We have collated a summary of the most important upcoming economic indicators for the upcoming week, for your convenience. Review the latest Week In Focus in order to build your effective trading strategy, and to help you on your journey towards successful trading.
Fed, BoE, BoJ & SNB meeting; Dutch elections; Merkel/Trump meeting; G20 meeting
A busy week for events
There are an unusual number of significant events this week. Look out for:
· Four central bank meetings (Fed, Bank of Japan, Swiss National Bank and Bank of England);
· Visit by German Chancellor Merkel to Washington;
· Dutch Parliamentary election, kicking off the European election season; and
· A G20 Finance ministers’ & Central Bank governors’ meeting over the weekend.
And lots of indicators too
On top of that busy schedule, there are a large number of important indicators. These include:
· US: Empire State & Philly Fed indices, CPI, retail sales, housing starts & permits, industrial production, and U of M consumer confidence
· EU: Industrial production, German ZEW survey, trade balance
· UK: labor market data
· Australia: Business & consumer confidence, labor market data
· NZ: Q4 GDP
Usually the week after the nonfarm payrolls is a relatively quiet one for indicators, but since the NFP came out a week later than usual this month, we get no such rest. However, the indicators aren’t the feature of the week. There’s a staggering number of market-affecting events scheduled this week, including:
· Four central bank meetings (Fed, Bank of Japan, Swiss National Bank and Bank of England);
· Visit by German Chancellor Merkel to Washington;
· Dutch Parliamentary election, kicking off the European election season; and
· A G20 Finance ministers’ & Central Bank governors’ meeting over the weekend.
And for good measure, the US hits up against the debt ceiling during the week too, although that won’t start to bite for another several months.
Central bank meetings
Of the four central bank meetings, only the US FOMC is expected to result in any change in rates or policy. Even there, there is little suspense about the outcome; the market sees a 100% chance of a rate hike. The big question is what will happen with the dot plot, the graph that shows the FOMC members’ forecasts for where they think the fed funds rate will be at the end of the year. The December version showed that they expected three rate hikes each year for the next three years; will they front-load that to four this year, three next and two in 2019? Or maybe four each this year and next? Stay tuned!
The Bank of England, Bank of Japan (BoJ) and Swiss National Bank (SNB) on the other hand aren’t expected to make any changes in rates or their stance. The market doesn’t see a rate hike in Britain for another two years, the SNB is unlikely to move before the ECB does (Jan. 2019 according to market rates) and the BoJ…well, it’s kept rates close to zero since 1999, so nobody looks for much change any time soon.
The meeting between Trump and Merkel is expected to cover a wide range of issues, including the global economy, trade, NATO, the fight against the Islamic State, and ties with Russia and China. So far Trump’s meetings with visiting heads of government have been mostly sweetness and light, but there are more areas of conflict with Germany, and Merkel has been critical of the new President. This meeting could involve some criticism of Germany’s trade practices, which could be positive for the euro.
The Dutch elections will be closely watched as a precursor to the more important French elections next month. The key point is how well Geer Wilder’s euroskeptic PVV Party does. The more votes the non-mainstream parties get, the more acceptable it will seem to voters in other countries to vote for one of these parties. That could raise existential fears about the future of the euro and weigh on the single currency.
Friday and Saturday, the G20 Finance Ministers and central bank governors gather in Germany to discuss the world outlook. This will be the first such meeting with the new US Treasury Secretary. Normally these meetings are not particularly market-affecting, but this time may be different. According to Reuters, the draft communique has removed the pledge to refrain from “competitive devaluations” and reintroduced – for the first time in over 10 years – a reference to “excessive global imbalances.” That could pave the way for countries to intervene in the FX market to rectify trade imbalances, i.e. strengthen the yen and the euro and weaken the dollar.
Finally, it’s a small point (now) but the US will hit up against its debt ceiling on Wednesday and will have to start taking “extraordinary measures” to keep funding the US government. Leading Republicans in Congress have said that they’ll extend the ceiling, but that remains to be seen. In any event there are still several months before the government runs out of money so it’s not going to be a market factor yet.
People’s Congress, ECB & RBA meetings, UK Budget, US NFP
It’s a week filled with important events and indicators from all over the globe.
The week’s events started Sunday with the National People’s Congress (NPC) opening in China. This is the largest legislative body in the world, with nearly 3,000 members from all over China. The Congress is where the government sets out its working plan for the year and perhaps a development plan for the next five years. Last year’s NPC set a growth target of 6.5%-7% and an inflation target of “around 3%.” Any deviation from these targets will be closely watched. A slower growth target would hit AUD and NZD in particular, as well as other commodity currencies. (I expect them to announce a growth target of at least 6.5%, which would probably be neutral for the markets as it’s not far off the announced 2016 growth of 6.7%.) Investors will pay particular attention to Premier Li Keqiang’s closing press conference. The closing date of the Congress is not yet set.
Britain announces its FY2017/18 budget on Wednesday. It’s been reported that the Government will sharply upgrade its growth forecasts and therefore reduce the borrowing forecast. That might leave Chancellor Hammond with more money to spend on helping companies that will be hurt by Brexit or higher corporate taxes. However, he has said he will leave big tax initiatives until the autumn, when the UK government will switch to an end-of-year budget announcement. Nonetheless, an upgraded economic outlook could prove positive for the pound.
The ECB meets on Thursday. There’s little expectation that they will make any changes in rates or in their QE program, particularly ahead of the French elections. The focus is therefore likely to be on their new forecasts, particularly for inflation, now that the EU headline inflation rate has gone back to their 2% target. Last time ECB President Draghi emphasized core inflation, not headline inflation, and that remains stuck at 0.9%. Nonetheless, an upgrade in the economic outlook and inflation forecast could be positive for the euro.
The RBA meeting Tuesday is not likely to attract much attention. Their last meeting was exactly a month ago, and since then there hasn’t been that much news to move the needle one way or the other. The market still sees almost no chance of a rate hike until December, and even then it’s only a 27% probability. Following last week’s plunge, AUD is little changed from where it was at the previous meeting, both vs USD and on a TWI basis. I don’t expect much change in the statement and I therefore don’t expect much change in AUD, either.
Finally, the other major event of the week is the US nonfarm payroll figure on Friday, preceded as usual by the ADP report on Wednesday. While this is usually the most important figure of the month, its importance this month is more difficult to divine. Forecasts range from 150k to 247k (median = 185k). With the market putting a 90% probability on a rate hike in March, the figure would have to be far below even the lowest forecast to make the Fed change plans at this point. A figure in line with the forecast would be just “business as usual” and might not make that much different. It would take an exceptionally good figure (at the upper end of the forecast range) to push forward expectations for the next rate hike, which is forecast to be either June or July. (There’s no meeting in April.) That could give the dollar another leg up. The consensus is also looking for a sharp increase in average hourly earnings, which would also be dollar-positive.
Other notable data from the US this week includes factory orders today (Monday) and trade data on Tuesday.
For the EU, German factory orders on Tuesday and industrial production on Wednesday will be the only other major items in addition to the ECB meeting.
UK industrial production and trade will be released on Friday. The overall trade deficit is expected to narrow, but output is forecast to show a sharp slowdown on a yoy basis. I think that might be the more important number and GBP could weaken as a result.
Japan announces its current account balance and final revision of 4Q GDP on Wednesday morning Japan time. While the current account is expected to fall slightly on an SA basis, GDP is expected to be revised up, which could boost JPY.
Finally, China releases its inflation and trade data this week. The trade surplus is expected to shrink dramatically from the previous month and inflation to drop, but since the February data is always distorted by the Chinese New Year (27 Jan-2 Feb this year), the figures are not likely to be that market-affecting.
Trump address to Congress, Fischer & Yellen speeches, Bank of Canada meeting
After an unusually quiet week, we’re in for some excitement this week!
The key item on the agenda is Trump’s address to a joint session of Congress Tuesday night in the US (early Wednesday morning GMT time). Press reports suggest this will be a “laundry list speech,” setting out what he’s done so far and what he hopes to accomplish in the future. Administration officials reportedly said the speech would focus on tax reform, securing the border, health care and infrastructure.
Past performance would suggest that the speech will be light on details however, and indeed several of these important goals have been apparently put on the back burner recently. The speech may lift sentiment towards the dollar temporarily, but I wonder how long any boost from it will last.
Then on Friday, Fed Vice Chair Fischer and Fed Chair Yellen both speak. The key there will be if they respond to Trump’s speech and comment on how his vision of fiscal policy will affect their vision of monetary policy.
Outside the US, the Bank of Canada meeting Wednesday will be a focus of attention, although the market sees only a small possibility of a rate hike this year and almost no possibility of a cut. The last statement kept a strictly neutral forward guidance. The key this time would be any changes to that statement and a hint of bias one way or the other. I expect little change in the statement and for CAD to emerge little changed afterwards.
In addition to these events, there will be a large number of significant indicators. Globally, the final PMIs will be released, including those from China, Britain and the ISM indices from the US. China’s PMIs are expected to be down slightly, which could dampen the market’s appetite for risky assets, including AUD.
The important US indicators out this week are mostly expected to show a strong economy continuing to expand at steady, gradual pace: a “Goldilocks scenario” for the dollar. Today’s durable goods figure is expected to show a big jump at the headline level, while the “bottom line” -- nondefense capital goods orders (ex aircraft) – is expected to slow slightly but still be robust. Tuesday’s second estimate of US Q4 GDP should show growth revised up slightly as it hovers around the limit of sustainable non-inflationary growth, which is estimated to be around 2%. Wednesday’s personal income & spending figures are forecast to show incomes growing steadily and spending up in line with incomes. At the same time, the ISM manufacturing index is forecast to show the expansion continuing at its current healthy pace. All told the data should do nothing to dissuade the Fed that the economy is on track and it can continue with “gradual increases in the federal funds rate.”
For the EU, the main features are the German inflation data on Wednesday, followed by the EU-wide CPI on Thursday. Although EU-wide inflation is expected to accelerate, the core CPI is expected to rise at the same rate as in the previous month. ECB President Draghi has focused recently on core inflation; as long as it stays steady, policy is on hold and the EUR is not likely to move much either way.
Japan releases its industrial production data Tuesday morning Japan time, capital spending on Wednesday, and CPI on Friday. Industrial production for February is expected to slow somewhat. Moreover, the Trump administration’s protectionist policies could affect manufacturers’ sentiment, so the forecasts for February and March may be more important than usual. On the other hand, capital spending is forecast to rise and inflation is forecast to accelerate, so net net the news could be positive for the yen.
Eurogroup meeting, FOMC minutes, preliminary PMIs
Again, a relatively quiet week for indicators and no major central bank meetings scheduled. The preliminary global PMIs from the Eurozone and the US will be the focus for data, while the minutes of the February FOMC meeting will be the main monetary event. There are an unusual number of important speeches and data related to Australia this week.
It looked as if the key event would be today (Monday), when the Eurogroup of EU finance ministers meet to discuss aid to Greece. This was their last chance to reach an agreement on the terms of the Greek bailout program with the IMF and release €7bn in IMF aid to Greece. Although the Greek government can function until July without the aid, the EU governments had hoped to reach agreement before a cascade of elections starts in Europe next month. Without an agreement, the aid is likely to become an issue in the Dutch election campaign in March and the French elections in April, making it harder for politicians to compromise. As the-then President of the Euro Group, Jean-Claude Juncker once said about economic reforms, “We all know what to do, we just don’t know how to get re-elected after we’ve done it.”
The Greek debt question is therefore “live” again – note the widening spread of Greek bonds over German Bunds recently, dragging with it the spread of other Eurozone governments higher. This increasing risk premium in Europe may exert downward pressure on the euro. The saving grace for the currency however may be the disarray in Washington, where the political system has its own problems, to say the least.
The FOMC minutes on Wednesday could rekindle expectations of Fed tightening. These have been quite volatile lately. Note how rate expectations came down suddenly after the 1 February meeting, then shot up again last week after Fed Chair Yellen and several of her colleagues sounded more hawkish – only to fall back again after NY Fed President Dudley and Vice Chair Fischer failed to echo their words. The minutes may reflect that split, in which case it’s hard to guess ahead of time how they will affect the market. It probably depends on whether the market is in a mood to buy or sell dollars.
The main indicators out this week will be the preliminary PMIs for the main Eurozone countries and the US. The manufacturing PMIs are expected to come down slightly, but that wouldn’t necessarily be worrisome. Markit noted that last month, growth rose to its fastest pace for nearly two years with inflows of new orders accelerating, which suggests that the upturn has solid momentum. Note how most of the PMIs are crowded into the 1st quadrant on the graph, the area of accelerating expansion. Thus I would expect a small decline in the PMIs not to have much impact on risk sentiment or views on currencies.
For the UK, the main event will be on Tuesday, when MBank of England Gov. Carney, BoE Chief Economist Andy Haldane, and two members of the Monetary Policy Committee speak at a Treasury Select Committee hearing on the February Inflation Report. That report was slightly more dovish than people had expected and GBP fell after it came out. They are likely to repeat the same message here and the pound could fall again, with one caveat: the speakers include Ian McCafferty, who along with Kristin Forbes is one of the more hawkish members of the MPC. She said following the meeting that she’s becoming “uncomfortable” with the Bank’s stance owing to the rapid increase in inflation. If McCafferty were to echo Forbes’ comments, the market could get mixed signals.
Other key indicators coming out this week including the Ifo survey on Wednesday. For the US, it’s existing home sales on Wednesday and new home sales on Friday. And Canada announces its retail sales on Wednesday and CPI on Friday.
Finally, it’s a relatively big week for the AUD as the minutes of the February RBA meeting are released on Tuesday Australia time, while RBA Gov. Lowe speaks on Wednesday and Friday Australia time. Also the quarterly private capital expenditure figures will be released on Thursday.
Yellen testimony to Congress; CPIs from China, Switzerland, UK & US; and US & UK retail sales
Last week lacked major indicators but at least it had two central bank meetings. No such excitement this week. In fact, there’s nothing at all worth noting on the schedule today (Monday) and precious little on Friday, either.
In their absence, the highlight of the week will be Fed Chair Yellen’s semi-annual Monetary Policy Report to Congress (the Senate on Tuesday, the House on Wednesday). This is her first public speaking opportunity since the FOMC meeting on 1 February and the market will be interested to hear her take on things. Usually her prepared statement hews fairly closely to the press release following the FOMC meeting, but then the questions begin and the sparks begin to fly. When she last spoke (19 Jan), she sent the dollar down by saying that the Fed is not behind the curve, even though later in her speech she warned against waiting too long to remove accommodation. I would expect her to be slightly more hawkish this time following the strong January payroll figure and for the dollar to rise this time.
Of course, traders will also be glued to their Twitter feeds, particularly at 3 AM Washington time, when many market-affecting – or perhaps just market-perplexing? – announcements are made.
As for the indicators, global inflation will be in focus this week with data from China, Switzerland and Britain (Tuesday) and the US (Wednesday). All the headline CPI rates are forecast to rise. That’s a remarkable change from not so long ago, when the world was worried about deflation. It’s also broadly USD-positive, because the Fed is the only central bank that is raising nominal interest rates in response to higher inflation. As other central banks keep their nominal rates steady, their real interest rates will fall relative to those of the US and the dollar should benefit.
In particular, the surge in China’s producer price index (PPI) is notable for its potential impact on global inflation. US import prices, for example, basically track Chinese inflation.
The expected rise in the US headline CPI well past 2.0% may not have any direct bearing on Fed policy – the FOMC uses core personal consumption expenditure deflator, not CPI, as its inflation target – but it will probably have an impact on investor sentiment, since expectations about future inflation largely track current inflation. I would expect US inflation expectations to rise as a result and the dollar to strengthen, depending of course on what Yellen has to say that day.
Japan releases its Q4 GDP figure on Sunday night. However, this is not as big a market-mover as one might expect, perhaps because everyone in the market knows it’s extremely unreliable and almost certain to be revised sharply.
Germany and the Eurozone release the second estimate of their Q4 GDPs on Tuesday, but these rarely bring any surprises, just details. Tuesday’s ZEW survey is probably more important for the FX market; the indices are expected to be slightly lower, so they could dampen EUR/USD.
The US and UK announce their retail sales data this week. Both figures are important for those two consumer-driven economies. The US headline number is expected to be lower, but the figure excluding autos and the control group number – the one that goes into the GDP number – are expected to be higher, which could boost USD. UK retail sales on the other hand are expected to slow, which might dampen enthusiasm for the pound caused by the (expected) rise in inflation announced earlier in the week.
RBA, RBNZ meetings; Trump/Abe meeting
The data calendar is rather light this week, as is usual in the second week of the month. The focus then will be on the two antipodean central bank meetings. Neither is expected to result in a change in rates, so the emphasis will be on the nuance of policy.
The Reserve Bank of Australia (RBA) is expected to keep rates steady. In fact, it’s expected to keep rates steady for the whole year. The market puts only an 18% probability on a rate hike this year and slightly less (15%) on a cut. Boring! So the market will be looking for any change in tone in the statement. Mining investment is slowing, wage growth is at record lows and inflation is at the bottom of the RBA’s target band. Iron ore and coal prices rose late last year but have since stabilized. On the other hand, the trade surplus hit a record high. Nonetheless, looking at last month’s statement, not that much seems to have changed. (“Economic conditions in China have steadied… Further increases in exports of resources are expected…the outlook for business investment remains subdued… inflation remains quite low…” etc.) I would expect to see little change in the statement, resulting in little impetus to trading. If anything, the emphasis might be on the low level of inflation after the drop in December, and that could knock AUD somewhat.
The Reserve Bank of New Zealand (RBNZ) is expected to hike rates at some point this year, but the market puts zero probability on it happening this week. The RBNZ faces somewhat of a policy conundrum: inflation finally returned to its target band for the first time in two years, but unemployment is rising, the currency is stronger than it expected, wage growth is low and the housing market is cooling. While the market expects a rate hike eventually, I think that at this stage they might take a more cautious tone that could depress NZD for now.
As for the data, the US releases its trade data and Germany and Japan announce their current accounts, which of course include trade. Normally trade figures aren’t such a big market mover for the big industrial economies, but I expect that as the new US administration focuses more on trade issues, these data will become more important from a political point of view. The US trade deficit is expected to remain relatively steady so that might not be much of an issue. Both Japan and Germany are forecast to see a fall in their current accounts, which could be seen as reducing the political pressure on them and therefore be negative for JPY and EUR/positive for USD.
The U of Michigan consumer sentiment index for February is expected to fall. In January it hit the highest level since early 2004 as many people were encouraged by Trump’s election, but apparently the enthusiasm is starting to wane slightly. The size of the drop will be closely watched and could prove negative for the dollar. Nonetheless, the forecast is for sentiment to remain at a relatively high level.
Meanwhile, markets will remain riveted on Washington as the policy debate there continues. Rising friction with Iran could push oil prices higher, while Friday’s meeting between President Trump and PM Abe will be crucial to see if the US really wants to see a change in other countries’ monetary policies or if that’s just a negotiating tactic to win trade advantages. (Trump said last week that "…you look at what Japan has done over the years: they play the money market, they play the devaluation market and we sit there like a bunch of dummies."). Remembering their amiable comments following their first meeting before the inauguration, I expect that this week’s meeting will also result in friendly and encouraging comments that may take some pressure off JPY and allow USD/JPY to move higher.
BoJ, FOMC, Bank of England meetings; EU CPI; final PMIs
The FX market has seen a lot of volatility this year and it’s likely to see more this week as we have three major central bank meetings and the monthly US nonfarm payrolls report. None of the central bank meetings is expected to result in any change in policy, but there could be a change in nuance that affects currencies. Meanwhile, the surge of executive orders and twitter comments coming out of the White House show no signs of slowing down, and with them the gyrations in the US bond market and therefore the dollar are likely to continue.
The Bank of Japan (BoJ) Policy Committee, the US Fed’s Federal Open Market Committee (FOMC), and the Bank of England Monetary Policy Committee (MPC) all meet this week. There seems to be little disagreement on any of them: no change in policy.
The rise in bond yields globally since the US presidential election has reduced the need for the BoJ to increase its stimulus measures, since by holding Japanese yields steady, the yield spread against other countries naturally widens and takes pressure off the yen. With no change in policy likely time, the focus will therefore be on any hints that BoJ Gov. Kuroda gives about the future in his post-meeting press conference. The BoJ will also release its latest Outlook Report after the meeting and could raise its growth and inflation forecasts for the coming fiscal year. That might encourage him to take a more optimistic view, which could boost the yen somewhat.
The FOMC meeting could be somewhat of a non-event for the markets. There hasn’t been that much change in the data since the Dec.13-14 meeting and so there’s not likely to be much change in the view. The unemployment rate has ticked up while core PCE inflation ticked down, and inflation expectations are higher, but otherwise the data confirm a steady expansion at slightly above the Fed’s estimate of potential growth of around 2%. With little change likely in the statement and no press conference afterwards, the meeting might provide little impetus to trading.
The BoE MPC meeting could prove more contentious. There’s a policy conundrum in the UK. On the one hand, the Bank is concerned about what Brexit means for the long-term health of the UK economy. On the other hand, Britain probably registered the strongest growth of any of the G7 countries in 2016, and inflation is trending upwards because of the plunge in sterling. The fact that the Bank could tilt either way may be why the market is pricing in only a 50-50 chance of a rate hike this year, i.e. not sure about whether they will or won’t hike (but zero chance of a cut). While there may be some dissent in Thursday’s minutes, I would expect the MPC as a whole to stress the downside risks from Brexit while maintaining their neutral bias. That could prove negative for sterling.
After the central bank meetings, the focus will turn to Friday’s US nonfarm payroll report. Payrolls are expected to continue to rise at around the same pace as they have been recently (the three-month average is 165k, vs the market’s expectation for a 168k rise). The NFP figure still moves the market, but this largely depends on the surprise. As the graph shows, it usually takes a fairly big surprise to get a big movement out of EUR/USD.
Other important indicators out this week include the German CPI on Monday and the EU CPI on Tuesday. ECB President Draghi said the Council wants to see inflation rising throughout the EU, so the fact that it’s expected to hit the 2% target in Germany isn’t as significant as it might have been before. Furthermore, he and other ECB members have stressed that they want to see core inflation, not just headline inflation, rising. So although headline EU inflation is expected to rise, core inflation isn’t. Until core inflation starts to rise sustainably towards the 2% target, the ECB is likely to maintain its loose monetary policy and EUR may weaken further.
The final PMIs are coming out this week, which includes the figures for the UK and China. The UK PMIs are expected to slow somewhat, which might add to the negative tone for GBP. China’s PMIs are also expected to fall a notch or two, which might at the margin weaken AUD.
Preliminary PMIs, UK & US Q4 GDP, Australia, NZ and Japan CPIs
It’s a week without that much on the schedule: not that many major indicators, few speakers (no one from the Fed), and no major central bank meetings.
