Weekly Outlook, Feb 11-15. Top 5 Things to Know this Week
The RBA left the policy rate unchanged at 1.50%, while no changes are expected from BOE. The financial markets exhibited thin volatility and trading volume as Chinese banks will remain closed in observance of the Spring Festival.
UK Gross Domestic Product (GDP)
On Monday at 9:30 (GMT), the Office for National Statistics will be releasing GDP and Prelim GDP figures for the United Kingdom. Just like the third quarter Prelim GDP, the fourth quarter figures are expected to remain steady at 0.6%.
There are some concerns about the GDP figures as the UK Inflation rate fell dramatically from 2.3% to 2.1% in January 2019.
A drop in inflation rate can also lead to a drop in GDP data. A higher than expected reading should be taken as positive/bullish for the GBP, while a lower than expected reading should be taken as negative/bearish for the GBP.
RBNZ Monetary Policy, OCR & Press Conference
The Reserve Bank of New Zealand makes its first rate decision of the year on Tuesday at 20:00 (GMT) and the press conference will be held at 21:00 (GMT). No changes are expected from the central banks at this week’s meeting.
Expectations from OCR (Official Cash Rate)
Let us remind you, New Zealand’s interest rate has been unchanged at 1.75% since November 2016. Back in November 2018, the RBNZ tried to underpin the New Zealand dollar by giving a timeline for the interest hike. As per the Monetary Policy Statement, the first hike in OCR is expected in September 2020.
On the economic front, the RBNZ also forecast 0.7% growth in GDP for the month of September while the actual figure came in at just 0.3%. It surely hurts the rate hike sentiment. Thus, the market won’t be expecting any change in the interest rate of 1.75%. However, it will be interesting to watch RBNZ economic growth forecast in order to drive market sentiment.
Consumer Price Index (CPI)
On Wednesday, the fundamentals side is overloaded with a series of economic events such as GDP, CPI, and Retail Sales. Let’s take a quick look.
Before we begin, let us recall that the Consumer Price Index (CPI) is one of the most valued economic events and it shows a change in the price of goods and services from the perspective of the consumer.
Long story short, it’s an essential way to gauge changes in purchasing trends and inflation.
UK CPI y/y – At 9:30 (GMT), the Office for National Statistics will be releasing UK’s inflation data. We have seen the UK economy struggling with price stability, perhaps, it can be due to ongoing Brexit turmoil and slowdown in global economic growth.
Previously, the UK Inflation rate fell dramatically from 2.3% to 2.1% in January 2019. In fact, it’s been consistently dropping since September 2018 from 2.7%. A drop in oil prices and global economic slowdown can trigger another negative rate this week, but let’s see.
US CPI m/m – The US labor market data was mixed as the market added 304K jobs which are a significantly higher number than the forecast of 165K. But, the unemployment rate soared from 3.9% to 4%. Most importantly, the average hourly earnings plunged to 0.1% from 0.4% beforehand.
An increase or decrease in average hourly earnings should also change the spending patterns of people. Due to the drop in hourly earnings, we can expect people to spend less than before. This can diminish demand for the US products and the falling demand leads to a drop in prices. So, can we expect a drop in US inflation? Well, we should be ready for it.
US Advance GDP q/q
The US Bureau of Economic Analysis will be releasing Advance GDP on Wednesday. GDP is forecast to be 2.6%, which is way lower than the previous 3.4%. Economists are expecting a sharp dip in the US economic growth, perhaps due to the prolonged partial government shutdown.
According to a Trump administration official, the original estimate was that the partial shutdown would subtract 0.1% from growth every two weeks. This estimate has now been doubled to a 0.1% subtraction every week. That’s likely to keep dollar under pressure next week.
US Retail Sales m/m
The Census Bureau will be releasing retail sales on Wednesday. Unsurprisingly, the forecasts for retail sales and core retail sales are also negative.
This month, 0.1% rise in retail sales and 0% rise in core retail sales are on the cards. A lower number of sales leads to a lower inflation rate and a drop in economic growth. So, the negative data is likely to keep the dollar in a selling mode.
As you see, the coming week is going to be an exciting one with a large number of economic events. So, brace yourself for volatility and stay tuned for more updates.