The Week Ahead – Monetary & Fiscal Policy, Stats and the Coronavirus in Focus

On the Macro

It’s a busier week ahead on the economic calendar, with 57 stats to monitor in the week ending 21^st March. In the week prior, 49 stats had been in focus.

For the Dollar:

It’s a busy start to the week, the manufacturing sector and consumers are in focus early on.

NY Empire State Manufacturing Index figures for March and industrial production figures for February are due out on Monday and Tuesday.

Expect any marked slide to weigh.

February retail sales figures are also due out on Tuesday. The markets will get an initial sense of what impact the spread of the virus in China had on consumer purse strings.

Later in the week, the focus will shift to the Philly FED Manufacturing Index and weekly jobless claims on Thursday.

While the markets may be able to take a slide in manufacturing output, any spike in jobless claims will sound the alarm bells…

Barring particularly dire numbers, we would expect February housing sector figures to have a muted impact. March numbers next month, however, will be considered a litmus test…

While we will expect influence from the stats this week, the FOMC interest rate decision is the main event.

The markets have priced in another rate cut, which should support risk sentiment. Much will depend upon the economic projections and press conference, however, which will give an idea of what lies ahead…

While Wednesday is the main event, expect the U.S administration to also have a material impact in the week. Fiscal policy support is expected following Friday’s press conference…Any snags and expect Dollar weakness to return.

The Dollar Spot Index ended the week up 2.76% to 98.749.

For the EUR:

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

Key stats include March ZEW economic sentiment figures on Tuesday and Eurozone trade figures for January on Wednesday.

Expect the ZEW numbers on Tuesday to have the greatest influence in the week. January’s trade figures will not reflect the effects of the coronavirus on trade.

Finalized February inflation figures due out of Italy and the Eurozone will also likely have a muted impact.

Outside of the numbers, news updates and government action to remain the key driver, however.

The EUR could find support should the likes of Germany and France loosen the purse strings. There were rumblings at the end of last week. The bigger issue, however, will be the widening shut down across the EU. Fiscal and monetary policy will have little influence on consumption if businesses are in shut down mode.

The EUR/USD ended the week down by 1.57% to $1.1107.

For the Pound:

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

Key stats are limited to January unemployment and wage growth and February claimant count figures.

We can expect the Pound to be particularly sensitive to the numbers and the claimant count figures in particular.

Weak numbers will support further monetary policy easing. While there is plenty of focus on the BoE, the government’s moves to contain the virus will also be of influence.

With the economy having stalled in January, a marked increase in coronavirus cases will add further pressure on the economy, fiscal policy or not…

The GBP/USD ended the week down by a whopping 5.90% to $1.2278.

For the Loonie:

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

On Wednesday, February inflation figures will provide direction. Expect softer inflation to raise expectations of a 3^rd BoC rate cut.

On Friday, the focus will then shift to January retail sales figures. The January numbers are unlikely to reflect the impact of the coronavirus on consumer sentiment, which should limit the influence on the Loonie.

In the week, January manufacturing sales and February house price figures will also limited impact.

While stats in the week will influence, crude oil prices will continue to have a material impact. The BoC cut rates on Friday in response to falling crude oil prices and the coronavirus.

The Loonie ended the week down by 2.89% to C$1.3806 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s another quiet week ahead on the economic calendar.

February employment figures, due out on Thursday, will have a material impact on the Loonie.

Disruptions to supply chains and global trade are expected to have a material impact on the Australian economy. Weak numbers will likely raise concerns over near-term consumer spending. In turn, this may well lead to the RBA signaling another rate cut.

Early in the week, we would expect the markets to brush aside 4^th quarter house price figures.

On Tuesday, the RBA’s meeting minutes will garner plenty of interest. Following the March rate cut, the markets will be looking for any hint of further action.

The minutes have tended to be far more dovish than the RBA Statements in recent months…

From elsewhere, expect economic data out of China and coronavirus updates to also influence.

The Aussie Dollar ended the week down by 6.53% to $0.6203.

For the Kiwi Dollar:

It’s also a quiet week ahead on the economic data front. Key stats include 1^st quarter consumer sentiment figures on Tuesday and 4^th quarter GDP numbers due out on Thursday.

The RBNZ has been on the quieter side recently, which will make the Kiwi all the more sensitive to the numbers.

We would expect any upside from the stats to be limited, with the NZ economy expected to take a hit in the 1^st quarter.

Consumer sentiment figures will have a greater impact at the start of the week.

Outside of the numbers, the Kiwi Dollar will remain sensitive to the news wires.

The Kiwi Dollar ended the week down by 3.40% to $0.6134.

For the Japanese Yen:

It’s a relatively busy week on the economic calendar. Key stats February trade data due out on Wednesday and inflation figures due out on Thursday.

With the Bank of Japan interest rate decision on Wednesday, we can expect trade data to be the key driver.

China’s economic woes in February are likely to impact Japan, which suggests a slump in exports. A widening in the trade deficit and weak demand from overseas would force the BoJ into action on Thursday.

We will expect finalized industrial production figures for January to have a muted impact on Tuesday.

Outside of the numbers, expect market risk sentiment to ultimately drive the Yen, however.

It wouldn’t be the 1^st time that the BoJ has eased and the Yen has rallied…

The Japanese Yen ended the week down by 2.12% to ¥107.62 against the U.S Dollar.

Out of China

It’s a relatively quiet week on the economic data front.

It’s a busy start to the week, however, with February fixed asset, industrial production and retail sales figures in focus.

The markets will be expecting particularly dire numbers for February. It won’t make it any easier to swallow, however.

Expect the stats to have a material influence on the Japanese Yen and the commodity currencies.

Outside of the numbers, the PBoC is in action on Friday, with the monthly resetting of the LPRs.

The markets are pricing in further rate cuts that would support risk appetite.

The Chinese Yuan fell by 1.09% to CNY7.0087 against the U.S Dollar in the week.

Geo-Politics

Trade Wars:

There has been no chatter on trade as governments battle the coronavirus… We expect the silence on trade wars to continue, with the ongoing disruption to supply chains the major concern at present.

UK Politics:

Talks were set to resume in the week ahead. With talks now delayed due to the coronavirus, the markets could get a little jittery over the timelines. How long will talks be delayed for and will Johnson agree to an extension if there is no framework in place by June?

Worst case scenario, talks could continue by phone, assuming that all parties are willing and able.

U.S Politics:

Joe Biden remains the Democratic front runner to face off against Trump in November. Any hint of a Sanders come back and expect the markets to balk… The spread of the coronavirus has resulted in delays to state primaries. While the markets will not like the uncertainty, how the U.S administration handles the virus in the week ahead will be of greater significance… The Republicans will be looking to get passed last week’s blunders.

The Coronavirus:

While monetary policy and economic data will influence in the week, we continue to expect news updates on the spread of the coronavirus to remain the key driver.

Europe is in shut down mode, with member states closing borders.

It could be a week where even more nations need to implement stringent containment measures. The weekend certainly delivered plenty of alarming news to kick the week off.

There’s a lot that can go wrong for the global financial markets going into the week… The reality is that EU member states had the opportunity to close borders weeks ago, before becoming the epicenter.