The focus will probably be on US politics. President Trump has promised to issue a slew of executive orders immediately upon taking office. Reuters reported that his advisors have vetted more than 200 for him to consider on healthcare, climate policy, immigration, energy and numerous other issues. It’s also being reported that he will move quickly to give official notice to withdraw from the 12-nation Trans-Pacific Partnership (TPP) trade deal and renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico.
These moves could temporarily boost the dollar. Changes that hold out the promise of a narrower trade deficit for the US or faster growth in jobs might give USD a boost, at least until the inevitable retaliation comes from the other side.
So far, MXN has been the barometer of Trump policy, given Mexico’s dependence on trade with the US -- the US takes 73% of Mexican exports and supplies 47% of its imports. It’s hard to see how MXN can fall further, as it’s already down 17% since the US election. The OECD ranks it the second-most undervalued currency in the world, after the TRY (which has collapsed recently). Still, just because something is down doesn’t mean it can’t go down further. Mexico has other problems of its own already – witness the riots at gasoline pumps recently.
Oil prices already face a problem from rising US production while inventories remain near the record high set back in April. Prices may be hit further if Trump moves rapidly to open up new lands to drilling and loosens environmental restrictions.
CAD could be hurt by the combination of renegotiation of NAFTA and lower oil prices. Like Mexico, Canada is also heavily dependent on exports to the US (72% of its total exports, about the same). About half of these exports are manufactured products, of which about one-third are auto-related and a quarter are consumer goods. While so far CAD has been largely spared the drubbing that Mexico has had, I question whether the currency can hold up under the sustained pressure from both the trade side and the monetary side as the Bank of Canada remains worried about below-target inflation.
As for this week’s indicators, the focus will be the preliminary Markit PMIs for Europe and the US on Tuesday. As the graph shows, most of the global PMIs are in the upper right-hand quadrant, which shows an accelerating expansion – good news for the global economy and risky assets. Not much change is expected this month – the Eurozone manufacturing PMI is forecast to be down a touch, while the US version is expected to be unchanged. Naturally, that would not be cause for much volatility, so the market movement depends on what surprise if any we get from them.
UK Q4 GDP is forecast to slow slightly, but nonetheless remain at a relatively robust +0.5% qoq, +2.1% yoy. As the graph shows, UK growth has almost been as strong as US growth , and the US is already well into a hiking cycle. That’s pretty robust, given all that happened in Britain in 2016, and could help GBP to firm up somewhat.
US Q4 GDP is expected to slow considerably however. The market consensus is at 2.1%, close to the New York Fed’s Nowcasting Report forecast of 1.9%. But the Atlanta Fed’s GDPNow forecast is substantially higher at 2.8%. Thus it looks like the actual could come in very different from what the market expects. A higher-than-expected result would be more of a surprise than a miss, so the USD could gain on that indicator if there’s a positive surprise.
Elsewhere, we’ll get a firmer grasp on the world inflation picture this week as Australia, New Zealand, and Japan release their CPIs. Australia and New Zealand are both forecast to show a substantial rise in the yoy rate of price increases, although in both cases it’s forecast to remain well below the official target. Currently Australia is pricing in no change in policy this year, while New Zealand is pricing in one rate hike (even though inflation is currently near Japanese levels!). A rise in inflation in Australia and New Zealand could increase the odds of a tightening and push their currencies – which have been the best-performing G10 currencies so far this year – still higher.
Japan remains the odd man out with regards to inflation as that nation’s inflation rate is expected to slow. The country remains mired in deflation. So long as it does, the Bank of Japan is likely to remain accommodative, for example continuing with its cap on 10-year yields. As nominal interest rates elsewhere move up in response to higher inflation, the yield spread is likely to move further against the yen and the currency is likely to weaken further. That should encourage its use as a funding currency and further its devaluation.
Other major indicators out this week include Japan and US trade; US wholesale inventories; and US durable goods.
May speech on Brexit, Trump inauguration, Bank of Canada & ECB meetings
“Buy the rumor, sell the fact” is an old adage in the financial markets. The expectations of massive fiscal stimulus by the incoming administration launched 1,000 “Trump Trades” that pushed US rates, stocks and the dollar higher. This Friday, expectations segue into reality as President-Elect Trump takes office. Many investors began unwinding those trades last week as they questioned whether they were overly optimistic. It seems possible that that trend could continue this week and we could see the dollar relatively soft this week, at least until the Inauguration. Policy proposals revealed in President Trump’s inaugural speech could revive the “Trump Trades,” however, so there is some possibility of a reversal of the reversal ahead of Friday.
Before Christmas, UK PM May promised that she would make a speech on Brexit in the new year, “setting out more about our approach and about the opportunity I think we have as a country to use this process to forge a truly global Britain that embraces and trades with countries across the world.” That’s what we will hear from her on Tuesday. She already outlined some general principles at the Conservative Party Conference in October, such as taking control of immigration, but she has been rather sketchy with details. Sterling fell after the Party Conference speech as it foreshadowed a “hard Brexit.” It seems likely that her approach this week would be similar to October, in which case we could see the pound fall a bit more – although obviously the market has gotten used to the idea of a Hard Brexit since then and therefore it wouldn’t have as big an effect. On the other hand, any indication that she has changed her approach and is going for a “Soft Brexit” would be a big surprise and would probably send the currency up sharply.
Bank of England Gov. Carney’s speech today, UK inflation on Tuesday, employment data on Wednesday, and retail sales on Friday ensure that the pound will remain in focus throughout the week.
The ECB meeting on Thursday is not expected to result in any changes in policy. It therefore might pass without much causing much volatility in EUR/USD. However, the minutes of the December meeting contained some surprises: a few policymakers hadn’t backed the extension of its QE program and there was no discussion at all of further cuts to the depo rate. This indicates that there is significant disagreement with in the Council. Given the big jump in the CPI in December (to +1.1% yoy from +0.6% the previous month) there could be a more hawkish tone to the statement and to ECB President Draghi’s comments following the meeting. That could support EUR.
There’s little debate about the result of the Bank of Canada meeting on Wednesday – the market sees only 33% chance of a hike this year and virtually no chance of a cut (although in fact two of the 22 economists polled by Bloomberg do think there’s a chance the BoC will cut this week). The problem facing the BoC is that there have been many signs that the economy is actually stronger than the BoC had expected by now and the outlook is improving, but at the same time inflation is still well below their target range, particularly as measured by the Bank’s new core inflation measures. I would expect Gov. Poloz to keep rates stable while emphasizing the soft inflation and the uncertainty in the US as a new administration takes office. That suggests CAD could weaken somewhat after the meeting.
There are a number of Fed speakers this week, including two appearances by Fed Chair Yellen Wednesday and Friday. She appeared at a conference for educators last week, but didn’t comment on the economy or monetary policy. The market will be looking for some clarification of the FOMC minutes and in particular the debate over what impact fiscal policy might have on the Fed’s thinking this year.
Monday is a holiday in the US. There are a large number of US indicators coming out during the rest of the week: the Empire State manufacturing index on Tuesday, CPI and industrial production on Wednesday, and housing starts and the Philadelphia Fed index on Thursday. Inflation is expected to be higher, but other indicators are forecast to be somewhat weaker. In any event, politics rather than economics are likely to dominate the USD outlook this week.
The focus in Europe will be Germany’s ZEW index on Tuesday. It’s expected to show some improvement, which could support the euro.
Finally, China announces its Q4 GDP figure and industrial production, retail sales and fixed asset investment on Friday. As usual, little if any change from the previous figure is expected.
China inflation, Trump press conference, US retail sales
For the FX market, the first week of 2017 was distinctly different from the last week of 2016! It appears that there was strong year-end demand for dollars from companies and momentum traders latched onto that trend. Now the corporate demand has dried up and the speculative accounts are having to unwind their positions. This pattern has held for several years now. I expect that the dollar will stabilize in the next week or two, but probably at a lower level than we saw in late December.
The second week of the month is usually a quiet one for indicators, and this week is no exception. Chinese data on inflation and trade, UK data on production & trade, and US retail sales and consumer sentiment are the main indicators coming out.
The chief point of interest in the week then will probably be not an indicator but rather the first press conference by US President-Elect Donald Trump, who is scheduled to meet with the press in New York on Wednesday. No time is available yet. While the main topic is apparently what he intends to do with his businesses, no doubt his plans for trade and other policy measures will come up. This is a major risk for the US bond market and thereby for the dollar. MXN, CAD and CNH in particular may be affected.
There are also a large number of Fed speakers this week. The most important one of course is Fed Chair Yellen, who will host a town hall meeting on Friday with educators from across the country. She will speak briefly about the mission and responsibilities of the Federal Reserve System and then respond to questions. Recent comments by Fed officials have generally been hawkish and while Yellen tries to walk a middle line, her colleagues seem to feel no such obligation. Their comments may help to put a floor under USD.
Aside from that, the most important US data is on Friday, when PPI, retail sales and the U of M consumer sentiment survey are released. The market looks for retail sales to grow and for consumer sentiment to improve, two encouraging synergistic trends. Meanwhile, the rise in the PPI is also expected to accelerate. The news may be expected to boost the dollar.
China’s CPI is forecast to slow somewhat, but the PPI is taking off. The rise in the latter has been quite dramatic – it only turned just barely positive on a yoy basis in September and already it’s expected to rise to 4.6% yoy. That should be encouraging for inflation globally. Since the US is the only G10 country that is currently in a tightening cycle, rising Chinese inflation would probably have the biggest implications for the US. In that vein, note also the jump in US import prices that’s expected. China will also announce its trade data. The rate of growth of imports is forecast to slow but to remain positive, which may help AUD and NZD. The two last week benefitted from good China data and this week should behave similarly.
The UK Office of National Statistics (ONS) from this month will announce the country’s economic indicators in “theme days,” in which related indicators are grouped together and released simultaneously. The ONS said the change will enable it to “present a more coherent and consistent picture of UK economic activity, thereby better supporting public discussion about the UK economy.” Wednesday is “short-term indicators” day: data on construction, production and trade will be released. The construction data is usually not relevant for the FX market, but the other two are. Previously these were released on different days; now they will be released simultaneously, which will make it difficult to unravel the impact of each indicator on the market. Production is supposed to be up but the trade deficit is expected to have widened considerably, so it’s hard to guess what the net impact on the market will be.
For the EU, the only major indicator is industrial production on Wednesday, and that doesn’t usually have that much impact on the market.
Japan announces its current account data Wednesday night GMT, Thursday morning Japan time. The surplus is forecast to have narrowed somewhat, which could pressure JPY, although I suspect the political environment following Trump’s press conference and the ensuing risk-on or risk-off environment will be more important for USD/JPY.
PMIs, US nonfarm payrolls
Well, the holidays are (largely) over now and it’s back to work – for some of us. Many others will still be out this week, which is likely to make for volatile markets. That’s because the news isn’t going to wait for people to get back from holiday. This week we have the December purchasing managers’ indices (PMIs) and the big indicator of the month, the US nonfarm payrolls (NFP) and all the attendant employment data. And at the end of the week, we even start to hear from central bankers again – two regional Fed presidents speak on Friday.
The interest rate market is pricing in almost a 100% probability of one rate hike this year. That’s far less than the FOMC, which is forecasting three hikes. As the table shows, the market is now assuming there’s around 50-50 chance of at least one hike by the May meeting, and that probability jumps to 71% by the June meeting. The assumption is probably that if the FOMC hopes to get at least two hikes in during the year, one of them should be out of the way by the middle of the year.
This week’s NFP figure is likely to confirm that assumption, if it lives up to expectations. Fed Chair Yellen said last August that NFP increases of 180k a month were “unsustainable,” but so far there’s no sign of any slowdown. The forecast rise of 175k would be about the same as November’s 178k and in line with the six-month moving average since May.
The unemployment rate is forecast to nudge up by 10 bps, but if that’s due to a rising participation rate, it would only confirm that “labor market indicators will continue to strengthen,” as the FOMC said when explaining its December rate hike. That could give the market reason to bring forward its forecast for when the next hike might occur and could be positive for the dollar.
Wednesday’s release of the minutes from the December FOMC meeting may also be an occasion to remind people of just why they’re buying dollars. The decision to hike rates was unanimous, which suggests that there could be some fairly strong arguments in favor. That may remind people that the median FOMC member now sees three hikes this year, another reason to buy dollars.
The PMIs may bring a boost to the dollar as well. Most are on the right-hand side of the graph, showing expansion, and a good number are in the upper right-hand quadrant, showing an accelerating expansion. With its higher interest rates and booming stock market, the dollar is now an asset currency and so benefits from a “risk on” atmosphere.
The pace of expansion of the global economy was at about a 1-year high in October and November, underpinned by firmer growth of new orders and faster job creation. Even just continuing at that pace would be encouraging, yet the US ISM manufacturing index is expected to rise further.
The UK PMIs – manufacturing, services and construction -- are expected to show a slight deceleration, but from a relatively robust rate. It remains to be seen though whether that’s enough to stop the recent decline in GBP.
For the euro, attention will center on Tuesday’s German CPI figure followed by Wednesday’s EU CPI. Retail energy prices rose sharply during the month and that’s expected to push inflation up in both Germany and the eurozone as a whole. The yoy impact is accentuated because of a drop in energy prices a year earlier. That could give the euro a boost even though the rate of change of core CPI – which doesn’t include energy – is forecast to remain stable.
Expect Either a Quiet Week Or a Wild Week
Expect either a quiet week or a wild week – probably the former. Much of the world will be on holiday on Monday for the Annual Report on Little Boys and Girls. The holiday continues on Tuesday in several of the former Commonwealth countries. And for the rest of the week there are few major indicators out and no scheduled speeches by central bank officials. This should be a good week to clean out your desk, do your filing, and get caught up on your reading – if you’re in the office at all.
On the 26th only Japan among the G10 countries is open for business. As usual, the Japan CPI will be the main focus of the markets among the end-of-month indicators. Headline inflation is set to accelerate a bit at the national level, but the Bank of Japan’s core-of-core inflation measure, which excludes fresh foods, energy, and the impact of tax changes, is forecast to decelerate a bit. The figure could be a negative for the yen.
For the rest of the week, US indicators dominate the schedule. Most are expected to be positive for the dollar. The Conference Board consumer confidence index is already at the highest level since before the 2008 financial crisis and is expected to rise further. That would be a positive indication of the “Trump effect” on the financial markets.
Wholesale inventories are expected rise, which would be a welcome boost to growth after some months of destocking. That would also be positive for the dollar.
Elsewhere, there are no major EU indicators out during the week. EU money supply comes out on Thursday but while the ECB is focusing on the inflation rate, money supply data has taken a back seat in policy making and is not particularly market-affecting.
There’s some news out this week about the UK housing market. The British Bankers’ Association announces its mortgage lending data on Wednesday and the Nationwide Building Society releases its house price index on Thursday. The figures are expected to show more mortgages were taken out and house prices rose a little after several months of little or no growth, both of which may be good for GBP.
Finally, Australian private sector credit is expected to continue to grow at the same pace as in the previous month, which could help to support the beleaguered AUD temporarily.
Electoral College Vote, Bank of Japan Meeting, US Personal Income & Spending
As the year draws to a close, the data also quiets down, and central bankers go on holiday, leaving relatively little on the calendar from now until the next year. Speeches today from two senior central bankers and tomorrow’s Bank of Japan meeting are not likely to result in any fireworks. There’s a small cluster of US indicators at the US opening on Thursday. Otherwise, not much on the schedule.
That doesn’t mean though that you can relax completely. In five of the last nine years, the last two weeks of the year have been pretty quiet, but in 2008 and again in 2014, the last two weeks were the most volatile of the year. It depends on what happens.
Generally speaking, I would expect the dollar to consolidate somewhat this week after its sharp gains last week following the FOMC meeting. Last year, when the Fed hiked rates on Wednesday, Dec. 16th, EUR/USD bottomed out on the Friday following the move and then recovered during the following week to end a bit higher than before the rate hike.
However, that rate hike was combined with a downward revision to the median forecasts, meaning that Committee expected a slower pace of tightening than they had before. That may have ameliorated the shock of the rate hike. In contrast, this time around the Committee’s median forecasts rose, which would amplify the rate hike’s effect. That should reduce the room for mean reversion this week.
There’s an unusual event today (Monday) that has the capacity to inject considerable volatility into the market. Monday, the US Electoral College meets to formally elect the US president. While there have been many cases throughout history of electors failing to vote for the presidential candidate whom they are pledged to vote for (“faithless electors”), this is the first time ever that some electors themselves have tried to organize a protest vote. It remains to be seen though whether they can garner the required 37 Republican votes to prevent President-Elect Trump from taking office.
Electoral College voting is conducted between 09:00 and 15:00 EST (14:00 to 20:00 GMT) around the US. At the last election, the Associated Press called the Electoral College vote for Barack Obama shortly before 18:00 EST (23:00 GMT). While the Electoral College’s rejection of Trump is certainly a low probability event, it would mean absolute chaos for the market if it did occur.
Other major events for the US this week include today’s speech by Fed Chair Yellen about the US job market. The FOMC upgraded its outlook on the labor market slightly – we may get further clarification on this important point today. That’s likely to be bullish for the dollar.
As for the US indicators, there’s a cluster around the opening on Thursday, when the third estimate of US Q3 GDP, durable goods orders, personal income & spending, and the leading indicator are released. They’re expected to be mixed. The headline durable goods orders is forecast to be down sharply, but the nondefense capital goods orders (excluding aircraft) is forecast to be higher, meaning it could be a wash. Similarly with incomes & spending: income is forecast to be lower, but spending should hold up. The core PCE deflator, the Fed’s targeted inflation rate, is forecast to remain at the same yoy growth rate of close to but still below the Fed’s 2% target rate.
In short, while the US news may not bolster expectations of higher rates, it’s not expected to diminish those expectations either. That’s why I expect to see the dollar consolidate this week, perhaps weakening slightly vs EUR but not back to the levels that prevailed before the FOMC meeting.
For JPY, the key event will be Tuesday’s Bank of Japan meeting, followed by a press conference by BoJ Gov. Kuroda. There’s little likelihood of any change in policy, and indeed all 39 economists polled by Bloomberg expect no change. Economic indicators remain solid and it looks as if core inflation may have bottomed out. The stock market is up and the yen is down. Against this background, the BoJ may upgrade its economic assessment. An increase in stimulus would be inconsistent with that conclusion. On the other hand, the recent rise in global bond yields means they can’t reduce their efforts to keep 10-year JGB yields at zero. With no major change in Japanese policy in sight, the divergence in monetary policy between BoJ and Fed remains intact and I expect the weaker JPY trend to continue as well.
For Europe, the week opens today with the Ifo indices are expected to be slightly higher, which could support EUR somewhat. Bundesbank President and ECB Council Member Jens Weidmann speaks, but he is unlikely to say anything different than what he said on Friday, when he observed that central bankers can’t replace politicians. EU consumer confidence on Wednesday is not expected to change enough to change anyone’s expectations.
There’s nothing major on the schedule for the UK this week. In the absence of any news, we can perhaps expect the pound to recover some but not all of its losses vs USD, while EUR/GBP oscillates within its 0.8350-0.8400 channel.
Finally, there are several important Canadian indicators out on Thursday and Friday, including retail sales, CPI and November GDP. The key for CAD though is probably whether oil can remain over $50 a barrel. If it does, then the expected slight slowdown in inflation and the drop in growth might not matter for the currency.
Japan Tankan, FOMC Decision, SNB & Bank of England Meetings
Maybe you thought that as the year draws near to a close, the markets might calm down and you could spend your time going to various parties. Sorry, not yet! Monday and Friday are nearly devoid of data, but in between there are a number of quite important events scheduled: the long-awaited December FOMC meetings, plus meetings of the Swiss National Bank (SNB) and Bank of England (BoE); the Bank of Japan’s quarterly Short-Term Survey of Economic Conditions (tankan), the major economic indicator for that country; and the preliminary PMIs for December, as well as several important Chinese indicators.
The outcome of the FOMC meeting is scarcely in doubt: the market assigns a 100% probability to a rate hike of 25 bps. The focus then will be on the commentary and the press conference afterwards. The market will be trying to judge what the Committee expects for the future pace of rate hikes. As usual, the dot plot will hold the key: do they still expect two rate hikes in 2017 and three each in 2018 and 2019, or are they now more aggressive for 2017? Has their view of the long-term equilibrium level of rates changed – perhaps even revised upwards for the first time in years? I expect that they are likely to take a more optimistic view of the economy and either an unchanged or even more hawkish view on rates, in light of the economy’s good performance recently. That’s likely to boost the dollar further, in my view.
The big question for the week then is what the Fed decision means for risk sentiment. If the rate hike is viewed as a vote of confidence in the US economic outlook, then risk-sensitive assets in general could do well, such as stocks and oil. Gold might suffer though. If on the other hand the market judges that the FOMC is getting too hawkish, then the opposite could occur. Personally, I expect the former. The markets are in a “risk on” mood and I think even a higher rate path from the Fed would be interpreted positively as a result. What people hear depends on what they want to hear.
The SNB will probably be a non-event. Although the Swiss CPI is falling back into deflation, the CHF is weakening on a trade-weighted basis and the euro is now weakening. Thus the SNB probably feels little urgency to move rates further into negative territory. On the other hand, after the ECB decided to extend its QE program, now wouldn’t be an appropriate time to start normalizing policy either. In addition to no change in rates, I expect little change to the statement and hence little change to CHF either.
There’s more controversy surrounding the BoE. The Monetary Policy Committee (MPC) has several hawks on it who may dissent from the general tone of the meeting, if not at the vote. Thus while rates are likely to be unchanged, the minutes could contain some worried comments about the risks of letting inflation get out of hand. That’s especially likely following Tuesday’s UK CPI & PPI figures, which are expected to rise further. Such comments could prove GBP-supportive.
Japan’s tankan is expected to show continuing improvement in sentiment for large companies, both in the manufacturing and non-manufacturing sectors. Capital spending may be revised down, but not by much. Such an outcome oddly enough is likely to be negative for the yen: it would tend to boost stocks, and the yen tends to weaken when the stock market rises.
The preliminary PMIs for December for the major industrial economies come out on Thursday. The Eurozone PMIs are expected to show little change, which isn’t bad, considering that they’re at a fairly healthy level. That could boost EUR.
Other important data for the EU are the ZEW survey on Tuesday and EU-wide industrial production on Wednesday. The results are expected to be mixed, with the ZEW survey showing some improvement but IP growth slowing.
China releases its November industrial production, retail sales and fixed asset investment data Tuesday. They’re expected to be little changed to modestly higher. That could add to the risk-on sentiment that we’ve been seeing recently and help to support stocks and the risk-sensitive currencies, such as SGD, ZAR, NZD and AUD.
