouGov opinion polls from last week, the Tories were well ahead, with an 11% lead over the Opposition Party. Following the BoE’s negative outlook towards the economy, in the event of a Boris Johnson Brexit, it will be interesting to see if the polls narrow. The BoE did not provide economic projections should Corbyn take number 10…

The Rest

Earnings:  It’s another busy week on the earnings front. Cisco Systems (Wed), Macys Inc. (Wed), and JC Penney Co. Inc. are among U.S earnings results. From Europe, Continental (Mon) and Infineon Tech. (Tue) are in focus from the DAX30.

RBNZ: Expectations are for the RBNZ to leave rates unchanged. The markets are also expecting the RBNZ to talk up further rate cuts, however. Anything less and expect the Kiwi Dollar to bounce. The chances of a 25 basis point rate cut fell to around 50% on Friday…

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