The major US data are concentrated on Wednesday, when retail sales, producer prices and industrial production are coming out. Retail sales is an especially important indicator for the US. But with the FOMC meeting a few hours later, I wouldn’t expect them to make as much of a splash as usual. Then on Thursday we get the Empire State and Phili Fed indices, the preliminary Markit manufacturing PMI, plus CPI. They’re all expected to rise slightly, which should keep USD rallying.
RBA, Bank of Canada, ECB Meetings
I expect a much much quieter week this week! As usual in the second week of the month, there are few important economic indicators coming out. Moreover, the anticipation and excitement surrounding the long-awaited OPEC meeting is now over. This week, the markets will first come to grips with the fall-out from Sunday’s vote in Italy, which has the potential to rock EUR (the Austrian right-wing candidate lost, so that is no longer a worry for the market, but the result of the Italy vote wasn’t known at the time of writing). Then there are three major central bank meetings: Reserve Bank of Australia (RBA), the Bank of Canada (BoC), and European Central Bank (ECB).
There’s almost zero likelihood of a rate change at any of these meetings. The market sees only a 25% chance of any change at all – up or down – for Australia over the next year, and a similar 28% chance for the ECB. In Canada, the odds are higher – 51% -- but by no means certain. For this meeting, the market sees the odds of any of the three changing rates at practically zero.
For Australia, the Organization for Economic Development and Cooperation (OECD) has suggested that a rate hike would be “appropriate” sometime next year, largely because of the domestic economic cycle and soaring house prices. But the fall in construction work in Q3 and the collapse of building approvals in October suggests that the housing market is weakening quickly. The minutes of November’s RBA meeting showed that they are concerned about the slowdown in the labor market, and since then, wage growth fell to a record low 1.9% yoy in Q3. It looks like Australia’s problems with below-target inflation are likely to persist for some time and there is a chance that they may have to cut rates again eventually, not hike. Before then though they are likely to try to talk down the overvalued AUD.
At their last meeting on 19 Oct, the Bank of Canada said it saw the risks around its inflation outlook to be “roughly balanced.” Since then, the inflation rate has risen from 1.1% yoy to 1.5%, but the core rate has fallen slightly to 1.7% from 1.8%. Nevertheless, with commodity prices rising and the US economy seemingly healthy, the BoC is likely to stick with its existing view and if anything present a somewhat rosier outlook for the economy. This could be positive for the CAD, although as usual developments in the oil market may be more important.
The big central bank meeting of course will be the ECB meeting Thursday. There has been a lot of talk about whether the ECB will or won’t extend its QE program, which is supposed to end in March. Most ECB members suggest that with inflation still well below their 2% target (the latest figure was +0.6% yoy), it’s far too early to begin tapering off their accommodation. Accordingly they are likely to extend their purchases, perhaps for another six months. In that case, they may start running up against some limits on their self-imposed restrictions on how much of each country’s bonds and each bond issue they can buy. That will be the main focus of this meeting: how long they extend their QE program for and what changes they make in their bond purchase program to facilitate that extension. If the market decides that the changes will allow them to extend the program for more than the length of time that they announce, then it’s likely that investors will start discounting another extension after this one. That could be negative for the euro.
There’s not much going on with the Fed this week. After today’s speeches by three FOMC members, the Fed enters its “purdah” period ahead of next week’s meeting, when Fed officials are forbidden from talking to the public.
The main data out this week will be the service sector PMIs. There will also be some data on real output, such as German and US factory orders and German and UK industrial production. We will get trade data from the US, Canada and of particular note, Britain. Other significant data include Chinese inflation and U of Michigan consumer sentiment on Friday.
US nonfarm payrolls, OPEC meeting, Italy & Austria votes, final PMIs
There’s lots of excitement this week: the US labor market data, an OPEC meeting, the final PMIs, and finally next weekend, the long-awaited Italian referendum, one of the key risk points on the European calendar.
The main focus among the week’s indicators will be Wednesday’s ADP report followed by Friday’s nonfarm payrolls. The market is looking for yet another strong rise in the number of jobs and yet the unemployment rate is expected to remain the same, which is good news – it shows a rising participation rate. The data should be supportive for the dollar. Even if the market does already see a 100% likelihood of a rate hike at the next FOMC meeting on 14 Dec, another strong employment number may get the market thinking that perhaps the FOMC’s prediction of two hikes during 2017 isn’t so impossible.
All asset classes will be watching the OPEC meeting Wednesday. The group agreed in Algiers on 29 Sep to cut output to between 32.5mn-33mn barrels a day, but left unanswered the question of how those cuts were to be distributed among members. That’s what they need to decide on Wednesday. Oil prices have been bolstered by hopes of a workable accord ever since the Algiers meeting. A failure to agree would not only mean lower oil prices, but also lower CAD, RUB and MXN, as well as a hit to stock markets.
Sunday’s votes in Italy and Austria are key risk factors for the EUR. Italy will hold a referendum on a constitutional reform. If the country votes it down – which the polls indicate is likely – then PM Renzi has said he might resign. The collapse of the Italian government would begin a period of political instability in the Eurozone’s third largest economy and a key member of the euro. The market fears that following Brexit and Trump’s victory, Italy’s voters might be the next to reject the prevailing economic consensus and vote in a Euro-skeptic party. A “no” vote would therefore raise the risk level in one of the key members of the Eurozone, which would be EUR-negative.
Austria is re-running its Presidential election after the one held in May was nullified. The pro-European candidate narrowly won that election, but the Euro-skeptic far right candidate has a good chance of winning this time around. That would be of more symbolic than actual importance: the President of Austria is a largely ceremonial role, and besides, the country is strongly pro-euro. Nonetheless, if he does win, it would be the first national victory in Europe by one of the Euro-skeptic right-wing parties and would add to the feeling among voters that that “after all, others have done it and the world has not collapsed,” as former French PM Raffarian put it. That make similar votes in other countries more likely and would therefore be EUR-negative.
For the US, aside from the employment data, the main points will be the 2nd estimate of GDP on Tuesday; personal income & spending, plus the Beige Book, on Wednesday; and ISM index on Thursday. GDP is expected to be revised slightly higher, personal income & expenditure are forecast to be pretty solid, and the ISM index is supposed to rise; all good news for the US economy and the dollar.
The focus for EU statistics will be Tuesday’s German CPI followed by Wednesday’s EU CPI. It’s expected to show a continued upward drift in inflation in the EU, but it’s unlikely to be enough to dissuade the ECB from extending its QE program when the Governing Council meets next week (8 Dec). We should get a pretty firm idea of what they’re likely to do from ECB President Draghi’s speeches on Monday and Wednesday. I expect though that with the votes on Sunday coming up, EUR/USD may remain offered, and sentiment towards USD is likely to move it more than any news about the Eurozone economy.
After today (Monday), there will be an important British indicator out every day: mortgage approvals on Tuesday, Nationwide house price index on Wednesday, manufacturing PMI on Thursday and construction PMI on Friday. Most of the UK data is expected to be solid, showing activity unchanged to higher. That should help to keep GBP underpinned.
The final PMIs on Thursday include the manufacturing PMIs for China. These are expected to be lower, which could hurt risk sentiment somewhat.
Finally, there are several important data points for Australia as well, including building approvals and private sector credit on Wednesday, private capital expenditure on Thursday, and retail sales on Friday. Most of the data is expected to be weak, which, when combined with lower China PMIs, could give AUD an offered tone during the week.
UK Autumn Statement, Preliminary PMIs, US "Black Friday"
Traders exhausted by the Sturm und Drang of the last two weeks can relax a bit this week. With the US Thanksgiving holiday on Thursday, many US traders close up shop Wednesday at midday and take Friday off as well. Japan too will be closed for its Thanksgiving on Wednesday. Together there will be less news and less trading than usual this week. Of course, that could just mean thinner, more volatile markets for the other participants who are still at their desks trading. We also won’t take a view on how volatile the discussions will be around family tables in the US as families discuss the recent elections.
As for the indicators, the main events this week will be the UK Autumn Statement and the preliminary PMIs for the major economies on Wednesday; the “Black Friday” retailing week for the US on Friday; and the French primaries for Les Republicains, the conservative party in France.
The UK Autumn Statement is not likely to shock the markets. In the wake of the Brexit vote, Chancellor Hammond may delay his predecessor’s plan to narrow the deficit, but he’s unlikely to change the overall direction of policy. He may just be a bit more cautious and pledge to balance the budget a few years later than was originally planned. With the economy receiving more support from the fiscal side, it shouldn’t need as much support from the monetary side. That means the statement could be bullish for the pound.
The same day, the major economies’ preliminary PMIs will be released. The PMIs suggest that the global economy is in relatively good shape, with many of the major countries in the “accelerating expansion” quadrant. The November Eurozone PMIs are expected to be a bit weaker, while the US manufacturing PMI is expected to be a bit stronger. That difference could just reinforce the economic divergence theme that seems to be ruling the markets nowadays and push EUR/USD even lower.
For the US, the other major indicators are durable goods and new home sales on Wednesday and wholesale inventories on “Black Friday.” The day is referred to as “black” because apparently, retailers operate in the red for the whole year until that day, when Christmas shopping begins (!) and they go into the black. Both stores and shoppers go all-out on that day, with one web site http://blackfridaydeathcount.com/ reporting seven deaths and 98 injuries related to shopping on the day since 2006. (Most of the deaths were due to traffic accidents, but frenzied shoppers did trample a worker to death at a Wal-Mart in 2008.) Reports of how well the sales go that day are taken as an early indication of how the Christmas shopping season will go and are therefore seen, rightly or wrongly, as an important barometer of the health of the US consumer and therefore the US economy. Given the small rise last year, it shouldn't be hard to do better this year. That could give an optimistic tone to the dollar when trading starts up the following Monday.
Also on Friday, US wholesale inventories are expected to rise somewhat but the trade deficit is expected to widen, countering any positive impetus for the currency.
Wednesday’s release of the minutes of the November FOMC meeting would normally be a big event, but with the market already attributing a 96% probability to a rate hike in December, it’s hard to see how the needle can move much further, especially after Fed Chair Yellen’s not-so-subtle hints Thursday.
For the EU, after the PMIs the Ifo indices will be the major indicator. They’re expected to be unchanged across the board. That would be an improvement from the ZEW index that was out earlier in the month and would show sentiment at least holding up in the wake of the US Presidential election. That could be taken as positive for the euro.
Finally, Japan announces its CPI on Thursday (Friday morning Tokyo time). The national CPI is expected to poke its nose back into positive territory because of the rise in fresh food prices. The Bank of Japan’s core inflation measure is also expected to move up slightly. Nonetheless, even if inflation does gradually move up in Japan, the pace of increase is not likely to be fast enough to make much of a change in monetary policy for some time. Accordingly, US politics and global risk on/risk off are more likely to be the driver of JPY than domestic economics for now.
Speaking of politics, the French conservative party Sunday held the first round of its two-round candidate process to select the party’s Presidential candidate and will hold the second round next Sunday. Whoever wins is tipped to go up against the National Front’s Marine le Pen in the final round of the Presidential election next May and should have a good chance of winning. Thus this election may decide the next President of France – one way or the other.
There’s no escaping US politics.
There’s no escaping US politics. The House of Representatives will vote on its leadership this week and President-elect Trump will meet with Japan’s PM Abe. There are also a number of important central bank officials speaking. Many ECB officials will appear at Euro Finance Week in Frankfurt this week, including ECB President Draghi on Friday. His counterpart from the Bank of England testifies in Parliament on Tuesday, and Fed Chair Yellen testifies on Thursday. As for the indicators, we will get more data on the real economy, such as industrial production, GDP and retail sales figures from a number of countries, as well as some key data from the UK.
The major data out from the EU includes industrial production today and the ZEW survey and Q3 EU GDP on Tuesday. Today’s IP figure is expected to be lower, which could add to the euro’s recent gloom.
The ZEW survey on the other hand is expected to be higher, which could be EUR-supportive, but I think investors may discount the value of a European sentiment survey now and wait for next month’s survey to see how Trump’s election affected sentiment in Europe, if at all. As I have argued elsewhere, his election may empower the anti-euro right wing in Europe, increasing their influence in policy-making and potentially calling the very existence of the euro into question. Q3 GDP meanwhile is forecast to grow at the same speed as in Q2, suggesting no big impact either way.
For the US, the key data points will be retail sales on Tuesday, industrial production on Wednesday, and CPI and housing starts on Thursday. Headline retail sales are expected to grow at the same pace as in the previous month, which shouldn’t affect the market that much, while the retail sales control group – the figure that feeds into the GDP calculation – is expected to be higher. Industrial production is also expected to accelerate, as is the inflation rate. If it comes in as forecast, the US data could boost the dollar.
The Empire State and Philadelphia Fed surveys will be released this week. The former is expected to be up, while the latter down, so net net they may not be that important for the dollar.
The UK gets CPI on Tuesday, employment data on Wednesday and retail sales on Thursday, in addition to the testimony on the Inflation Report by Gov. Carney and several of his colleagues. The data are generally expected to be positive for the pound, with inflation continuing to rise, particularly at the wholesale level; unemployment steady at a relatively low level; and retail sales increasing.
This good news for sterling comes on top of a change in the market’s assessment of the outlook for the pound. Many investors now reason that the UK has already had its shock. Now it will be several months before the government triggers Article 50 and two years after that before the UK leaves the EU. Meanwhile, Trump’s Presidency may embolden the anti-euro right on the Continent, where there are a number of votes coming up in the next few months (Italy, Netherlands, Germany). Some investors have taken into selling EUR/GBP as a result, reasoning that Europe has more problems in the near term than Britain does. This idea too could keep GBP underpinned.
In any event, US politics are likely to determine sentiment more than the data this week. The Republicans in the House of Representatives Tuesday vote on a new leader. The current House Majority Leader, Paul Ryan, is expected to win re-election, but of course the phrase “is expected to” doesn’t mean much anymore. A change in the House leadership would be particularly important for US fiscal policy, since the President can only present a budget, but Congress has to pass it.
President-elect Trump will also meet with Japanese PM Abe. The meeting will give us some idea of how he intends to manage the country’s major alliances and what, if any, changes he has in mind for the global balance of power.
Finally, from now on the market will be attuned to rumors about who is getting what Cabinet post in the new administration. The market currently believes that “President Trump” will be quite different from “Candidate Trump,” but if chooses appointees more for their ideology than for their competency, sentiment could change quite quickly.
US Presidential Election, RBNZ Rate Decision
There are three important items on the schedule this week: the US Presidential Election, the US Presidential Election and the US Presidential Election. The US Senate election will also be important, as there’s a chance that the Democrats take control. The House of Representatives though seems likely to remain in the hands of the Republican Party, so less chance of any change there.
Readers who are not familiar with the unique way in which the US elects its President should look at the presentation on our web site or watch the webinar. In brief, the voters do not vote directly for the President; they vote for so-called “electors,” who then vote on their behalf for the President. These electors are allocated to the states according to their representation in Congress, so largely by population. The key point is: whoever wins a state, wins all that state’s electors. Therefore, a candidate who wins a majority in the states with the most electors wins the election regardless of his or her standing in the popular vote. That’s how candidates can – and do – win the election despite losing the popular vote.
Most states are pretty much decided even before the election begins: some always vote Democrat and others always vote Republican. In the table above, we give the closing times for the polls in the “swing” states that are likely to be contested, with each state’s number of electoral votes in parenthesis. Ohio, North Carolina and Florida are probably the key states. If Trump loses any of those three, then he probably loses the election.
What would be the likely result of each candidate’s victory? As we’ve seen over the last week, when the possibility of a Trump victory increased, the markets went into risk-off mode: gold, JPY and CHF gained, while stocks and several EM currencies – particularly MXN and BRL – came off, as Trump is against free trade. The dollar fell overall, while the high-beta AUD also did poorly. A Clinton victory then would probably see the opposite happen then: especially, stocks would probably rally and the VIX index fall sharply. The view on interest rates is mixed. If Trump wins, his economic plans involve a huge increase in the government budget deficit, which would push up bond yields, but if Clinton wins, then normalcy is restored and the Fed probably raises short-term interest rates – essentially the same result but at the short end of the yield curve.
My biggest fear though is that the election might not settle things politically in the US either way. If Clinton wins, the Republicans have threatened not to cooperate with her, for example by refusing even to hold hearings on any Supreme Court nominees. If Trump wins…well, at least 75 lawsuits involving him remain open. The political circus that’s engulfed the US may well continue indefinitely, eroding confidence in the US political system’s ability to conceive and execute economic policy. That would mean a weaker dollar. But with Brexit negotiations starting next year and elections in Italy (December) and France and Germany next year, neither the pound nor the euro is positioned to take leadership of the currency markets. We could be in for a very, very confusing time of volatile, trendless markets in FX.
The US Presidential election would normally supersede any economic indicators, and this week is largely bereft of major indicators in any event, as is usual for the second week of the month. Hence there is not much point discussing the other indicators.
The exception is the Reserve Bank of New Zealand (RBNZ) meeting, where analysts unanimously expect a cut in the Official Cash Rate (OCR) to 1.75%. At their last meeting in September, the RBNZ said “Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.” Since then, the inflation rate has fallen further, making it inevitable that the RBNZ cut. The question then becomes whether they will continue to signal further cuts ahead or move to a neutral stance. I expect them to retain their easing bias and therefore see NZD weakening after the meeting.
RBA, BoJ, BoE & FOMC meetings; US nonfarm payrolls
Meetings of three of the four major central banks plus Australia followed by the US nonfarm payrolls, the biggest indicator of the month – it barely gets bigger than this week for economic events. Plus the widely watched US ISM index and the final PMIs from around the world. This will be a volatile week for the FX markets.
None of the central banks meeting this week is expected to change its interest rate policies, but there will still be plenty to watch and debate. The key will be how they all see the future shaping up and what guidance, if any, they can give about their future intentions.
The Bank of Japan just changed its targets and methods at its last meeting on 21 Sep, dropping the monetary base as a policy instrument and implementing “yield curve control” instead. It’s way too early for them to make any changes. I would expect them to evaluate the progress so far, but nothing more this time. However, BoJ Gov. Kuroda insists that they still have a number of policy options left. With the BoJ’s own preferred gauge of inflation still headed downward, as revealed on Friday, it’s likely that at some point they will either have to abandon their 2% inflation target finally or try something new yet again. While almost no one expects a change at this meeting, still, standing pat may cause some disappointment and cause the yen to strengthen somewhat.
A few analysts think the Reserve Bank of Australia (RBA) could ease at its meeting Tuesday, but I don’t expect any change. Australia’s recent Q3 headline CPI outcome was higher than expected, while the key trimmed mean inflation measure remained steady at about where the RBA forecast back in August that it would be. In addition, the overall economy seems to be fairly healthy, with solid growth and falling unemployment. Add onto that the recent rises in iron ore & coal prices, and there’s no urgency for them to cut rates now. On the contrary, I look for a more optimistic statement that could boost the AUD.
The FOMC decision is more about preparing the market for what they’re likely to do in December than what they might do at this meeting. In October they said that “(t)he Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” I would expect them to remove the latter half of that statement beginning with “but decided” and instead give some reasons why the case for a hike has strengthened. That would be a strong signal of an impending hike in December and would probably be USD-positive.
The minutes of the Bank of England’s September meeting said that if the economy develops as they expected, "a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings” this year. However, following the resilient PMIs and surprisingly strong Q3 GDP figure, plus the continued weakening of sterling, I would expect the MPC to remain on hold at this meeting. That could boost sterling somewhat, although as the graph shows, the market is no longer discounting any further rate cuts, so it shouldn’t come as a great surprise.
Meanwhile, the ADP report on Wednesday and the nonfarm payrolls on Friday should also play their part in setting up a rate hike in December. After the surprisingly low number in September (156k), payrolls are expected to bounce back to 175k, which is slightly higher than the six-month average (169k). Given that Fed Chair Yellen has said the year-to-date average monthly job growth of around 180k a month is not sustainable, yet another gain of nearly that level would probably solidify their resolve to hike in December and be USD-supportive.
That would be enough excitement for one week, but in fact there are a number of other indicators that bear watching. Today we get the US personal income and expenditure data. That’s expected to show a fairly robust rise in both income and spending, which could prove positive for the dollar. Other US data coming out this week include the closely watched ISM manufacturing index on Tuesday; the prices paid component of that is a well-known leading indicator of inflation. Factory orders will also be important.
For the EU, today’s CPI figure is crucial for ECB policy. Friday’s 0.2-point rise in annual inflation in Germany makes it likely that we’ll see a decent acceleration in Eurozone inflation as well, which could increase speculation about an early end to the ECB’s QE program. Although ECB President Draghi has been fighting back against talk of tapering, the market hasn’t believed him. The Eonia curve is no longer pricing any further rate cuts and ECB QE bond purchases are expected to peak by December 2017. A week ago, the market was forecasting at least 6 bps further rate cuts and bond purchases peaking by Sep. 2018. An acceleration in inflation today could be EUR-positive, especially if today’s Q3 GDP figure manages to beat expectations.
As for the UK, the market will also be watching the manufacturing and service-sector PMIs coming out this week. They are expected to slow somewhat, which could be mildly negative, although as they are still well in expansionary territory it might not make that much difference.
China’s PMIs will also be coming out this week. They are expected to be barely changed at right around the boom-or-bust line, i.e. showing little change either way in activity, and therefore might not get the market so excited unless they deviate significantly from expectations.
PMIs, Q3 GDP, Germany & Japan CPIs
We’ve got a busy week of indicators this week. We will get more data on the real economy as the October PMIs and the Q3 GDP figures start to come out. Also,a number of G10 countries release their CPI figures, which will give us more insight into whether inflation in the industrial world has really bottomed out. That’s quite a significant point when we consider how monetary policy – and therefore currency rates – are likely to develop.
Monday sees the first of the preliminary Markit purchasing managers indices (PMIs) for the major economies. The figures are expected to show little or no change from the previous month. That isn’t so bad, as the PMIs already show signs of growth. The composite PMI bottomed out in February and the manufacturing PMI bottomed out in May; they’ve both been rising gradually since then, consistent with modest expansion in the global economy. Continuing along these lines would not give any reason for changing currency valuations, though.
Both DM and EM markets overall are in the upper right-hand quadrant, which shows “accelerating expansion,” and only a few EM economies are in the lower left-hand quadrant, which shows “accelerating contraction.”
Adding to our information on global growth will be the Q3 GDP figures for the UK on Thursday and France and the US on Friday. Growth in the UK is expected to decelerate sharply, but remember that Q3 includes the run-up to and aftermath of the Brexit vote, so the fact that it escaped recession isan achievement in itself. US growth, forecast at 2.5% qoq SAAR, could be seen as sufficient to increase the odds of the Fed raising rates in December and therefore be positive for the dollar.
The other point to note is the news we will get on the inflation front as Australia, Japan, France and Germany release their CPIs. Japan’s many different inflation rates are expected to be unchanged to lower, showing the nation’s continued struggle to escape from deflation. This could raise hopes of more BoJ easing and be JPY-negative.The others are forecast to show a further step-by-step rise in their inflation rates, indicating that global inflation may indeed have bottomed out. The French and German data might confirm ECB President Draghi’scomments about “a gradual rise in inflation” and therefore be modestly EUR-positive, although the level of inflation is still nowhere near enough to convince the ECB by December to stop its bond purchases on schedule. Still, they could provide a small boost for the euro.
The US also releases the Q3 core personal consumption expenditure (PCE) deflator, the Fed’s preferred inflation gauge, as part of the GDP data on Friday. This is expected to show some slowdown in core PCE inflation, in line with the monthly figure.That could dampen the dollar, although the market seems to pay more attention to the GDP figure released at the same time.
Other important US data we get this week includes the Chicago and Richmond Fed indices, wholesale inventories – a GDP component – Conference Board consumer confidence, and the always-disappointing durable goods orders. Housing data includes new & pending home sales and the FHFA house price index. In general, the data is forecast to show a continued improvement in the US economy, which, coupled with the rise in GDP, could prove positive for the dollar.
For the EU, a forecast small rise in the Ifo index on Tuesday may corroborate Monday’s PMIs.
The New Zealand trade deficit is forecast to narrow when the data are released on Thursday morning NZ time, which could be NZD-supportive.
Bank of Canada, final US Presidential Debate, ECB meeting
An exciting week ahead, with two central bank meetings and the third and final US Presidential Debate. There are a number of Chinese economic indicators coming out on Wednesday, and we saw last week how news about China can whipsaw global markets. There are also several important UK economic indicators coming out, which may give investors an excuse to buy back their sterling – or to pummel the currency further.
The ECB and Bank of Canada meetings are not likely to result in any change in rates. The market places a 7% chance of a cut in rates by the ECB and a mere 2.3% chance for a cut by the Bank of Canada.The ECB and Bank of Canada meetings are not likely to result in any change in rates. The market places a 7% chance of a cut in rates by the ECB and a mere 2.3% chance for a cut by the Bank of Canada.
For the ECB meeting, the more important of the two, the market doesn’t see much chance of a rate change any time soon. Instead, the focus will be on what clarification they can shed on reports that they may start to taper off their bond purchases before quantitative easing (QE) ends next March. Personally, I expect them to extend their QE program so I don’t thinks this is an issue. But we might not get any clues about that until the December meeting. An absence of comments could be construed as tacit assent to these reports, which might be positive for the euro.
The Bank of Canada is expected to keep rates steady for at least the next year. At their last meeting, they said that “risks to the profile for inflation have tilted somewhat to the downside” and that “financial vulnerabilities associated with household imbalances…continue to rise.” This caused USD/CAD to jump 50 pips in an hour. This time I would expect them to be more optimistic, given that oil prices are up over 10% since then. CAD might therefore benefit after the meeting.
The US Presidential debate, to be held Wednesday night in the US (Thursday morning in Europe & Asia), will in theory cover six topics: debt and entitlements, immigration, the economy, the Supreme Court, foreign hot spots and fitness to be president. My guess is that the latter topic will get most of the attention, now that Trump says “the shackles have been taken off.” The polls suggest that Clinton is likely to win the election, so attention has switched to whether the Democrats will overturn the Republican majority in Congress. Thus the debate is still crucial for US politics and the dollar.
China announces industrial production, retail sales, fixed asset investment, and the key GDP figure on Thursday. We saw last week how the collapse in exports caused global risk aversion, only to be followed by the increase in inflation on Friday and the return of risk appetite – with JPY getting whipsawed along in the process. GDP growth is forecast to remain at 6.7% yoy, which would be encouraging as it would mean no slowdown. The other indicators too are forecast to show modest acceleration. If so, that should be good for risk assets, such as AUD, and negative for the safe-haven JPY.
The week sees a good number of US indicators that should give us a better handle on the real economy: industrial production today, the Empire State & Philly Fed indices, and the Beige Book. We will get an inflation update with the CPI on Tuesday. Housing data due out includes the NAHB housing market index for October, the earliest indicator for the housing market, as well as starts & permits and existing home sales for September. Today’s Empire State index and industrial production are expected to rise, which could prove positive for the dollar.
We saw last week that data on the UK is not required to have volatility in GBP. The presence of data could provide even more opportunities for trading. We get CPI on Tuesday, employment data on Wednesday, retail sales on Thursday and public sector borrowing on Friday. Looking at the forecasts, a steady unemployment rate and solid retail sales may offer some reassurance that the economy hasn’t (yet) fallen off a cliff and could bring back some confidence – and some buyers – to GBP.
Finally, tonight’s New Zealand CPI will be important for that country. RBNZ Assistant Gov. McDermott said last week that "further policy easing will be required to ensure that future inflation settles near the middle of the target range" of 1%-3%. With the rate forecast to fall to 0.1% yoy from 0.4%, that might make a cut all the more likely. But with the market already attributing an 87% likelihood of a cut at the Nov. 10th meeting, it may be fully discounted already.
FXPRIMUS Week in Focus for the week beginning 10 Oct
A quiet week as regards indicators, as usual for the second week of the month. The start is likely to be particularly quiet owing to the vacation Monday in Japan, the US and Canada.
The tone of the week is likely to be set Sunday when the IMF/World Bank annual meeting ends and the second US Presidential debate takes place. The participants in the IMF/WB meetings are likely to adopt a cautious tone, which could promote a “risk off” mood in the markets. On the other hand, the first debate gave rise to a “risk on” atmosphere that helped stocks and some of the risk-sensitive currencies at the expense of the dollar, which weakened overall (probably due to the recovery in the currencies of countries that would be most hurt by a Trump victory, such as Mexico, Canada and South Korea). The interplay between those two events will determine sentiment at the opening. But in any event, activity in Asian time is likely to be lighter than usual with Japan on holiday and activity in Europe may be limited as well due to the absence of any further impetus to trade and the holiday later on in the US and Canada.
For the US, the impact of Friday’s slightly disappointing nonfarm payrolls (NFP missed expectations and the unemployment rate rose, albeit with a rising participation rate as well) is likely to fade over the week, in my view. That seems to be the case recently as investors reassess their immediate first reaction to the data and decide that on second thought, the data weren’t bad enough to make the committed hawks change their view. The updated year-to-date average increase in payrolls of 178k is not far below the 181k ytd average in August, which Fed Chair Yellen referred to several times in her September press conference as still being a “solid pace” well above what’s needed to absorb new workers. At the same time, the rise in the participation rate partially explains the small rise in the unemployment rate – that’s exactly what the FOMC is looking for.
We will get further data on the jobs market on Wednesday, when the Job Openings and Labor Turnover Survey (JOLTS) report tells us how many job openings there are. The number is expected to fall slightly, which would also explain slowing growth in payrolls as economy approaches the FOMC’s estimate of full employment.
Wednesday will also see the release of the minutes from the latest FOMC meeting, when once again the Committee failed to hike rates. With three dissenters, there was no doubt a lively discussion. The minutes may reveal why the doves won and how likely they are to change their mind by the end of the year, a potential support for the dollar.
Friday is the biggest day for US indicators, when retail sales, PPI, U of Michigan consumer survey will be released, not to mention a speech by Fed Chair Yellen. Retail sales are expected to accelerate, which could be dollar-positive. A rise in PPI and improvement in consumer sentiment could add to the good tone at the end of the week – depending of course on what Chair Yellen has to say. She will be talking about "Macroeconomic Research After the Crisis."
For Europe, the ZEW survey on Tuesday and EU-wide industrial production on Wednesday will be the features. The ZEW survey is forecast to be little changed and should therefore not give much impetus to trading.
As for IP, German, French and Spanish IP last Friday were all quite healthy, beating expectations handily. That suggests there should be no problem meeting or even exceeding the forecast for EU-wide IP, which in any case can usually be predicted fairly well by looking at the three that have already been announced (Italy will also be announced on Monday, further reducing the potential for surprise on Wednesday).
The week should also bring some encouraging reports from China. Monetary data – new loans and money supply growth – are due out sometime during the week, while inflation data will be released on Friday. The data are expected to show an acceleration in both lending and money supply, while consumer prices are forecast to rise as well. All that should be good news for risk-sensitive assets and put a bid under stocks and the commodity currencies. Whether it will be enough to restrain USD/CNH, which broke through resistance at 6.70 last Thursday, is another question.
Meanwhile, the pound may get some respite – there are no major UK indicators out during the week.
RBA Meeting, US Nonfarm Payrolls, IMF & World Bank Annual Meeting
There’s one central bank meeting in the first part of the week, but very little drama attached to it as market observers unanimously expect no change in rates. The focus therefore will be on the end of the week, when we get the monthly US nonfarm payrolls and the IMF and World Bank hold their annual meeting in Washington. More data on the UK should keep GBP volatile as well.
The Reserve Bank of Australia (RBA) meets on Tuesday, but not one analyst polled by Bloomberg expects a change in rates. The market thinks there’s a 50-50 chance of a cut by next May at the earliest. Sentiment has been shifting away from the possibility of a cut as the economic data improves. The economy is expanding at a faster pace than the RBA forecast and the unemployment rate is falling. The change in sentiment towards rates is supporting the currency and keeping it stronger than they would like it, but really it’s not much changed since the last meeting a month ago, so I don’t even see much reason for them to change their language about that. I expect this month’s statement should be much like last month’s and I don’t expect it will have a great impact on the market.
The ADP report on Wednesday and the US nonfarm payrolls on Friday will be closely watched for their impact on Fed policy. Some recent Fed speakers have been at pains to point out that not only could they hike in December, but the November meeting is still “live” even though there’s no press conference and the meeting ends a mere six days before the Presidential Election. In fact, it might be a wise move to hike then (if the data support it) simply to demonstrate that the Fed is independent, contrary to what one presidential candidate has claimed. The NFP forecast of 170k is higher than the August figure. That would show that the US labor market is still very strong. It could raise the odds of a rate hike at least in December and therefore be USD-supportive.
The World Bank and IMF hold their annual meeting in Washington Friday to Sunday. The G20 finance ministers and central bankers will meet on Thursday, ahead of those meetings. This meeting comes just a few weeks after a G20 summit that pledged to increase policy coordination, but of course without requiring anyone to do anything specific. The agenda will apparently be “the global economy,” which is fair enough. While no specific policy measures are likely to come out of the meetings, the majority of market-moving officials will be attending the meetings and many of them are likely to give press conferences. We can expect that their comments will affect trading early the next Monday.
The other focus this week is likely to be the data out of the UK. Starting with the manufacturing PMI today, the UK announces its construction PMI on Tuesday, services & composite PMI on Wednesday, and house prices, industrial production and trade on Friday. The PMIs are expected to be down somewhat from last month, which could add to the recent negative sentiment towards GBP and weaken the currency further.
As for the EU, German factory orders on Thursday and industrial production on Friday are the only major indicators. There are no major economic indicators coming out from Japan this week.
Clinton/Trump debate, OPEC gathering, EU & Japan inflation, US personal income
The big events this week are more political than economic.
Monday night US time – Tuesday morning GMT – the world will be treated to the first of three US Presidential debates, as former First Lady, Senator and US Secretary of State Hillary Clinton debates with building magnate Donald Trump. The topics are “America’s direction,” “achieving prosperity” and “securing America.” The style of the debaters couldn’t be different: Clinton has been at the center of world politics since she was First Lady in 1993 and knows policy inside and out. However, Clinton is not much of a showman and many Americans are not so interested in policy. Trump appears to be almost devoid of knowledge of current issues or events, yet he has proven himself to be a genius in commanding attention, deflecting questions and attacking his opponents in an entertaining fashion. With the race so close, both sides will be trying to convince the waverers: Clinton will be trying to win over Republicans who are disaffected with Trump but yet don’t trust her, while Trump will be trying to win over those independents who aren’t sure whether he’s Presidential material. The stakes are high: the polls give Clinton only a small (46% to 43%) advantage over Trump. If it appears that Trump may win, the dollar is likely to sink but the MXN is likely to sink even faster!
The other major event is the informal OPEC meeting in Algiers. All the oil ministers will be in town for an oil industry conference and will hold an informal meeting afterwards. If an agreement is within reach, they could turn it into an extraordinary meeting and make it official. That could shore up oil prices temporarily and boost CAD and MXN too. But with the glut in the oil market likely to last until late 2017, according to the International Energy Agency, OPEC would have to agree not just to freeze output at current (excess) levels but to cut back output to shore up prices significantly. That’s a significant hurdle for a group whose biggest members are at war with each other.
This week sees some key EU data. We start off today with the Ifo index, which is expected to be little changed. Then Thursday we get German unemployment and CPI. As usual, the next day is the EU-wide CPI. Inflation in both Germany and the EU as a whole is expected to accelerate somewhat, which could take some pressure off of the ECB to take any new action and therefore be EUR-positive. The ECB meets again on Oct. 20th. There are also a number of senior ECB Council members speaking this week, including President Draghi, Vice President Constancio, and Chief Economist Praet. Investors will want some clues as to whether they are pondering more moves and if so, what those could be as their bond-buying operations encounter problems. I wonder if they will comment on the recent changes in the Bank of Japan’s operation of monetary policy and whether they see any application to the EU.
There are a large number of US indicators coming out this week, including consumer confidence on Tuesday, the always-disappointing durable goods orders on Wednesday, final estimate of 2Q GDP on Thursday and personal income & spending on Friday. Both income and spending are expected to post slower growth than in the previous month, which could be negative for the dollar. The personal income & spending data is as usual accompanied by the personal consumption expenditure (PCE) deflator, the Fed’s preferred inflation gauge, but for some reason that doesn’t have much market impact.
The housing data for August finishes up with new home sales on Monday and pending home sales on Thursday. The housing data has been disappointing recently, but that may be because of a lack of houses to sell rather than waning demand.
The usual end-of-month wave of indicators is coming out from Japan, including their wide variety of inflation measures, most of which are headed in the wrong direction. Whether a further decline into deeper deflation will have any impact on the currency is debatable, since the BoJ’s reaction function is hard to judge at this point. Even if they do take more action on the yield curve, as they’ve promised, will it impact the currency? The effect isn’t clear.
Sunday night GMT – Monday morning Japan time – the Bank of Japan’s quarterly Tankan report will be released. That is expected to show current conditions for large manufacturers staying the same for the third quarter in a row, but expectations are for a slight improvement in the coming quarter. No big change either way may be neutral for the yen.
Finally, Caixin/Markit release their China manufacturing PMI on Friday, while the national authorities will release the official PMIs on Saturday. Both manufacturing PMIs are expected to improve marginally, which may help global risk sentiment and put a bid on stock markets (and AUD & NZD) Monday morning.
BoJ, FOMC, RBNZ, PMIs
And odd week: extremely quiet except for Wednesday, when two crucial events for the FX market take place: rate-setting meetings by the Bank of Japan (BoJ) monetary policy board and the US Federal Reserve’s Federal Open Market Committee (FOMC). Plus for good measure, the Reserve Bank of New Zealand meets later in the day (Thursday morning NZ time). The other focus of the week will be the preliminary purchasing managers’ indices (PMIs) for the Eurozone and US on Friday. Other than that…not much. But that should be enough to ensure plenty of volatility.
The BoJ will be the first of the central bank meetings. The market still expects the BoJ to cut rates two or three more times over the next two years.
There were an unusually large number of seemingly authoritative articles in the Japanese press last week giving unusually detailed explanations of what the BoJ was likely to do this time. Measures supposedly include steepening the Japanese government bond (JGB) yield curve by adjusting its bond purchases; cutting interest rates further into negative territory; and perhaps adding some new forward guidance.
In theory, these moves should weaken the yen. A steeper yield curve should boost bank profits and thereby increase their willingness to take risks. Also, if they succeed in boosting inflation expectations, that means lower real interest rates, which makes investing in Japanese fixed income less attractive relative to foreign markets. Lower real interest rates should also boost the stock market, which generally goes along with a weaker yen.
One caveat: the moves have been so thoroughly announced beforehand that the market reaction is hard to gauge. The yield curve has already steepened in anticipation of the moves; as a result, there could be a “buy the rumor, sell the fact” response.
Then again, they might decide to do nothing and wait to see what the Fed does later in the day. In that case, I would expect the yen to strengthen immediately.
As for the Fed, the market no longer expects a hike in rates at this meeting. In fact, the market thinks that one rate hike by the end of the year is only a 50-50 proposition.
There are several reasons why I think a hike is unlikely at this meeting:
The economic indicators recently have been weaker than expected.
In particular, the labor market indicators have been disappointing. The labor market conditions index has fallen seven out of the last ten months.
At the last meeting in July, the FOMC was split pretty much in half over whether to hike. It’s doubtful whether these weak data have been enough to convince the doubters. The FOMC hasn’t changed policy with four dissents since 1980 nor with two dissenting Governors (likely to be Brainard and Powell this time) since 1993. (There are 12 voting members of the FOMC.)
They may not hike now, but given how many FOMC members have argued in favor of doing so sometime – particularly Chair Yellen’s comment at Jackson Hole that “the case for an increase in the federal funds rate has strengthened in recent months” – they are unlikely to rule out a rate hike in December, either.
The focus then will be on the forecasts and in particular, the closely watched “dot plot” giving the FOMC members’ predictions for where they expect fed funds to be in the future. The forecasts will be extended to 2019 at this meeting. They may use the extension to lower their expectations for rates in 2017 and 2018, so that they end up with the same terminal level of rates but just take longer to get there: in other words, a slower, more gradual pace of tightening.
In that case I would expect the dollar to weaken. The main beneficiaries should be high beta currencies, such as NZD, AUD and SEK, and emerging market currencies.
With all the attention focused on these two meetings, the RBNZ’s meeting is likely to be an afterthought for the market. Economists unanimously expect no change in rates this time, although the market does think a cut is likely by next February. While the RBNZ may try to talk down the NZD, that will be difficult if the Fed does lower the expected path of rate hikes. Such a move would only make the NZD’s relatively high interest rates – the highest in the G10 – more attractive.
The other market focal point, Friday’s PMIs, are expected to show a modest slowdown in Europe and an equally modest acceleration of activity in the US. Expectations are for such small changes though that they may not have much of an impact on the market.
Aside from these indicators, watch for Japan’s trade data on Tuesday, EU consumer confidence on Thursday, and Canadian retail sales & CPI on Friday.
BoE, SNB Meetings; Fed Surveys, US CPI, UK Inflation
Thursday is going to be a big day this week. The Bank of England (BoE) and the Swiss National Bank (SNB) both announce the results of their policy meetings then. Also, the week’s major US indicators come out that day, not to mention some important Australian and UK data. So watch out for Thursday!
Analysts unanimously expect no change from the BoE. With many (but not all) UK indicators still surprising on the upside, I expect them to wait for some time to see how the economy develops before they take any action again. The minutes to the meeting may shed some light on the Monetary Policy Committee’s thinking about whether the signs of recovery in the UK economy are likely to last, but after Gov. Carney and several of his colleagues’ testified in Parliament last week, there may not be that much market-affecting news in the minutes. GBP-neutral.
Similarly, the SNB has kept rates steady since moving them to their current level in January 2015. The market has gradually been reducing its expectations for further easing, and with the ECB standing pat, EUR/CHF relatively steady and Swiss deflation abating somewhat, there’s no need to change now. This meeting should not produce any fireworks, either.
While we’re on the subject of central banks, Monday is the last day that members of the FOMC are allowed to speak in public before the “blackout period” a week before the FOMC meeting begins, and they are taking full use of it. Three members will speak Monday. Lockhart and Kashkari are not voting members, which adds some significance to the fact that around a week ago, Gov. Brainard was suddenly scheduled to give a talk. Market participants are wondering if maybe she’s being wheeled out to give the market one last warning of a rate hike at next week’s meeting. The thinking is that if someone as dovish as she is starts talking like a hawk, people will notice. Her speech will be closely examined.
The other big day for the US is Thursday, when two of the Fed surveys (Philly & Empire State) will be released, along with industrial production and capacity utilization. They’re expected to show some slowdown in US output, which may be negative for the dollar.
CPI inflation – not the Fed’s inflation target, but important nonetheless ahead of the FOMC meeting – and consumer sentiment come out on Friday. Inflation is expected to pick up, which could be supportive for the dollar as investors close out their positions ahead of the weekend.
For the Eurozone, the ZEW survey on Tuesday and industrial production on Wednesday are the main indicators. Some slowdown in output is expected, but the ZEW expectations index is forecast to rise, indicating that people remain hopeful. The EU leaders’ summit on Friday may help to set the tone for euro trading.
The UK inflation data Tuesday will be scrutinized to see if weaker sterling is starting to feed through to higher prices. Last month the big shock in this data series was the jump in producer input prices; they’re expected to jump even more this month. That could be positive for the pound. Employment data on Wednesday and retail sales on Thursday round out the UKI data.
There’s no major Japanese data out this week. In its absence, investors will be watching the build-up to the Bank of Japan meeting next Wednesday (same day as the FOMC meeting ends: a big day!) The “blackout period” for BoJ members is only two business days, so we may still hear some last-minute comments or press leaks next week about what the BoJ might or might not do.
G20, RBA, Bank of Canada, ECB, Trade Data
It’s a week of meetings: starting with the G20 leaders’ meeting Sunday and Monday, then an RBA meeting Tuesday, Bank of Canada Wednesday, ECB Thursday, and EU finance ministers & central bankers Friday and Saturday. Of course, meeting doesn’t necessarily mean doing as the G20 is more of a talking group than a doing group and none of the central banks is expected to change rates. But still, there will be a lot to watch.
The G20 leaders meet against a background of slowing growth and slowing global trade. The question is, what will they do about it? When the G20 finance ministers and central bankers met in July, they emphasized that “fiscal strategies are equally important” to monetary policy in restoring growth. That may be one reason why Spain and Portugal were given additional time to meet their budget deficit targets. But so far no change in policy in Germany, the country where it would matter the most. They also reaffirmed their previous exchange rate commitments, including to “refrain from competitive devaluations,” yet now we hear a senior Japanese advisor recommending that the BoJ should start buying foreign bonds. In that respect, watch out for what Chancellor Merkel or PM Abe have to say in the press conferences afterwards to see if the talks do change their mind about anything.
The Reserve Bank of Australia (RBA) cut rates at its last meeting a month ago and nothing dramatic has happened since then to force them to cut again. On the contrary, the exchange rate has depreciated slightly, consumer confidence is up, employment is up, building approvals rose, and capital spending in the non-mining sector is improving. I would expect them to switch to a neutral stance such as they had in July, when they said that “(o)ver the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to th e stance of policy that may be appropriate,” i.e. either a further cut or a hike (or neither). That could prove positive for AUD, as the market currently sees no chance of a rate hike until a year from now, while it is pricing in around a 50% chance of another cut over the next six months.
The Bank of Canada too has no need to rush: inflation remains within their target range and growth is already bouncing back from the fall caused by the wildfires in April. Economists polled by Bloomberg unanimously expects no change in rates. The decision may not have much impact on the CAD unless they express a strong view one way or the other.
The ECB too has little reason to move right now. Since its last meeting on 27 July, ECB President Draghi’s favorite measure of inflation expectations is down slightly, but other market measures are up, suggesting little change overall in the inflation outlook. They may lower their economic forecasts somewhat and perhaps hint about extending their bond-buying operations, but I wouldn’t expect much more, and I wouldn’t expect the meeting to move the euro that much.
The indicators from the UK will remain a central focus. So far they have beat expectations handily, in contrast to indicators in other major regions, which are no longer surprising on the upside. This is a major point that has helped to boost the pound.
Monday we get the service-sector and composite PMI. Friday’s construction sector PMI was much better than expected, but failed to get traders excited; today’s PMIs will probably both have to bounce back above 50 to convince the market that Brexit fears are well and truly over (for now, at least) and thereby boost the pound. Other UK data due out this week includes Halifax price houses, industrial production and visible trade.
Several countries other will announce their current account or trade data this week as well, including Australia, Japan and China. China is expected to show a higher surplus, but both exports and imports are expected to fall at a slower yoy pace, which could be encouraging for risky assets, commodities and the AUD. The UK trade deficit is expected to narrow significantly, which could further help the pound.
Several countries also announce their final revisions to GDP, but these are rarely market-moving.
As for today, the US and Canada are on holiday, so activity is likely to be thin in the European afternoon.
US Nonfarm Payrolls, Final PMIs, Eurozone Inflation
Another month, another nonfarm payrolls. We also get the final PMIs this week, including the PMIs for China and the UK; German & EU CPI; and a variety of other indicators from Australia and Canada.
The NFP figure is particularly important because it’s the last one before the September FOMC meeting, and the September FOMC meeting is the last one with a press conference before the US election. If they’re going to raise rates, it’s likely to be either in September or December, and if it’s going to be September, then there’ll have to be a pretty good payroll figure to justify it. NFP of 185k and a further decline in the unemployment rate to 4.8%, the same level the FOMC said in June represents the long-term unemployment rate (effectively, the lowest level unemployment can go without triggering inflation), might meet that qualification. If the NFP does come in as expected, watch for a rise in Fed rate expectations and a stronger dollar.
Of course before Friday’s NFP, the market will be waiting for Wednesday’s ADP report to get an idea of what the NFP may be, even though the correlation between those two hasn’t been so great recently. Looking at the volatility of the NFP, I wonder if the ADP report isn’t perhaps a better estimate of the employment situation, but the Fed naturally prefers government statistics, so that’s what the market watches.
The other main feature of the week will be Thursday’s release of the final PMIs from the countries that we got preliminary ones from last week, such as Europe and the US, as well as PMIs from those countries that we didn’t get anything from, such as China and the UK (construction PMI on Fri). The PMIs for Europe and the US were decent; Markit said “the euro area economy continued to expand at a steady pace in August,” while US manufacturers “saw a further upturn” in business conditions. China though is expected to show either stagnation (official) or a marked slowdown (Caixin/Markit). For that matter, the US ISM index, also out Thursday, is expected to show somewhat of a deceleration as well.
Other major data from the US includes personal income & spending (today), Conference Board consumer confidence, the Chicago PMI, construction spending and factory orders. Inflation data for the US will consist of today’s personal consumption expenditure (PCE) deflator, the Fed’s preferred inflation gauge, and the ISM prices paid index. These are both expected to show diminishing pressure on prices, which could be negative for the dollar.
The EU also has inflation data out this week: German CPI on Tuesday and the EU-wide CPI on Wednesday. They’re expected to show a small acceleration in inflation. Combined with the stable PMIs, this may reduce expectations for further easing at September’s ECB meeting and thereby support the euro.
There isn’t much else from the UK this week besides the PMIs. Mortgage approvals are expected to be lower, but that shouldn’t be a surprise after the BBA figures last week. Gfk consumer confidence and Nationwide house price index may also get more attention than usual as investors try to glean any insight they can into what’s happening with the UK.
A number of Australian indicators are coming out this week, including tonight’s building approvals, private sector credit, capital expenditure and retail sales.These will be closely watched ahead of next week’s RBA meeting, where the market expects no change in rates.
As for today, the UK is on holiday and there are no major announcements due out during the European day, so trading is likely to be thin until the US trading day begins. The forecast 0.4% mom rise in US personal income is relatively strong and should be well received, but personal spending is forecast to show some deceleration from the previous two months. Combined with a slowdown in the PCE deflator, the data may be negative for the dollar.
Preliminary PMIs, Jackson Hole Symposium
A quiet week this week, with two big things on the schedule: the preliminary purchasing managers’ indices (PMIs) from the major economies on Tuesday and the Kansas City Fed’s annual Jackson Hole symposium on Thursday and Friday.
The PMIs are expected to be little changed. Does that mean analysts believe the global economies are growing at a relatively steady pace nowadays, or does it mean that they have no idea what’s going on and so believe that last month’s figure is as good a forecast of this month’s as any they can come up with? Much of the world does seem to be in an accelerating expansion, albeit modestly.
The US manufacturing PMI is expected to rise, which could be supportive for the dollar, especially if the EU manufacturing PMI remains unchanged, as expected. However, as the graph below illustrates, EUR/USD has decoupled from the PMIs in recent years, perhaps because monetary policy has become more detached from the business cycle.
Last month Markit released a set of preliminary PMIs for the UK at the same time as they did for the major Eurozone economies and the US, but as they said at the time, that was just a one-off because of the unusual interest in how the UK economy fared after the Brexit vote. The UK manufacturing PMI won’t be released until 1 Sep, as usual. In fact there are no major indicators coming out from the UK this week.
The Jackson Hole symposium is a huge get-together of the great and good in global central banking. Often the papers there present new ways of looking at problems, plus the comments of the participants sometimes show new approaches. For example, in 2014 ECB President Mario Draghi took advantage of the occasion to unveil his favorite gauge of inflation expectations, which was falling rapidly at the time. That was a hint to the market; the ECB started its QE program at its meeting a few weeks later.
The topic of this year’s symposium is “Designing Resilient Monetary Policy Frameworks for the Future.” It will probably look back at previous crises and see what lessons can be learned for how they should conduct monetary policy in the future.
Yellen’s speech apparently will focus on the question of what should be the “equilibrium” level for the Fed funds rate, the overnight interest rate that the Fed controls. By “equilibrium,” economists mean what it would be over the long term during normal times – as if there is such a thing as normal any more. This ties in with the debate at the Fed over whether they should be looking at a) short-term economic indicators, such as the solid employment picture, and therefore raising rates, or b) the more general economic picture, where economies worldwide seem to have settled into a low growth/low inflation pattern, in which case they can wait longer to see if inflation does ever become a problem again before taking action. Given the recent comments by NY Fed President Dudley and the comments over the weekend by Fed Vice Chairman Stanley Fischer that “we are close to our targets,” I would expect Yellen to come down on the former side and for rate expectations to rise and the dollar to strengthen.
Outside of that, the Chicago and Richmond Fed indices are coming out, but the PMIs are probably more closely watched. Durable goods are expected to show a solid gain, but that’s mostly because of an expected return to normal after last month’s collapse in aircraft orders and defense capital goods. New and existing home sales are expected to slow a bit, but that comes after June’s eight-year-high for new home sales and nine-year high for existing homes, so even staying around that level should be encouraging for the economy and the dollar.
The second estimate of Q2 US GDP is expected to be revised down a bit further even from the previous low reading, but Q2 is getting to be old news; the Atlanta Fed’s GDPNow model predicts 3.6% for Q3, while the New York Fed says 2.4%, both substantially higher than in Q2. Second estimates for Germany and the UK are also coming out, but those are rarely revised.
In the Eurozone, the Ifo indices will complement the information we get from the German PMI. They’re expected to rise slightly, while the PMI is expected to fall slightly.The Ifo indices could boost the euro somewhat. Eurozone and German consumer confidence will be announced, plus the EU money supply data – although that probably doesn’t have the impact on monetary policy that it used to.
Finally, Japan announces its inflation data Friday morning Japan time. This will be the last CPI data before the 21 Sep Bank of Japan meeting and so may be closely watched. The market is forecasting no change from deflation, and even the BoJ’s own preferred in-house measure of inflation, which is slightly positive, is expected to drop. Slowing inflation could increase speculation that the BoJ will take action and put downward pressure on the yen.
FXPRIMUS Week In Focus of the week beginning August 15th: Japan GDP, US CPI, Canada CPI
It is expected to be a fairly quiet week given the summer holidays.
The main focus at the beginning of the week will be Japan’s Preliminary GDP q/q release expected to drop to 0.2% from 0.5% last quarter. This might be the first piece of economic data that might finally weaken the Yen. Previous economic releases and the lack of a strong intervention from Bank of Japan have led the Yen to strengthen across the board, where USDJPY closed just above 101 last Friday.
Support is seen at 100.66 and 101.20, while resistance at 102.29, and 103.24
US Core CPI m/m: Core CPI m/m will be released on Tuesday. CPI is expected to decrease to 0 while the core CPI (which is more important) is expected to stay unchanged at 0.2%. The consumer price index accounts for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates. A lower than expected CPI might be considered as another blow to expectations that the FED might raise the interest rates before the end of this year, while a higher than expected CPI can lead to a stronger USD given rising expectations of a rate hike.
US Dollar Index (Daily)
The New Zealand Dollar has been volatile in the past few months and is becoming very sensitive to economic releases. July Unemployment is expected to sharply drop by a 0.4 percentage point. Moreover and since at the same time, employment change is expected to come out for the 2nd quarter of 2016, we might see a turmoil in the direction that the Kiwi will take, especially that employment change is expected to decrease.
NZDUSD (Daily): 300 pips daily moves are not uncommon for the Kiwi
Finally OIL has also been very volatile. Even though the USD was weakening, yet OIL continued to lose grounds on the back of a slowing world economy. No consensus has been published yet for the Thursday release; however keep in mind that given Oil prices are generally down, any increase in oil prices due to decreasing inventories might be short lived.
Spot OIL - WTI (daily)
RBNZ, China Data
A fairly quiet week – which makes it a good one for me to be on vacation.
The main highlight of the week isn’t much in doubt. The market is pricing in 100% probability of a cut at the Reserve Bank of New Zealand’s meeting on Thursday, NZ time. In fact it’s pricing in 100% probability of at least one more cut this year after this one, maybe even two more.
The RBNZ made it clear what would happen at this meeting after it took the unusual step of issuing an interim economic assessment that consisted largely of complaints about the high exchange rate and low inflation, and concluded that “it seems likely that further policy easing will be required” to hit its inflation target. “A decline in the exchange rate is needed,” they said, and one can assume that they will work for it.
It’s true that the NZD is overvalued on several metrics – Bloomberg calculates it’s the most overvalued currency on a CPI basis and 2nd most overvauled on a PPI basis. (On the other hand, the OECD rates it only slightly overvalued, and Big Macs are quite cheap there, if you like Big Macs.)
But with the highest interest rates in the G10 and risk aversion calming down – meaning carry trades becoming popular again – they have a lot of cutting to do, especially since the rates market for AUD, the second-highest-yielding G10 currency, is also pricing in one more rate cut this year. The RBNZ will be fighting the market to depreciate its currency.
The other feature this week will be a large number of China releases. No GDP figure, but trade, industrial production, retail sales and monetary data. The figures are expected to show a continuation of the modest slowdown that we’ve been seeing recently in China. The major changes are expected on the financial side, where foreign FDI, aggregate financing and money supply growth are expected to slow notably. Given the concern about bad loans in China, that’s not necessarily a bad thing for future stability. I would expect the data to be neutral to mildly encouraging for commodities and hence for the commodity currencies.
In any case, the correlation between commodities and the commodity currencies has been weakening recently. CAD is becoming less correlated with oil, AUD less correlated with copper or iron ore.
There’s not much on the schedule from the US this week. Today’s labor market conditions index (LMCI) and tomorrow’s Job Openings and Labor Turnover Survey (JOLTS) report are important to the FOMC as they evaluate the labor market, but usually aren’t market-affecting. The PPI and U of Michigan consumer sentiment survey round out the US calendar.
The UK data is still pre-Brexit and so is likely to be a) bad and b) inconclusive. A fall in industrial production in June should be no surprise after the poor PMI figures. On the other hand, a small narrowing of the trade deficit may be taken as encouraging and could boost GBP.
The 2nd estimate of EU 2Q GDP comes out on Friday, together with the GDP figures for Italy and Germany. While the German & Italian data are new, the Eurozone aggregate isn’t and so is likely to be revised only slightly – not a major event.
Then Japan’s Q2 GDP will be announced on Sunday night (Monday morning Japan time). Growth there is likely to have fallen by more than half. However, as the government has already announced a supplementary package for the autumn, this too is likely to be considered old news and not that market-moving unless it deviates substantially from the forecasts.
RBA, Bank of England, US Payrolls
The string of do-nothing central bank meetings, which may or may not have ended with last week’s Bank of Japan meeting, is set to come to an end for sure this week with both the Reserve Bank of Australia (RBA) and the Bank of England (BoE) expected to cut rates. The other big event of the week is, as usual for the first week of the month, the US nonfarm payrolls, which are expected to fall back to a more normal level after June’s abnormally high figure. We also get the final PMIs for July, including today’s announcement of the PMIs for China. Outside of the data, participants in all markets will be watching the oil price.
The RBA is widely expected to cut rates again. The reason is simple: following their last meeting, Gov. Stevens ended his statement by saying, “Over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate,” which indicates that some change in policy was likely. The “further information” came about a week later, when 2Q headline inflation was reported to have slipped further on a year-on-year basis. The market puts a 67% probability on a cut this week, while 20 out of 25 analysts polled by Bloomberg expect a cut. Those are pretty good odds but still not certain, which means AUD may weaken a bit if they do cut.
The question about what the BoE is planning to do is more complicated. There’s no question that the BoE is going to do something, after a string of weak post-Brexit data convinced one of the two last hawks (Martin Weale) to change his mind and come out in favor of an immediate shot of stimulus. The market is pricing in 100% chance of a cut, with the vast majority of economists forecasting a 25 bps cut to 0.25%. The market sees SONIA bottoming out at 10 bps by next March. There’s more debate about the asset purchase program: while most economists see that remaining unchanged at 375bn, some are forecasting an increase up to 525bn. A cut in rates and no change in the asset purchase program is now fully priced in; it will take more than that to cause GBP to weaken further.
The US nonfarm payrolls are forecast to be almost exactly back at the 6m moving average (forecast: 175k vs average 172k). This is in line with the forecast for Wednesday’s ADP report as well, which is for 170k. This would be a boost from the April-June average of 147k and would therefore represent a strengthening of the labor market, in line with the FOMC’s recent statement, which said that “the labor market strengthened.” This could cause a rebound in Fed expectations and strengthen the dollar somewhat.
Outside of these events, the main point will be the final PMIs for June, including today’s China PMIs, both the official and Caixin version. The ISM manufacturing index is likely to be the most important one. With the US Q2 GDP figure coming in so much weaker than expected, market participants will want to see signs of strength in the US economy in order to imagine that the Fed will be able to hike rates later this year.Today’s ISM manufacturing index is expected to be unchanged while the price paid index is forecast to be up slightly. That probably won’t be enough to shake anyone’s convictions about the FOMC and as a result could prove USD-negative.
While the final PMIs are usually not a big thing for the market, any revisions to the final UK manufacturing PMI today or service sector PMI on Wednesday will be closely watched. In addition, the UK construction PMI comes out on Tuesday; that’s expected to collapse to 44.0 from an already-weak 46.0 the previous month, adding to the gloom over GBP.
Outside of the data, the markets will be watching the oil price. Energy has been weighing on global stocks; the S&P 500 oil sector fell around 2% in July even while the overall market was up 3.6%. Brent hit a high of $52.51 in early June, but has since fallen $10 or 19% in just two months. A drop of 20% is considered to be a bear market. If it falls below $40 for any length of time, it could once again spark doubts about the economy and dash any hopes that inflation might come back to normal levels any time soon. CAD may prove vulnerable if oil falls further.
FOMC, BoJ Meetings; UK, EU & US 2Q GDP; EU Inflation
So far, following the Brexit vote the central banks have taken their cue from the Chinese philosopher Lao Tzu, the founder of Taoism, who said “by doing nothing, everything is done.” This was the attitude of the Bank of England two weeks ago, the ECB last week and looks likely to hold sway at the Fed this week, and possibly the Bank of Japan too. The more markets rally and the immediate post-Brexit turmoil recedes, the less the central banks need to hurry.
The VIX index – the so-called “fear gauge” – has collapsed since the Brexit vote, falling to less than half of where it was the day after the vote and the lowest level since Aug. 2014. Clearly the turmoil that was expected in the wake of the vote hasn’t arrived – yet, at least – and so policy makers probably feel no urgency to take immediate action. The Bank of England is content to wait until they have updated forecasts next month before making any moves, and if they can wait, then the other central banks probably can, too. Certainly ECB President Draghi seemed more worried about Italian banks than about Brexit.
The exception might be the Bank of Japan, the central bank that has the biggest question mark over its head. As the national CPI continues to show deflation, the Bank’s pledge to get inflation back to 2% “at the earliest possible time” is beginning to sound like Chiang Kai-Shek’s annual vow to retake the mainland. People are losing confidence in the Bank’s ability to meet the target at all. As a result, some analysts expect the BoJ to increase its stimulus at this Friday’s meeting, perhaps by increasing its purchases of Japanese government bonds or exchange-traded funds and/or by a further cut in rates deeper into negative territory. Personally, I expect that with risk aversion diminishing and USD/JPY bouncing back up, the BoJ is likely to stand pat. That could send USD/JPY back down somewhat.
As for the FOMC, the market is pricing in virtually no chance of a move in rates in either direction. There’s no press conference following the meeting, so the statement (and later the minutes) will be all we have to go on. Key points will be how the recovery in payrolls in June affected their view of the job market, and whether they continue to “closely monitor…global economic and financial developments,” now that Brexit is out of the way and volatility has diminished.
The other theme of the week will be the advance Q2 GDP figures, first from the UK on Wednesday, then the EU and US on Friday. Of course being pre-Brexit, they will be even more dated than usual. The UK GDP in particular may be disregarded as it’s expected to show accelerating growth. The EU is forecast to show a collapse in growth, which may raise expectations of an easing at the ECB’s September meeting and thereby weaken the EUR. The US figure on the other hand is forecast to show a return to over 2% growth, which could facilitate Fed tightening and thereby be USD-positive.One problem though: the accompanying core personal consumption expenditure (PCE) deflator, the Fed’s preferred inflation gauge, is forecast to show slower inflation, which could be USD-negative.
Other major US indicators out during the week include the Dallas & Richmond Fed manufacturing indices, the Conference Board consumer confidence index, new home sales, and durable goods.
As usual, the last week of the month is a big one for Japanese data. The most important one is the CPI, which is expected to show continued deflation on a national level. The impact of any of the Japanese data, modest at best, is likely to be subsumed by the market’s reaction to the BoJ meeting.
In the Eurozone, the Ifo indices for Germany out today are expected to decline, which should be no surprise given last week’s collapse in the ZEW index and the fall in the July manufacturing PMI.
On Thursday, the market will be looking to see if German inflation does accelerate a tiny bit as expected, which could be positive for the euro. That will be followed by Friday’s EU-wide CPI, also expected to accelerate a bit.
ECB meeting, preliminary July PMIs
The week starts off slow, with little on the schedule today. But things gradually pick up with a few but important indicators, and by Friday we get the first round of the July PMIs.
The highlight of the week promises not to be that much of a highlight: the ECB meeting on Thursday. Economists unanimously expect them not to make any change in rates or other policy moves. As we saw last month, when they made no policy changes, volatility was nothing special; in fact, the range on the day was below average. This time around, look for comments on Brexit and on banks, particularly what the ECB response to a banking crisis in Italy might be. But don’t look for any fireworks.
The other big day is Friday, when the preliminary PMIs for the major industrial countries will be released. This time only, Markit will release a flash PMI for the UK together with the others "to help provide clarity on the potential impact of the UK’s EU referendum on the economy." The June PMIs were nothing to get excited about; the global PMI was unchanged at 51.1, below its long-run average for 10 consecutive months. According to Markit, in Q2 the global economy recorded its weakest growth of both output and new orders since the end of 2012, while the rate of increase in payrolls fell to the lowest for almost three years. The weakness is expected to continue in July as every PMI forecast is expected to decline from June’s already-depressed level. This could contribute to USD weakness if it means investors further push off their estimate for when – or even if – the Fed raises rates again.
For the EU, the other important points for the EU are the ZEW survey on Tuesday and European Commission consumer confidence index on Wednesday.
There’s other key data out for the UK this week as well as the PMIs, and as we saw last week, investors are still paying attention even if the data are “pre-Brexit.” The CPI on Tuesday is expected to show a small acceleration in inflation. Inflation expectations initially jumped after the vote on the assumption that lower sterling would mean higher prices, but since then they’ve come back down, presumably on the assumption that weaker activity means weaker prices. Wednesday we get UK employment data and Thursday, retail sales.
In any case, the tone for GBP may be set today, when Monetary Policy Committee (MPC) member Martin Weale speaks on the implications of Brexit for monetary policy. Weale is the second-most hawkish member of the MPC; from August to December 2014, he and Ian McCafferty voted to raise rates (McCafferty voted to raise them from Aug 2015 to Jan 2016 as well). If Weale is dovish, then everyone is dovish.
There isn’t that much crucial info coming out from the US. We have to wait till Thursday to get the Chicago Fed national activity index and the Philadelphia Fed index. Last Friday’s worse-than-expected Empire State index on Friday raises the risk around these indices.
Otherwise, most of the US data concerns the housing market, starting with the NAHB housing index today, then housing starts & building permits tomorrow, and existing home sales and the FHFA house price index on Thursday. Last month’s housing data was fairly weak, so investors will be looking for some rebound. Starts are expected to pick up but existing home sales are expected to slow, giving a mixed picture. Having said that, starts count in GDP but existing home sales don’t, so that mixed picture is still positive for growth.
Bank of Canada, Bank of England meeting, China data
Usually the week of the month following the nonfarm payrolls is rather quiet, but this week we have several points of drama to watch for. As usual nowadays, the UK will be in the spotlight, with the Bank of England Monetary Policy Committee (MPC) decision on Thursday. The Bank of Canada also meets on Wednesday. There are also a large number of important US indicators, especially on Friday, and a raft of Fed speakers throughout the week. Finally, there are a large number of important Chinese indicators coming out, including the crucial GDP figure.
The best-performing G10 currencies last week were JPY, NZD and AUD. That’s difficult to reconcile, given that JPY rises during "risk off" periods while NZD and AUD tend to be “risk on” currencies. Fed rate expectations barely budged after Friday’s better-than-expected nonfarm payrolls (up 1-3 bps), indicating that the market doesn’t think that the number will have changed their view. The Fed expectations and the FX market views suggest we are in a kind of “sweet spot” where growth is not so strong as to trigger tightening yet not so weak as to derail the global economy. In such a situation, investors may go for yield and carry trades, which would explain the attraction of AUD and NZD.
Personally, I question this view: I think the US labor market is still improving. In that respect, today’s Labor Market Conditions Index (LMCI) and tomorrow’s Job Openings and Labor Turnover Survey (JOLTS) report, while not market-moving, may be important for Fed members in making up their minds. In that respect, the expected reversal in the LMCI’s downtrend today could help to support the dollar.
The labor market data may be reflected in the comments we get from the many Fed officials speaking this week. Eight of the 12 regional Fed presidents are scheduled to talk, some twice, giving us a good cross-section of the FOMC’s views. I would expect them to continue to talk up the possibility of a rate hike this year, which would probably support the USD. The pound meanwhile may recover somewhat as risk aversion declines, especially if the Bank of England holds pat as I expect (see below).
The direction of the euro meanwhile probably depends as much on developments with the European banking system as any of the economic data. In that respect, the Eurozone finance ministers’ meetings on Monday and Tuesday are likely to be important for the market. In addition to discussing the banks, ministers will discuss fining Spain and Portugal for breaching the EU fiscal rules.
The big event will be the BoE MPC meeting on Thursday. Although the table above suggests that the consensus is for a cut, that’s only because Bloomberg uses the median forecast, not the average. In fact economists are pretty evenly divided between whether the BoE cuts rates at this meeting or the next one in August, when it will issue its quarterly Inflation Report and the staff will produce the first set of post-Brexit forecasts. In addition to rates, the market will want to know if they are considering any additional purchases of UK government bonds. My expectation is that they will wait till August and that they will not announce any further QE measures at this meeting, which could cause the pound to firm up temporarily.
The Bank of Canada on the other hand is unanimously expected to keep rates stable at this meeting, with a 25% chance that they cut at some point before the end of the year. I would expect them to repeat the comment from May that "the risks to the Bank’s inflation projection remain roughly balanced" and to keep rates steady, thus giving relatively little impetus to CAD either way.
As for the US, the key day is Friday, when we get retail sales, CPI, Empire State manufacturing index, industrial production and the U of Michigan consumer sentiment survey, all within the space of two hours. Retail sales are expected to be sluggish, as is industrial production, while inflation is not expected to show any great acceleration. Net net the data may just confirm that Q2 growth is closer to the New York Fed’s 2.1% forecast than the Atlanta Fed’s 2.4% GDPNow forecast, which isn’t great but is better than most other places.
For Europe, as usual nowadays politics will be the main concern and the data will be secondary. Industrial production on Wednesday is the only major Eurozone indicator. That’s expected to be weak, which could add to the euro’s struggles.
Finally, China will take center stage as this week we get CPI, trade, industrial production, retail sales, fixed asset investment and the all-important GDP figures. The data are expected to continue to show the gradual slowdown in the Chinese economy, which will do nobody any good. AUD and NZD, good performers recently, could suffer.
RBA Meeting, US Nonfarm Payrolls
This isn’t such a busy week on the data front. The main events will be the Reserve Bank of Australia (RBA) meeting on Tuesday and the US nonfarm payrolls (NFP) on Friday.
The week gets off to a quiet start Monday. Not only are there few data points out on Monday, but also it’s the US Independence Day holiday, so US markets are closed. Sometimes thin markets can mean volatile markets if there is something to move prices, but if there isn’t, then thin markets can mean quiet markets, too.
Tuesday morning in Asian time we get two of the main points of the week. The Caixin services and composite PMIs for China will indicate whether the economy as a whole is slowing or recovering.
Then the RBA announces its cash rate. The market is unanimous in expecting no change in the rate at this meeting. However, all but one expect them to cut it at the next meeting, in August. Why is this? Probably because of the inflation rate. The main catalyst for the rate cut in May was the worse-than-expected CPI for Q1, announced on 27 April. In that case, they are likely to wait for the 2Q CPI, due out 27 July, before deciding to move again. If that figure too shows the rate of inflation falling, then another cut is likely.
Brexit is not a direct threat to Australia, but over time the hit to investment and risk-taking sentiment may weigh on commodity prices, adding to the pressure on the RBA. August seems more likely than July. In that case, the big question will be what kind of a bias the RBA adopts. At the June meeting, the RBA basically kept a neutral stance and made no comment about which way the next move might be. The market will be focused on whether the statement continues that neutral stance or moves to an outright easing bias.
The other big item on the agenda is of course the nonfarm payrolls. Because of the 4th of July holiday, the ADP report will come out on Thursday, not Wednesday as usual. It’s expected to show a similar number of jobs created in June as in May. Then Friday’s NFP is forecast at 175k. That would be a return to the trend rate of growth in payrolls, which was 170k over the last six months. In other words, the data are expected to show that while the pace of growth in jobs may be slowing, the unusually low May figure (38k) was an aberration and does not indicate a major change in the trend. Indeed, there is considerable speculation that the May figure will be revised up sharply (more on that later in the week).
A return to trend in the NFP might revive speculation about another Fed rate hike and be bullish for the dollar. Since the Brexit vote, Fed fund rate expectations have fallen by over 20 bps or nearly half a rate cut in the long end even as the dollar has strengthened. An NFP figure that came in as expected could reverse those Fed expectations somewhat, thereby boosting the dollar further.
Speaking of the Fed, the minutes of latest FOMC meeting will be released on Wednesday. They’re of less interest than usual, perhaps, given that the unexpected Brexit vote has probably put a rate hike on hold for some time. Nonetheless they will of course be scrutinized closely. If Chair Yellen’s comments are anything to go by, they are likely to have a decidedly dovish tone, which could knock the dollar temporarily.
As for US indicators, factory orders on Tuesday and the ISM non-manufacturing index on Wednesday are the only two other major indicators.
The features for Europe include German factory orders on Wednesday and industrial production on Thursday.
There are a number of important UK indicators, such as the construction PMI today, the Financial Stability Report and service sector PMI on Tuesday, industrial production on Thursday and trade on Friday. Will they matter? If they do, that’s significant in itself. Probably the market is expecting the Bank of England to ease policy in the near future, so any weakness in these indicators may be taken as confirmation that easing is likely and would therefore be a sign to sell GBP. On the other hand, any strength – such as that shown by the manufacturing PMI last week – may be taken as “pre-Brexit” and therefore not indicative of what’s to come.
FXPRIMUS Indicators and events for the week beginning 27 June: Final PMIs, EU CPI, Japan Tankan, Australia election
There’s a pretty full schedule of events this week, but will it matter? I expect thatthe aftershocks from the Brexit vote will dominate the market, rather than the almost-random fluctuations of economic indicators. Who can worry the UK manufacturing PMI when it’s not certain what the surface area of the UK will be in two years? Markets have gone decisively into “risk off” mode and I would expect that feeling to dominate for now.
The immediate focus will be on when the UK will formally notify the EU that it’s withdrawing. After the UK makes that notification, the two sides have two years to negotiate the terms. UK PM Cameron resigned Friday and said his successor should be the one to handle those negotiations. His successor probably won’t be chosen until just before the Conservative Party Congress in October. However, European Commission President Juncker Sunday said "it doesn't make any sense to wait until October” to start negotiations.
The problem is, nobody on the “Leave” side in Britain seems to know what to do. The “Leave” side has even admitted it doesn’t have a plan: “Number 10 (the home of the UK PM) should’ve had one,” a reporter was told, while another leader of the group said on TV, “We never made any commitments. We just made a series of promises that were possibilities.” To make matters worse, Parliament must approve any final settlement, and two-thirds of the MPs favored “Remain.”
The absence of any planning on the “Leave” side makes PM Cameron’s resignation a smart move. Cameron’s resignation means the next PM will handle the negotiations. The question is: will the next PM want the task? Will the next PM want to be known as the person who triggered not only all the problems of extricating Britain from the EU, but also the break-up of the UK?Because the one person who does have a plan is Scottish leader Nicola Sturgeon. She said on Saturday that her administration would seek talks with the EU to ensure that Scotland could remain in the bloc and that a new referendum on Scottish independence is "very much on the table."
The leaders of the “Leave” campaign have said that there is no need to start formal discussions with the EU immediately. In fact, even they seem to be showing “buyer’s remorse.” Meanwhile, there is much discussion over the fact that the referendum was not legally binding, although the idea that Parliament might just ignore the stated will of over half the country is difficult to imagine. It would probably take a new general election to overturn the results of the referendum. Difficult but not impossible. Pro-European members of both the Labour and Conservative parties could leave their parties and form a new pro-European party.
In any case, the political machinations around this issue will be much more important to the markets than a percentage point here or there on some indicator.
Investors will also be watching for central bank activity. The Swiss National Bank (SNB) was said to have intervened on Friday. Will the Bank of Japan (BoJ) come in as the currency hovers around 102? Historically, the BoJ hasn’t liked it when USD/JPY went below 100, and certainly the recent move qualifies as sharp – from 106.84 to 99.02 and then back up some on Friday. Investors will be watching today’s SNB sight deposit figures to see if the SNB was intervening in the week before the referendum, too.
And what, if anything, will the Bank of England do? It previously said that a plunge in the value of sterling following the decision to leave would be “consistent with changes to the fundamentals underpinning the exchange rate,” meaning that it wouldn’t warrant intervention. However, they also said that “(t)he MPC will take whatever action is needed, following the outcome of the referendum, to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon.” Inflation expectations may pick up because of the sharp fall in sterling. If on the other hand they don’t, the BoE could in fact cut rates further to support the economy.
Against that background, the usual indicators fade into importance, particularly for the UK.I won’t even bother mentioning the UK indicators in this report as I doubt if they will be market-affecting this week.
Globally, the rest of the PMIs come out this week, including the ISM index from the US. Perhaps the most widely anticipated will be the Chinese PMIs on Friday. They’re expected to show little change.
In the US, the markets will be watching the final revision to US Q1 GDP, US personal income & spending, and the ISM index.
For the EU, the main focus will be German CPI on Wednesday, followed by EU CPI on Thursday. They’re expected to show a modest acceleration in inflation, but nowhere near what would be necessary to have an impact on monetary policy.
In Japan, the highlight of the week will be Friday morning (Japanese time), when much of the end-month data comes out, including the key CPI figures. At the same time the Bank of Japan will release its quarterly Short-Term Survey of Economic Conditions (Tankan).This is the biggest economic indicator coming out of Japan and is sure to be market-affecting.
As for the central banks, the ECB will be running a 3-day forum on “The Future of the International Monetary and Financial Architecture” in Portugal Monday through Wednesday. The big event will be a panel discussion on Wednesday with ECB President Draghi, Fed Chair Yellen and Bank of England Gov. Carney.
Finally, Australia has a federal election on Saturday.
FXPRIMUS Week in Focus for week of June 20th: Brexit referendum!
There are three important things on the schedule this week: the Brexit referendum, the Brexit referendum and the Brexit referendum.
I can’t overemphasize how important this vote is for the markets. Let me just quote from two public figures. IMF head Christine Lagarde last month warned that if Britain voted to leave, the impact would range from “pretty bad to very, very bad.” Finnish finance minister, Alexander Stubb, said there would be “economic mayhem.” He feared it could be “the Lehman Brothers moment of Europe.”
There would certainly be, shall we say, market turbulence. In the first case, the pound would plunge. The euro too would come under pressure, I expect. Funds would flow out of these currencies and into the dollar. The safe-haven JPY and CHF would probably come under upward pressure, although the Swiss National Bank has already warned that they’d intervene. Stock markets would be sharply lower too, I imagine, while gold would probably get a boost.
The direct economic impact is really the least of the problems resulting from Brexit, though. Central bank intervention can help the markets to survive the initial shock. UK and EU trade may suffer, but it will probably just mean slower growth, not depression. The big, long-lasting problem is the implication for the European project, the “ever closer union” that the EU is pledged to pursue.
Frank-Walter Steinmeier, foreign minister, told a conference last week that if Britain leaves, “the EU will find itself in a deep crisis…It would require concerted efforts to ensure that . . . a decades-long, successful integration effort does not end in disintegration.” Euroskeptic parties in the Union’s heartland, such as France, Germany and the Netherlands, would get a boost and perhaps demand their own referendum. In fact, the reverberations might be heard as early as three days later, on Sunday, when Spain holds a general election. That’s why I think the euro would be hurt as well as the pound, although certainly not as much.
So far the signs aren’t good. The polls were showing a majority in favor of Brexit up until the weekend.
The polls aren’t perfect, though. Remember the 2015 UK general election, when all the polls unanimously predicted a hung Parliament but in the event the Conservatives won so many seats that they didn’t even need a coalition? Or the Scottish independence referendum? The polls failed to predict that result accurately, too. Unfortunately, a lot of work since then has gone into correcting for those errors, so the polls may be more accurate now.
In any event, there’s still a large proportion of people who are uncertain, a large enough proportion to sway it either way. And the bookies -- people who have real money on the line -- are saying there’s a 74% likelihood that the UK votes “Remain.” Stay tuned!
What else is going on during the week? There are a few other important events. One is the preliminary PMIs, also out on Thursday. Complimenting the European PMIs will be the ZEW survey on Tuesday and the Ifo on Friday. On Tuesday ECB President Draghi speaks in the European Parliament, while later that day and on Wednesday, Fed Chair Janet Yellen will present her semi-annual monetary policy report to Congress. We may get further insights into what officials are thinking about the long-term outlook for rates. Finally, on Friday the US announces durable goods orders. These will all be important if Britain votes to remain in. And if they do vote to remain in, then I would expect to see some relief trades: stocks rallying, gold falling, sterling and the euro gaining.
But if they vote to leave…I would expect a massive “risk off” move. Yes, I think the “Lehman Bros. moment of Europe” would be a good way to put it.
FXPRIMUS Week in Focus for the week beginning 13 June: Fed, BoJ, SNB & BoE meetings; China data; US Fed surveys & retail sales; UK retail sales
The Chinese philosopher Lao Tzu said, “By doing nothing, everything is done.” That may be the theme of the week as four major central bank meetings – US, Japan, Switzerland and Britain – are expected to result in no change in policy. But as always, the statements following the meetings will be subjected to microscopic analysis.
All the central banks must be considering what the impact would be if they disturbed financial markets a week before the Brexit vote. It’s said that the importance of a decision is how easily it can be reversed. Even if the US elects President Trump, that decision could be reversed four years later, but the impact of Britain leaving the EU would last much, much longer. That makes it an enormous decision and argues against any change in policy by the major central banks this week.
The Fed leads off and as always is the major event. The question is not whether they will move, but rather what will they imply about the possibility of moving in July or later. Will the FOMC do as they did last October, when they spelled out what they would need to see in order to raise rates at their next meeting? And what will they do with the line in their first paragraph that mentions “strong job gains”? Even with no change in rates, there will still be plenty of room for the statement to move the markets as they reshape expectations about the future course of policy.
The Bank of Japan retains the capacity to surprise, but I don’t think many people expect them to change policy this time. True, they’re still unable to meet their inflation goal and the yen is strengthening, but on the other hand, public resistance to even the current measures is growing and the ruling Liberal Democratic Party left out any mention of monetary policy from last week’s policy statement. With USD/JPY stabilizing, I think they’ll stay on hold.
For Switzerland, the main point is that EUR/CHF is virtually unchanged since its last meeting on 17 March. The country still has deflation, but it’s ameliorated since earlier this year. Besides, things in Switzerland are so preternaturally expensive that they really should be falling. After the last SNB meeting in March, EUR/CHF tried to rally but wound up falling about 20 pips.
The Bank of England has a difficult job a week before Brexit. Most of the data since their last meeting has been weak, so if anything they are likely to sound more concerned and less in a rush to raise rates after the Brexit vote (assuming it’s “Remain”) than they were before. In that case, GBP could weaken after the news. Last month there was some volatility in GBP/USD following the meeting, but by the end of the day it was virtually unchanged from where it started from.
Elsewhere, get ready for a deluge of data from China. Industrial production, retail sales and fixed asset investment all came out on Monday morning (after this column was written) but we still (maybe) have foreign direct investment, money supply and aggregate financing to wait for. The money supply and financing figures will help resolve the question of whether the government is going to let the economy down slowly by backing off the stimulus or fight the slowdown as long as possible. The end point is likely to be the same, just the path will differ.
The US sees a large number of important indicators this week. They include retail sales; industrial production; two influential Fed surveys, the Empire State and Philadelphia Fed indices; PPI and CPI; and housing starts. Retail sales, industrial production and housing starts are expected to be a bit softer, but the two Fed surveys are expected to be a bit better and core CPI is expected to nudge up a bit. Net net, the data should provide plenty of room for disagreement and volatility. Note that the Philly Fed index and the CPI come out the day after the FOMC meeting, so they’re likely to be less important than usual.
The UK too has a number of important data points, but these are likely to be blown out of the water by any polls as the Brexit referendum approaches. CPI, the employment data and retail sales would normally be the key data for the UK, but as Albany said, “that’s but a trifle here.” None of that will make a bit of difference if the UK pulls out of the EU, as the most recent polls are indicating. That would be the biggest financial event of 2016.
As for the EU, there’s not much on the schedule except industrial production and a speech by ECB President Draghi on Friday.
FXPRIMUS Indicators and events for the week beginning 6 June
This week is bound to be quieter than last week was: no ECB meeting, no OPEC meeting, no nonfarm payrolls, and the members of the Federal Open Market Committee (FOMC) enter their “purdah” period a week before their next meeting. After Fed Chair Janet Yellen gets done speaking on Monday, there will be no more comments from senior Fed officials until June 16th.
The focus then will be on Yellen’s speech in the first instance. Unlike her recent speech at Harvard, this one will be all policy. The markets will be looking for a substantial statement, in particular how she sees the weak May payroll figure plus the Brexit vote affecting the chance of a rate hike in June or July. My assumption is that she will reaffirm her confidence that the economy remains on track for further tightening and that her statement will firm up the dollar – but tune in to find out yourself.
Yellen will be followed by the two rate decision due this week: the Reserve Bank of Australia (RBA) on Tuesday and the Reserve Bank of New Zealand (RBNZ) on Thursday (NZ time).
There’s little debate about the likely result of the RBA meeting: the market is pricing in only a 12% chance of a cut. The recent news from Australia has been generally encouraging: Q1 GDP rose more than expected, private sector credit growth is accelerating, building approvals are up, and unemployment is falling. There hasn’t been enough bad news since the last meeting (3 May), when they cut rates by 25 bps, to justify another cut. AUD/USD is only slightly stronger (0.73 vs 0.75) so I do not expect much stronger language about the currency in the statement. All in all, this meeting could be a relatively uneventful one for the markets.
For the RBNZ however there’s much more disagreement. Of the 15 economists polled on Bloomberg, eight see a cut and seven say no. The market on the other hand attaches only a 32% chance to a cut. Although inflation is low, the economy is doing well as rapid population growth fuels domestic demand. In my view, once again I don’t think there’s been enough bad news since the last rate cut in March to justify moving again. I too expect that they will remain on hold, which may see NZD firm somewhat.
Elsewhere, we’ll get some evidence on the real economy during the week from various countries’ industrial production and trade data. Monday is factory orders from Germany, followed by the country’s industrial production on Tuesday and trade & current account balance on Thursday. Factory orders are forecast to slow even though industrial production is expected to rise, suggesting that future production could suffer. That could be EUR-negative. The current account balance is expected to decline significantly but still remain huge, one of the major causes of imbalances in the Eurozone and indeed globally.
The UK also announces its industrial production (Wednesday) and trade (Thursday) data, but that’s likely to be overshadowed by the results of various polls as the 23 June Brexit referendum draws closer. Nonetheless, the slowing output and still-wide trade gap will highlight the risks of a “Leave” vote and limit the rebound if indeed the public does vote “Remain.”
There’s not that much coming out of the US this week: wholesale inventories on Thursday and U of Michigan consumer sentiment on Friday are about it, aside from the usual weekly indicators.
Japan has several big indicators: current account and final Q1 GDP on Wednesday (Japan time), machinery orders (Thur), and tertiary sector index on Friday.
China will be on vacation Thursday and Friday for the Dragon Boat Festival, but still they will announce their trade figures on Wednesday, CPI on Thursday and the key money supply figures on Friday or afterwards. The trade balance is forecast to rise back up again after the relatively low surpluses of the first three months of this year. Given the rising tensions between China and the rest of the world with regards to steel exports nowadays, that could prompt the authorities to strengthen CNY somewhat, which might help other EM currencies.
FXPRIMUS Week in Focus for the week beginning 30 May: ECB meeting, OPEC meeting, US nonfarm payrolls, PMIs
A busy week – it starts out slow with the US and UK on holiday Monday, but by the end of the week, an ECB meeting, an OPEC meeting, the US nonfarm payrolls and the rest of the May PMIs should present plenty of trading opportunities!
Not that anything is likely to happen at these meetings. The ECB is widely expected to keep its policies unchanged. We may hear some explanation of the limits on the negative rate policy that ECB VP Constancio mentioned last week. In that respect, we are likely to hear more pleas for EU governments to boost growth by reforming economies. This wouldn’t be new; there have been several ECB meetings when there was no action. Note though that EUR/USD has fallen following five of the last eight ECB meetings. We could see a similar knee-jerk reaction again even in the absence of any change in policy, although much will depend on the result of Tuesday’s EU CPI (see below).
OPEC meanwhile is barely functioning. Saudi Arabia appears to have given up on OPEC, and OPEC without Saudi Arabia can’t function as a cartel, because there are no other members able (or willing) to adjust output to balance supply with demand. The most they can hope to accomplish at this meeting is to elect a new Secretary General. I don’t think anyone has any illusions about the possibility of a new agreement to restrict oil production. Nonetheless, the absence of any agreement could be negative for oil prices and therefore for oil currencies, such as CAD.
The US ADP report on Wednesday and the nonfarm payrolls on Friday will be the biggest indicator. The market is looking for NFP to rise 160k, somewhat below the recent string of 200k+ rises but still well above the level necessary to keep pace with the rise in the labour force, which is estimated at around 80k a month. That should be enough to keep June & July tightening hopes alive without tipping the scale decisively either way – a recipe for volatility.
The remaining PMIs for May will be released on Wednesday, including the finals for the countries that released their preliminary indices last week. The Chinese PMIs, both from Markit and the official government agency, will be of particular interest: the latter is expected to fall slightly while the latter is seen rising. Which should we trust? The US ISM indices will also be released; the manufacturing index is expected to fall slightly, in line with the fall in the Markit manufacturing PMI, which could prove problematic for the dollar.
Other major US indicators out during the week include Dallas Fed index, personal income & expenditure, the Beige Book, trade data and factory orders.
In the EU, the background for the ECB meeting will be set on Monday, when Germany announces its CPI for May, and Tuesday, when the CPI for the bloc as a whole is announced. While Germany is expected to (just barely) exit from deflation, the EU is expected to remain in deflation. The question is whether ECB officials are more concerned about the data on the past or are looking to the future to higher inflation owing to higher oil prices. ECB Governing Council Member Ewal Nowotny said last week that the price of oil was “the main reason for the low inflation rate in Europe,” which implies that the recent rise could affect the ECB’s thinking.
Japan’s industrial production is expected to show output declining, never a good sign. More importantly, PM Abe may use his speech Wednesday marking the end of the current session of Parliament to announce the delay of the consumption tax hike and perhaps also to call a snap election for the Lower House in conjunction with the Upper House election on 10 July. The likely impact of these actions (which are by no means certain) on the yen is debatable – probably they would be seen as good for the stock market and hence push USD/JPY higher, i.e. weaken the yen. In that case, will the yen strengthen if he decides otherwise? It’s not clear.
Wednesday is the big day for the UK. The manufacturing PMI, Nationwide house price index and mortgage approvals will be released then. Otherwise the construction PMI on Thursday and the services PMI on Friday are the only major indicators scheduled for Britain. All three PMIs fell last month; this month, the manufacturing and service sector PMIs are expected to rise. That could assuage the growing fears that more is wrong with the UK economy than just fears about Brexit and could boost GBP.
Elsewhere, AUD may see some volatility as Australia announces its building approvals, 1Q GDP, trade balance and retail sales.
FXPRIMUS Indicators and events for the week beginning May 23rd: preliminary PMIs, Bank of Canada meeting, G7 meeting, US durable goods
The preliminary PMIs, a Bank of Canada meeting and the G7 Summit are the highlights of this week.
The week begins on Monday with the preliminary Markit May PMIs from Japan, France, Germany, the EU and the US. All that we have forecasts for are expected to be higher. My guess is that a rise in the US PMI would outweigh a rise in the European PMIs, because the ECB isn’t likely to take the PMIs into consideration in its decision-making, while the Fed is watching the day-to-day flow of the data very closely. So anything that will reassure FOMC members that the US economy is on the right track should be USD-positive.
There’s a large number of other surveys coming out for the Eurozone, including the ZEW and Ifo surveys plus Gfk consumer confidence for Germany, French and Italian manufacturing surveys, and French consumer confidence.
Wednesday’s Bank of Canada meeting is unlikely to make any changes in its overnight lending rate, which has been at 0.5% since July of last year. In fact, no change in rates either way is priced in for the remainder of this year. The statement is likely to include an assessment of the impact of the wildfires in the oil-producing region of Alberta, which may give it a more dovish tone that would be CAD-negative.
The G7 meeting is proving contentious. Although the Japanese hosts would like a push for global growth, the finance ministers seem unable to agree on any coordinated position on fiscal policy. Several central banks (particularly the ECB) have stressed that monetary policy can’t carry the entire burden of supporting the global economy, but so far there is no consensus on co-ordinated fiscal action. In its absence, I would expect some fairly innocuous statement about how everyone should strive to boost growth in line with their domestic conditions. Translated, that means they will keep doing what they are already doing. “Growth is good” and “intervention isn’t nice” is probably the most we can expect.
The main US indicator out this week is durable goods on Thursday. Orders have basically trended sideways for the last year and this month is expected to continue the pattern, with little implication for the dollar. There are also more US housing statistics coming out during the week, which could be positive for the dollar.
As usual, there will be an array of Fed and ECB speakers making waves during the week. Of particular interest will be Friday’s talk by Fed Chair Yellen, although it’s not clear to me that “a conversation about her groundbreaking achievements” together with “personal reflections” by former Chair Bernanke will give us very many insights into monetary policy.
The Japanese CPI data is expected to show Japan lurching further into deflation. Oddly enough, that could be positive for JPY. It may boost hopes for further action by the BoJ, which could boost stock prices, which then causes USD/JPY to rally. That’s about what we saw last week with the better-than-expected GDP figure: good news is bad news in a financial world dominated by central banks.
Germany, UK and US release the second estimates of their Q1 GDP figures.
Australia announces its private capital expenditure figure for Q1. The expected decline could be negative for AUD.
FXPRIMUS Indicators and events for the week beginning 16 May 2016
This week we’ll get more insight into the thinking of central banks as the Reserve Bank of Australia (RBA), the Fed and the European Central Bank (ECB) release the minutes of their recent meetings. We’ve seen these reports move the market before – last week for example the yen weakened after the Bank of Japan released the minutes of its latest meeting.
The RBA cut its rate by 25 bps at the meeting in question yet adopted a neutral stance afterwards, causing the AUD to gain on the news. Investors will be reading the minutes closely to see just how concerned the Board is about the weak inflation. Given that the meeting was followed by a Statement on Monetary Policy, there may not be that much additional information, but you never know what may be hidden in it. The market is pricing in one more cut by the end of the year (largely by October), but could bring that forecast forward if the minutes contain signs of serious concern.
The Fed and the ECB of course didn’t take any actions at the meetings in question. In the case of the Fed, there wasn’t a press conference afterwards either. We’ve been hearing fairly hawkish comments from FOMC members ever since the meeting, such as Boston Fed President Rosengren’s comments last week that the market is “too pessimistic” and “the Fed should be ready to gradually normalize interest rates.” The minutes may clear up some of this confusion. In addition, we’ll hear from three Fed speakers on Tuesday (Williams, Lockhart & Kaplan) and the influential NY Fed President Dudley on Thursday.
As for the data, the focus will be on the UK as they release CPI, employment and retail sales. The news seems likely to be negative for the pound. The recent acceleration in inflation is expected to stop, job growth is expected to have slowed the yoy rate of growth in retail sales is forecast to have fallen. Of course the Bank of England has emphasized that it’s not putting too much weight on the data ahead of the Brexit referendum on June. Still, the news is likely just to reinforce the picture of a sluggish UK economy that we’ve gotten from many other indicators, such as the disappointing PMIs and falling industrial production. GBP-negative.
There’s a lot of data coming out from the US, too. Two Fed surveys -- Empire State manufacturing survey for May and Chicago Fed national activity survey for April – will complement the industrial production data for April. The forecasts suggest that none of them should be particularly exciting. On the contrary, the main question is probably whether the data will be even worse than expected. The Citi US economic surprise index is once again heading lower. It hasn’t been significantly above zero (indicating that the data are coming out better than expected) since January 2015. The data are potentially negative for USD.
Several bits of data on the US housing market are coming out, such as the NAHB housing market index, housing starts & permits, and existing home sales. In contrast to the industrial data, these housing figures are forecast to be relatively strong, indicating that the small rise in rates last December didn’t derail this interest-rate sensitive sector. That could prove USD-positive.
US CPI also comes out on Tuesday. While that isn’t the Fed’s policy target (the core personal consumption expenditure deflator is), an acceleration in inflation according to this measure could help USD.
Canada also releases its CPI on Friday. Headline inflation is expected to accelerate sharply. That could support CAD, but I would expect in the wake of the recent fire that the Bank of Canada will want to continue supporting the economy and so I expect them to take an accommodative stance, especially because Canadian retail sales, which come out at the same time, are expected to fall sharply.
Speaking of inflation, the Reserve Bank of New Zealand releases its 2-year inflation expectations. Current expectations of a 120-bps rise in inflation over the next two years seem unlikely in the current environment. If inflation expectations fall significantly, expectations about a cut in rates in June – now seen as around 50-50 – could tilt decisively in favor of an easing then, which would be negative for NZD.
Japan Q1 GDP is expected to be just barely higher. That’s a disappointing bounce following the large fall in Q4 last year, especially when you consider that it’s a leap year and so there’s one more day than usual. For the previous two quarters, all growth has come from overseas while domestic demand has been negative. Continued weak growth and dependency on overseas could put additional pressure on the BoJ to ease, which would be JPY-negative.
As for Monday, not only is there little on the schedule – the aforementioned US Empire State survey is the major item – but also it’s a holiday in Germany, France, Switzerland and Norway, so activity is likely to be thin during European time.
FXPRIMUS Week in Focus for 9-13 May: Industrial production data, trade data, Bank of England meeting, China data
The focus this week will be on hard data about the real economy. The week starts with German factory orders on Monday, followed by industrial production figures from Germany (Tue), UK (Wed), EU (Thu) and China (Sat). In most cases, output is expected to be slightly higher, in line with the modest rise in the global manufacturing PMI for March. However, the overall trend is suggesting more stagnation than growth, particularly in the developed world.
There’s also trade data out, starting with China overnight, then Germany and the UK on Tue as well as BoP data for Japan on Wed (Thu AM Tokyo time). The Baltic dry freight index hit a record low in February, so I hold out no great hopes for the pace of global trade in March.
There’s only one major central bank meeting and that’s the Bank of England on Thursday. This meeting has become pretty much of a non-event recently and this week’s installment should be even more so. After last month’s meeting, the MPC said the Brexit referendum would make it harder to interpret the data over the next few months and that it would “react more cautiously” to the news. I expect the comments in the minutes to reflect this caution. The focus instead is likely to be on the updated forecasts in the quarterly Inflation Report, but these forecasts are likely to be uncertain, too. A press conference follows its release.
Even so, we’re going to lose even some of this meagre impetus to trading as the UK Parliament last week approved the BoE’s plan to switch to eight meetings a year (every six weeks) from 12 (once a month), like the Fed and ECB. They may skip the October meeting in order to get on the right schedule.
The Bank of Japan releases the minutes of its recent meeting, when it surprised the markets by doing nothing. We will find out more details about just why they decided to stand pat.
China sees several indicators out, including CPI & PPI, money supply, and next Saturday, retail sales, industrial production & fixed asset investment. Inflation is expected to have stabilized while industrial production is forecast to have slowed, in contrast to higher retail sales. The pattern should continue what we’ve seen so far this year of some restructuring of the economy away from investment-led growth to consumption-led growth, although you wouldn’t know this from watching the Chinese commodity futures markets. The fact that PPI deflation continues to decelerate is good news, because it means less downward pressure on global prices emanating from China.
The Eurozone releases the second estimate of Q1 GDP, along with the first estimates of many of the individual countries. The first estimate of EU GDP showed GDP surpassing the pre-crisis peak for the first time. With the addition of German and Italian data, the overall EU figure could be revised up, which would probably support EUR.
As for Monday, there is likely to be considerable attention on the Eurogroup meeting of Eurozone finance ministers to discuss Greece’s progress in implementing the reforms it agreed to in return for a bailout program last summer. If they can’t reach agreement at this meeting, there’s always the next one, scheduled for 24 May. The real deadline appears to be 20 July, when Greece has to repay EUR 3bn to the ECB.
FXPRIMUS Indicators and events for 1 May-6 May: RBA meeting, US NFP, final PMIs for April, lots of holidays
After last week’s flurry of central bank meetings, this week we have a flurry of vacations.
Monday is Labour Day in China and a holiday in the UK, as well as some other places. This week is Golden Week in Japan, meaning Tuesday is Constitution Memorial Day, Wednesday is Greenery Day, and Thursday is Children’s Day. Thursday is also Ascension Day in much of Continental Europe, including France, Germany and Switzerland.
Aside from that, the highlights of the week will be the Reserve Bank of Australia (RBA) meeting on Tuesday and the US nonfarm payrolls on Friday.
For Australia, the odds of a rate cut increased last week when it was announced that prices unexpectedly fell in Q1 from the previous quarter, the first instance of deflation in seven years. Before the news came out the market only priced in a small chance of a cut at this week’s meeting, but after the announcement the odds have soared to 55%, with a ¾ probability of a cut by August. The RBA regularly says that low inflation would provide scope for further easing “should that be appropriate to lend support to demand.” It’s quite possible that they will decide at this meeting that it’s appropriate.
Whether they do or not though, I expect AUD to ease from these levels, for two reasons.
First off, this is a somewhat crowded trade: speculators have been net long the AUD (although admittedly not as long as they have been in the past) since the middle of February, when iron ore started to recover. These positions have been well rewarded as AUD was the second-best-performing G10 currency (after CAD).
Secondly, I expect iron ore prices to start falling, and fast. Prices of all commodities have been boosted by unprecedented speculation in Chinese commodity futures markets recently. For example, the volume of iron ore futures traded daily in China is greater than the amount of actual iron ore produced every year, while futures on steel reinforcement bars – a relatively obscure building material – are now the most actively traded commodity contract in the world. That frenetic activity is starting to cool now though as markets take steps to dampen turnover, and once people start losing money they will start losing interest fast.
In short, I expect that even if the RBA doesn’t move, I think people are likely to continue to take their money out of AUD and put it elsewhere, weakening the currency.
As for the NFP, the figure is expected to confirm the Fed’s confidence in the labour market and so should be USD-positive. The statement following last week’s FOMC meeting said that “labor market conditions have improved further even as growth in economic activity appears to have slowed.” If the number comes in as expected around 200k, which is about average recently (209k for the last three months), then it could prod the market to reassess its view on the FOMC statement. That would be positive for the dollar.
In addition to the NFP data, several of the regional Fed presidents are scheduled to speak during the week. They ought to give us more insight into last week’s deliberations. Personally, I think the market misinterpreted the statement as being more dovish than it actually was; I think on the contrary, they actually firmed up their confident view, which makes it more likely that they will hike again in June, not less likely, as the market believed. I expect the speakers to clear up this misunderstanding, which ought to be positive for the dollar.
Other points of interest during the week are the final PMIs for April, including both the official and Caixin versions for China and the ISM index for the US on Monday. Swiss FX reserves on Friday should give us some indication of the scope of their intervention, if any.
FXPRIMUS Indicators and events for week beginning April 25: FOMC, BoJ, RBNZ, GDP and inflation data; Ifo
A very busy week for the markets, featuring three major central bank meetings (FOMC, Bank of Japan and RBNZ), several countries’ Q1 GDP data, and the CPI data from a number of countries. On the other hand, we’re relatively low on speakers this week, with only one Fed speaker on Friday to tell us what Wednesday’s decision actually means.
The FOMC will be the highlight of the week and it won’t be. On the one hand, the market puts zero (0.0%) probability of a hike at this meeting, and I wouldn’t argue with that. Moreover, there’s no press conference afterwards, nor is anyone allowed to speak until Friday. All we’ll have to go on is the statement. Given that the market has heard a number of generally dovish Fed speakers recently, I would expect even a neutral Fed statement to cause the market to push up the likelihood of a June rate hike (currently only 21%), thereby proving USD-positive.
There’s much more debate and anticipation about the BoJ meeting. Bloomberg’s survey of forecasters showed that almost everyone – 40 out of 41 – expects some policy change by the end of the year, with 23 expecting it at this meeting. As for what they might do, the domestic reaction to negative interest rates has been, well, negative, and they are already buying up most of the JGB issuance. It was reported on Friday that they are considering a lending facility for banks with negative rates, much like the ECB’s TLTRO2 program. If that’s all there is, then there will probably be a “buy the rumour, sell the fact” reaction and the yen could strengthen.
The RBNZ rate decision, coming as it will only 3 hours after the FOMC, may get lost in the general market activity. Nonetheless the market is attributing about a 50-50 chance of a cut, so there is likely to be good volatility no matter what the decision is. The currency has strengthened since the last meeting, but as in Australia, commodity prices (dairy, specifically) have strengthened too. Meanwhile, the government has been exerting pressure on Gov. Wheeler to get inflation up. I would expect no change in rates but a definite easing bias and comments about the NZD that leave the currency weaker.
In addition to these three major events, the UK, US and EU all release their initial Q1 GDP estimates (plus Canada publishes its February monthly GDP number). Growth in the UK and US is forecast to have slowed somewhat, while EU growth is expected to have accelerated. Remember that the US GDP data also brings the Q1 estimate of the core personal consumption expenditure deflator (PCE), the Fed’s favorite inflation target. That’s a key number as well.
We will also get CPI data from Australia, Japan, Germany, and the EU. Remarkably, inflation is forecast to have softened across the board despite the rise in oil prices. However, several central banks have mentioned the rise in oil prices as increasing their confidence that inflation will recover in the medium term, so this may not be as big a factor as it might have been a few months ago.
As for Monday, the main feature will be the Ifo indices from Germany. The current assessment is expected to decline somewhat, but the expectations index – the more important of the two – is seen rising. That should be slightly positive for EUR.
The Dallas Fed index will be closely watched after the Philadelphia Fed index came in far below expectations and the Markit US manufacturing PMI dropped unexpectedly.
FXPRIMUS Indicators and events for the week beginning Apr. 18th: ECB meeting, UK employment data, US housing data & Philly Fed index
A relatively sparse week, without many central bank speakers or major indicators. Thursday and Friday are the big days.
The early part of the week will probably be dominated by events in the oil market following Sunday’s meeting of oil producers. The result of the meeting wasn’t known at the time of writing. The oil market’s response could dictate whether there is “risk on” or “risk off” sentiment in the market, with all that that implies for currencies, particularly CAD and JPY.
The other highlight of the week is on Thursday, the ECB holds its April meeting. Only a month after they announced an extensive set of new measures and ECB President Draghi said “we don't anticipate that it will be necessary to reduce rates further,” conditions in the EU haven’t worsened enough by any means to necessitate further action. Nonetheless, with the euro strengthening since the meeting and financial markets of the countries that were supposed to benefit from the measures still struggling, the markets will want to hear some measures of support from Draghi. EUR often weakens in the run-up to ECB meetings and so far, this time has been no exception. There could be some bounce-back following the meeting if Draghi just reaffirms his previous stance.
As for the European indicators, Tuesday we get the ZEW survey; both the current situations and expectations indices are expected to rise, which could be EUR-positive. On Thursday there’s EU consumer confidence for April, which will get lost amidst the ECB meeting. On Friday we get the preliminary PMIs for France, Germany and the EU as a whole, which are expected to be better or at least stable across the board – good news for Europe and EUR.
As for the US, there are three Fed speakers on Monday, after which the normally loquacious FOMC members enter the “purdah” period ahead of the April 26th-27th FOMC meeting. They aren’t allowed to speak until two days after the meeting ends, meaning we won’t have any more Fed speakers until April 29th. So in the run-up to the meeting, the market will focus on the data. There’s a lot of housing data, which is expected to be generally favorable: NAHB index on Monday, housing starts & building permits on Tuesday, and existing home sales on Wednesday. Chicago and Philly Fed indices plus leading index are out on Thursday, and the Markit manufacturing PMI on Friday. The Philly Fed survey is expected to decline, which would be a disappointment after all the Fed surveys improved in March, but the wider Markit manufacturing PMI is expected to improve. It may be just the Philadelphia region that’s slowing.
There are several important events in the UK this week. BoE Gov. Carney speaks in Parliament on Tuesday, the employment data comes out on Wednesday and retail sales on Thursday. It’ll be interesting to hear if Gov. Carney has anything to say about the recent rise in inflation and inflation expectations. Meanwhile, average earnings are expected to continue to accelerate and retail sales are expected to be a bit better (although still negative mom). These indicators could keep the pound’s recent recovery going.
Canada will be in focus as investors watch the oil market’s gyrations following Sunday’s meeting. Bank of Canada Gov. Poloz and Senior Deputy Gov. Wilkins will speak twice during the week, perhaps giving more insight into last week’s Bank of Canada meeting. Retail sales and CPI come out on Friday; both are expected to be weak, which may crimp the CAD’s recent rally (depending on what oil prices are doing).
Finally, the minutes from the April RBA meeting come out Tuesday and then later in the day, RBA Gov. Stevens speaks in New York. The April RBA meeting wasn’t particularly exciting and the minutes aren’t likely to hold many surprises.
Week in Focus for week beginning 11 April: IMF/World Bank meeting, Oil producers’ meeting, Bank of Canada & Bank of England meetings, China GDP
Lots of meetings this week. We start off today with the G7 Foreign Ministers meeting in Japan ahead of next month’s G7 Summit.
The Spring meetings of the IMF and World Bank begin on Tuesday and will run for the rest of the week. There will be a meeting of the G20 finance ministers and central bankers along with this on Tuesday and Wednesday. Expect to hear a lot of comments from a lot of officials about a lot of different topics.
The Bank of Canada meets on Wednesday and the Bank of England on Thursday. Neither is expected to change rates. The Bank of Canada will include its first assessment of the Government’s 2016 budget, which forecast a much wider deficit and therefore a higher growth rate. That might lead the Bank to a more optimistic tone, which could be positive for CAD. As for the Bank of England, there can still be some volatility around the announcement even though there’s no longer any suspense about what the vote will be. GBP/USD gained about 50 pips last month when the results were released.
Then next weekend is the long-awaited meeting in Doha between OPEC and non-OPEC oil producers, led by Russia and Saudi Arabia, to discuss measures to stabilize prices. They apparently will discuss freezing production at January levels. But since January levels were far above global requirements and also above what they can sustainably produce for any length of time, that’s not really saying much. Oil ministers disagree about whether they can reach an agreement without Iran participating. Expect a lot of market-affecting comments as participants stake out their positions ahead of the meeting.
As for the data, the most important data will come out of China. We have CPI, today, trade balance on Wednesday, and a slew of indicators on Friday, including industrial production, retail sales, fixed asset investment, and the all-important 1Q GDP figure. The GDP data are expected to show a steady slowdown in growth (oddly steady, some people might say) in line with the government’s forecasts for this year. The other indicators unfortunately show no sign of the long-awaited restructuring of the economy, with retail sales growth only steady but industrial production and investment accelerating slightly.
For the US, there’s the usual array of Fed speakers, plus the Beige Book on Wednesday and the Empire State manufacturing survey on Friday. Other important indicators include NFIB small business optimism, retail sales, CPI, industrial production, and U of M consumer sentiment. The data are generally expected to show a continued improvement in the US economy, which could support USD.
For the EU, industrial production on Wednesday is the only major indicator coming out. That’s expected to be lower, but not likely to be a surprise as most of the larger countries have already announced their data. One curious point: the EU Commission is meeting on Tuesday to discuss imposing visa requirements for US and Canadian citizens, because the two countries have not extended visa-free travel privileges to all members of the EU. It’s highly unlikely, but if they do impose visa requirements, it could spark retaliation that might dampen trade.
The UK announces its CPI on Tuesday, two days before the Bank of England meeting. It’s expected to show a modest uptick in inflation, which could be positive for the pound.
Elsewhere, Australia has the employment data on Thursday, as well as the NAB business conditions and Westpac consumer confidence surveys. New Zealand has food prices on Tuesday and CPI next Sunday night (Monday morning in NZ). And Canada has its new housing price index and manufacturing sales.
As for Monday, there are no major indicators, just several speeches by US officials. The Fed speakers are not specifically talking about monetary policy and so may not be market-affecting. Treasury Secretary Lew however is going to speak on the US and global economy. He has consistently talked up the dollar, saying for example that he intends to ensure that it remains the leading reserve currency. However like his predecessors for many years, he’s never offered any specifics of what the US might do to keep it that way. All talk, no action.
The Fed announced last Thursday that it will hold a closed meeting “under expedited procedures” Monday at which the Board of Governors will set the advance and discount rates. Some observers are making a big fuss about this, because of the way it was sprung on the markets and because the last time they held such a meeting, 23 November, they hiked rates less than a month later. I don’t think this is anything special – it seems to me to be a routine meeting to set the discount rate, which is a fairly meaningless rate nowadays. The main use might be to gauge how the regional Feds view the current level of interest rates. But we already know that a majority want to raise rates, so even that information is of limited value.
FXPRIMUS Indicators and events for Week beginning 4 April: RBA meeting, FOMC & ECB minutes, trade data
The week is likely to focus once again on the various central bank speakers. With interest rates in record lows in much of the world – indeed, record lows for all of human history – the market wants to hear frequent updates on from central bankers on what they are thinking, how they see the world and how they see monetary policy developing. With the world in uncharted monetary waters, everyone wants to know where the captains think they’re headed.
There are two major themes in the data coming out this week. One is the final services and composite Markit PMIs for the EU, UK, US and China. Normally these aren’t as big a deal as the preliminary figures. Also, the focus is usually on the more cyclical manufacturing indices.
Secondly, we get trade figures from Australia, US, Canada, France, Japan, Germany and the UK. These data are more important nowadays as an indicator of global economic health than they are for each country’s currency. Nonetheless, we should pay especial attention to the UK figures on Friday, because that country’s significant trade deficit may be difficult to cover with capital inflows in the run-up to the Brexit vote or with services if indeed they do vote to leave.
The only major central bank meeting this week is the Reserve Bank of Australia (RBA) meeting on Tuesday. It’s widely expected that they’ll keep rates on hold for several more months at least. The focus will therefore be on their language. For several months now they have simply observed that “the exchange rate has continued its adjustment to the evolving economic outlook.” But since the last meeting on 2 February meeting, AUD/USD is up over 8% and the trade-weighted index up some 5%, well above the level they assumed when making their projections. This does indeed follow an improvement in the terms of trade, so it could still be said that the exchange rate is “continuing its adjustment to the evolving economic outlook.” The question is whether they will be so accepting of upside adjustment as they were to downside adjustment. Otherwise, the labour market is little changed since their last meeting and financial markets have calmed down somewhat. So I would expect the statement to be little changed and perhaps for AUD to firm up a bit on the news. The big surprise would be if they moved to a more dovish tone, because the markets have not priced in another cut any time soon. That would be where we get a big movement in AUD.
For the US, there are six Fed presidents speaking during the week, at least one a day. The highlight will be a panel discussion on Thursday with Fed Chair Yellen discussing matters with her three predecessors: Ben Bernanke, Alan Greenspan and Paul Volcker. This is the first time the four of them have ever appeared together (and probably will be the only time). My guess – and it’s just a guess -- is that the discussion will be more about process than substance. That is, I expect them to talk about how the Fed makes its decisions rather than what the next step in policy is likely to be. But with tickets at $1,000 each, I’m not likely to be there to find out.
The FOMC also releases the minutes of its 15-16 March FOMC meeting, which surprised the market a bit with its dovish tone. I would think that after Yellen’s speech last week, the minutes might not provide much new. It’s always possible though that the market responds again and again to the same thing. Count how many times the word “global” appears in the minutes (10 times in her recent speech) or the phrase “global financial and economic developments” (three times).
As for the US economic statistics, not that much is on the schedule. Factory orders on Monday and wholesale inventories on Friday are about it for other market-affecting statistics, aside from the usual weekly data of course. Factory orders are expected to reverse their recent gains, which could prove slightly USD-negative.
For the EU too, ECB speakers will probably be more important than the data. The ECB releases the minutes of its 10 March meeting, the one at which they cut rates again and introduced some new measures but said that they didn’t anticipate having to move rates any lower. We will be able to see just how strong the conviction is that they’re done. Some Council members have said recently that in fact there’s still room to lower rates further if necessary. In that regard, watch out for ECB Chief Economist Peter Praet’s speech Monday and the many ECB speakers on Thursday, including President Draghi and Praet again.
There’s not that much EU data, either. The unemployment rate on Monday isn’t that big a deal for the FX market (5-10 pips in case of a miss, maybe 15 in case of a beat). German factory orders on Tuesday and industrial production on Wednesday will tell us more about the German economy, which in any case seems to be going relatively well.
Bank of Japan Gov. Kuroda addresses the BoJ Branch Managers’ meeting on Thursday. Will he prepare them for further easing? Aside from that, the Economy Watchers’ Survey on Friday is forecast to improve somewhat, which could lift sentiment in the stock market and therefore be positive for USD/JPY (although I suspect that the yen affects the survey results more than the survey affects the yen.)
Canada releases housing starts and the unemployment rate on Friday.
FXPRIMUS Week in focus for 28 Mar-1 Apr: NFP, ISM, Final PMIs, Tankan
It’s a good thing you had a day off on Friday, because this is going to be quite a busy week.
The big day is Friday, when the US nonfarm payrolls are released – the biggest indicator of the month as everyone tries to anticipate how the data might affect the thinking of the FOMC. In their last statement, the FOMC said that “a range of recent indicators, including strong job gains, points to additional strengthening of the labor market.” The market consensus is indeed that there was “additional strengthening” in March. If so, it could boost expectations of a Fed move as early as April and thereby boost the dollar.
As if that weren’t enough, the US Institute of Supply Managers (ISM) manufacturing PMI comes out Friday along with the final US Markit manufacturing PMI. The preliminary Markit manufacturing PMI showed little change from the previous month, in contrast to the sharp rises in several of the regional Fed manufacturing indices. That’s raised some questions about exactly what is going on with US manufacturing. The more closely watched ISM index should settle the argument.
And that’s just the US! The action Friday starts earlier, in Asia, with Japan’s Tankan – the Bank of Japan’s Short-Term Survey of Economic Conditions. This is the most influential Japanese economic indicator, but the impact on JPY is often counter-intuitive. A weak figure can depress the stock market, which pushes down USD/JPY – i.e., causes the yen to strengthen.
Shortly after the Tankan, the China manufacturing PMIs come out (both official and Markit). These are sure to have an impact on commodity prices and hence the commodity currencies. We will also get the Markit manufacturing PMIs for other countries around the world, including the UK and the final EU numbers.
The week starts off with only US data. Today we get US personal income & expenditure, which also includes the personal consumption expenditure (PCE) deflator. Personally, I think this is more important than the NFP number. The FOMC specifically said that it “will carefully monitor actual and expected progress toward its inflation goal,” which is more than it said about employment. That’s probably because the unemployment rate is already near what the members consider to be full employment, but the inflation rate continues to run below target. A further acceleration in core PCE inflation, the inflation measure that they target, should make them more confident that inflation is getting back on track and therefore they can hike rates again.
Other key US indicators this week include consumer confidence on Tuesday and of course the ADP report on Wednesday, a harbinger of the NFP figure.
From the EU, this week we get money supply figures on Tuesday, final consumer confidence and German CPI on Wednesday, and EU-wide CPI on Thursday. The money supply data for February may show how the ECB’s QE program has boosted lending in the Eurozone, but that will be overshadowed in coming months as the new round of targeted long-term refinancing operations that the ECB instituted in March start to take effect. The CPI numbers are, as usual, the key data point for the ECB. The German number is usually a pretty good indicator of the EU-wide figure, which in turn has a big impact on ECB policy.
The last week of the month brings a number of important ,Japanese indicators, including the employment data and retail sales on Tuesday and industrial production on Wednesday. The data are expected to be mixed: employment is holding up well even though output is flagging. The likely impact of that combination on stocks and the yen is ambiguous.
Other notable indicators out this week include NZ building permits on Wednesday NZ time and the monthly Canada GDP figure on Thursday.
As for the major central banks, only Fed representatives are scheduled to speak this week. The main one to watch out for is NY Fed President Dudley on Thursday. He’s one of the most influential and representative members of the Committee and his views are clearly even more important than the several non-voters who swayed the market last week.
FXPRIMUS Week in Focus for 21 March – 25 March: Preliminary PMIs, Canada budget deficit, US Richmond Fed survey & durable goods, UK retail sales, Japan inflation
After a two-week period with eight central bank meetings, we look forward to a week with none. Several central bankers do speak however, including several high-level ECB members and a number of regional Fed presidents, most of whom are non-voting members of the FOMC.
The big day of the week is Tuesday, when the preliminary Markit PMIs from several of the major countries – including Japan, Germany, EU and the US – are released. Unusually, the IFO index and ZEW survey will be released on the same day, giving a very detailed view of the German economy. The figures are expected to show a modestly accelerating expansion for both the EU and the US, which should could weaken EUR/USD slightly, in that it makes some Fed tightening a bit more likely.
For the US, we’ll learn a bit more about the real economy from the Richmond Fed survey on Tuesday and durable goods on Thursday. Both the Empire State and Philly Fed surveys beat expectations handily; will the Richmond Fed survey do so too? Existing home sales on Monday and new home sales on Wednesday will round out the mediocre data on the housing market that we’ve seen from the US so far this month.
The UK reports its CPI on Tuesday and retail sales on Thursday. The Bank of England last Thursday said that the risk of Brexit “may also delay some spending decisions and depress growth of aggregate demand in the near term,” so it will be interesting to see whether this is reflected at the retail level. Retail sales growth is indeed expected to continue to slow, which could prove GBP-negative.
As for Japan, we’ll get to learn more about their inflation situation when they release their various CPI measures Friday morning Japan time, including the new core CPI, which excludes fresh foods and energy. In any event, none of the measures are expected to show a significant acceleration in inflation (indeed, the Tokyo CPI for March is expected to fall back into deflation), so they shouldn’t do anything to alter market expectations of further BoJ action later this year.
Finally, the Canadian government announces its budget on Tuesday. The Bank of Canada is waiting to see what kind of fiscal program the new government comes up with. Finance Minister Morneau has already projected a deficit of more than CAD 18bn before any new spending measures. The new Trudeau administration has pledged to undertake a massive infrastructure spending program in an effort to boost the economy, as well as reforming the tax system. The Bank of Canada said that it would incorporate the impact of these measures into its new projections, to be released on 13 April. Thus the new fiscal plans will directly affect monetary policy and thereby CAD. All things being equal, a more stimulatory fiscal policy should reduce the need for BoC to ease monetary policy and therefore be CAD-positive.
BoJ, Fed & BoE meetings; US industrial production and retail sales; UK budget and labour data
We have another week of central bank meetings: this week, the Bank of Japan (Tuesday), Fed (Wednesday), and Bank of England (Thursday). For good measure, the Swiss National Bank (SNB) and Norges Bank meet on Thursday, too.
The Bank of Japan’s adoption of negative rates in January changed what was perceived as an extraordinary measure into a respectable tool in the central banker’s toolbox. However, last Thursday’s ECB policy changes showed the limits to negative rates (because of the problems they create for the banking system) and the need to focus policy on boosting credit growth, not depressing the exchange rate. That makes it even less likely that any of the central banks announcing this week will lower rates further.
I’ve discussed the BoJ, Fed and BoE at some length in a webinar and an article for the NASDQ website, so I will just say the conclusion here: I expect the BoJ to stand pat, which may disappoint those who were looking for further easing moves and could therefore cause the yen to strength. The Fed too may surprise the market by forecasting greater tightening this year than investors expect, which could strengthen the dollar. The BoE is not likely to make any notable changes and their meeting should have relatively less impact than the other meetings.
Politics are likely to play a role in trading this week. Today the markets will deal with the results of Sunday’s regional elections in Germany. Mrs. Merkel will hold a press conference about them this afternoon. Then on Tuesday, there are several major US presidential primaries. If Ohio Gov. Kasich wins his home state and Florida Senator Rubio wins his, frontrunner Donald Trump might not be able to wrap up the nomination and it could go to a brokered convention. On the other hand, their loss Tuesday could seal Trump’s victory. Separately, there’s also an EU migration summit on Thursday and Friday.
There’s a lot of other important information coming out about the US real economy this week. We’ll learn more about the production side from the Empire State manufacturing index on Tuesday, industrial production on Wednesday, and Philly Fed index on Thursday.
On the consumption side, we get retail sales on Tuesday and U of M consumer sentiment index on Friday. Housing sector data includes the NAHB housing market index on Tuesday and housing starts & building permits on Wednesday.
The UK will be in focus on Wednesday, when the employment data for January and February are released and Chancellor of the Exchequer George Osborne presents his 2016 budget to Parliament. Usually a government would use its first budget after gaining power to take any painful measures that it thought necessary, but with the EU referendum coming up, the budget is likely to be more like a pre-election budget than a “take the medicine” post-election budget. At the same time, Osborne is constrained by his pledge to reach a balanced budget within the next five years. I expect few major changes and just some rejigging of taxes that will not have such a strong impact on the financial markets overall.
For the EU, today’s industrial production figures and Friday’s Germany PPI are the only major statistics coming out this week.
ECB meeting, Bank of Canada & RBNZ meetings, China’s People’s Congress, UK industrial production & trade
Officialdom, not indicators, will take the spotlight this week as attention focuses on a variety of meetings around the world. Europe and the EUR will be the centre. EU leaders meet with the Turkish PM in Brussels today to discuss the refugee crisis. So far the issue hasn’t had much impact on financial markets, but in my view it’s a more serious, intractable problem than even the Greek debacle of last year. In the near term it may increase British support for leaving the EU, which would be a catastrophe for both the UK and the EU. In the longer term, it could contribute to other countries trying to leave as well. The refugee crisis will also be the main issue in the elections in three German states on Sunday the 13th. Separately, the Eurogroup of EU finance ministers meet in Brussels Monday all EU finance minister meet on Tuesday to discuss Greece, Cyprus (which is scheduled to exit its bailout program at the end of the month) and the Eurozone’s draft budgetary plans, among other questions.
Then on Thursday, the ECB meets to set monetary policy. Expectations are high that the staff will produce new, lower economic forecasts and the Council will loosen policy further as a result. Assuming that they are careful not to repeat the mistakes of January and that they therefore take big enough steps to surprise the market, the EUR should weaken and European stocks should rally. The main questions are a) will they cut the deposit rate by more than 10 bps and b) what else will they do?
The Bank of Canada meets on Wednesday and the Reserve Bank of New Zealand (RBNZ) meets Thursday NZ time (late Wednesday GMT). Neither is expected to change rates, so the focus will be on any change in stance. With oil prices firming and the Canadian budget due to be announced on March 22nd, the BoC will probably take a “wait and see” view and maintain its current stance. That could keep USD/CAD on a declining trend. Most analysts also expect the RNBZ to remain on hold even though back in January Gov. Wheeler held out the possibility of further cuts. The market does expect a cut sometime this year, just not this month.
China’s National People’s Congress started its 10-day meeting on Saturday. The meeting of the world’s largest parliamentary assembly primarily approves the annual budget and government reports, including the crucial forecast for GDP. This year, the Congress coincides with the approval of the next Five-Year Plan, so there should be lots of discussion about the path of reform and the preferred structure of the Chinese economy. There are also a large number of Chinese indicators out during the week: trade on Tuesday, CPI on Thursday and industrial production, retail sales and investment on Saturday the 12th.
Following the disastrous UK PMIs for February, the market will be closely watching UK industrial production on Wednesday and trade on Friday to see how the global slowdown and worries over Brexit are affecting the economy. BoE Gov. Carney appears in Parliament on Tuesday to discuss the impact of Brexit on the UK economy. He’s likely to give a sharp warning, which could be GBP-negative.
As for the US, there are no major indicators out this week, as is usually the case in the second week of the month.
The main EU indicators are German factory orders Monday and German industrial production and EU Q4 GDP on Tuesday.
BoJ Gov. Kuroda speaks today and may give some hints about what he hopes to achieve, if anything, at next week’s meeting. Also Japan’s Q4 GDP is expected to show the economy back into contraction yet again.
Week in Focus for Feb. 29th - Mar. 4th: US employment data, PMIs, Eurozone CPI, “Super Tuesday”
Brexit and the pound dominated the week gone by, but this week, the focus will be on the US and the dollar as the first week of the month brings the US employment data. Nonfarm payrolls are expected to rise, the unemployment rate is expected to remain below 5%, and average weekly earnings are expected to accelerate – it should be supportive for the dollar. Fed funds rate expectations rose last week on improving prospects for a Fed rate hike and they could rise further this week.
The other big indicator of the week will be the PMIs for February: the final Markit PMIs for those countries that earlier released preliminary ones (Germany, Eurozone, US) and all the others. Looking at the forecasts, only the US PMIs are expected to improve; all others are forecast to be either unchanged or lower, including the UK. The news could be negative for EUR/USD. China’s manufacturing PMIs are expected to be unchanged at below-50 levels, which I suppose is better than falling, but still shows weakness. AUD and the other commodity currencies could suffer as a result.
The focus for EUR is likely to be on the Eurozone CPI for February, due out today. The figure will be important for the ECB’s deliberations when they meet next week. It’s expected to show slowing inflation, which could be EUR-negative, although it’s probably in the market already after Friday’s slowdown in German inflation during the month.
The last week of the month as usual brings a slew of Japanese indicators. Recent data from Japan has been disappointing, especially last week’s core CPI figure for January, which showed a deceleration in the already low inflation rate. The industrial production data for January is already out this morning; it too was expected to show some slowing. The employment data due out late Monday (Tuesday morning Japan time) is expected to show the unemployment rate and job-offers-to-applicants ratio remaining steady at levels that any European country would envy, but household spending is forecast to continue falling nonetheless. Japan’s data may get increased scrutiny ahead of the Bank of Japan meeting on March 15th, as some commentators are already talking about the possibility of the BoJ taking further action at this meeting.
In addition to the PMIs, the UK announces mortgage approvals (today) and several house price indicators (Thursday) this week. Mortgage approvals are expected to rise and house prices are expected to rise at a faster pace. That news could provide the trigger for some profit-taking on short sterling positions, but I would expect any rebound in the currency to be met with renewed selling interest.
The only G10 central bank meeting this week is the Reserve Bank of Australia (RBA), which is unanimously expected to remain on hold. The unemployment rate has risen a bit since the last meeting and global trade has sunk to post-crisis lows. These are important points, since the conclusion at the end of the February statement the RBA said that “(o)ver the period ahead, new information should allow the Board to judge whether the recent improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand.” Given that indeed these conditions have worsened notably in the intervening month, they could take a more dovish stance, which would be likely to weaken AUD (and probably NZD too).
Finally, the US political scene heats up on “Super Tuesday” when 12 states vote for candidates for President. The voting could decide who the candidates from both sides will be. So far the FX market hasn’t been paying much attention to the contest, but it could if it appears to be coming down to Trump vs Sanders.
There are no public holidays in the major countries this week.
Indicators and events for the week of Feb. 22-26: G20 Central Bankers’ meeting, preliminary PMIs, inflation figures from Japan and Germany
The focus this week won’t be on individual central banks, as there are no major central bank meetings or minutes being released this week. Rather, the focus will be on the possibility of some global co-ordination as finance ministers and central bankers of the G20 meet Friday and Saturday in Shanghai.
When asked what will be discussed at the meeting, Bank of Japan Gov. Kuroda told an Upper House financial committee meeting that “The United States, China, the Eurozone and Japan…must take coordinated action as needed." “I hope the meeting becomes a venue to stabilize global financial markets," he said. But at their last meeting in September, the G20 reaffirmed their “commitment to move toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments.” They also pledged to “refrain from competitive devaluations…” It’s hard to see how they could transform that agreement into another Plaza Accord. I expect them to reaffirm this statement, which would tend to be positive for the dollar as it would mean less pressure for the US to weaken their currency.
In the absence of any central bank meetings, the market may pay particular attention to the several US Federal Reserve Presidents speaking. So far, they have generally struck a dovish tone, except perhaps for the always hawkish Kansas City Fed President George. More dovish comments could be a negative for the dollar.
As for the indicators, the preliminary PMIs for February are coming out for the major economies. These will give us the first glimpse of how activity is going this month. There are many signs that real activity is nowhere near as bad as financial markets have been saying. Many commodity prices have been rising recently, for example. The US PMIs are expected to be slightly higher. If the PMIs do indeed hold up, they could bring back some confidence to the markets and further boost the risk-on mood, with obvious benefits to the USD as well as AUD and other commodity currencies and to the detriment of the safe-haven JPY and CHF. Similarly, the Ifo index on Tuesday is likely to be market-moving for the euro.
The second estimates of Q4 GDP figures are coming out for Germany, the UK and the US. These can be market-moving even now, particularly for the US. Estimates for Q1 GDP are running rather high – the Atlanta Fed’s GDPNow model is forecasting 2.6% growth, which would be a sharp acceleration from Q4. An upward revision to the US Q4 figure might make that forecast more believable and thereby boost the dollar.
Other important US data include existing home sales on Tuesday, new home sales on Wednesday, durable goods on Thursday and consumer spending and personal income & expenditure on Friday.
Inflation figures from Japan on Thursday (Friday Japan time) will show if the Bank of Japan has had any more success in digging the country out from deflation. My guess is no, which I suspect would lead to expectations of further BoJ easing and therefore a weaker yen…if indeed the market still believes in the effect of negative rates. Germany’s provisional CPI for February comes out on Friday as well and will be closely watched to get a hint of what the ECB will be up against at its next meeting.
Elsewhere, Australia releases its private new capital expenditure data for Q4 on Thursday. The market will want to see the non-mining sector taking over from mining in order to confirm the sustainability of the recent good employment data, otherwise AUD could suffer. New Zealand trade data for January, due out Friday New Zealand time, is expected to show a widening of the country’s trade deficit. This may prove negative for the NZD.
Week in Focus Feb. 15-19: Real economy data in the spotlight; no major central bank meetings
Oops! Last week I predicted that we might have a quiet week, because there wasn’t much on the calendar and there were several holidays. I got that one wrong! In fact there was amazing volatility last week, focused on JPY (+2.7%) as risk aversion hit the markets and MXN (-4.1%) as oil prices plunged below $30/bbl. Stock markets were down around the world as investors worried about what negative interest rates would do to banks.
This week the emphasis will be on data concerning industry and inflation. There are no major central bank meetings scheduled, but speeches by ECB President Draghi and several FOMC members should keep people on their toes. Minutes from the FOMC and ECB will be scrutinized carefully (also RBA).
Monday the major indicator of the day will already be out by the time the European market opens – China trade for January – and then later in the day there will be a holiday in the US and Canada. The big event during the European day will therefore be ECB President Draghi’s quarterly testimony to the European Parliament’s Committee on Economic and Monetary Affairs. We will be looking for any clues on what the ECB might do next. He probably can’t say anything specifically, so instead he is likely to spell out what they could do in theory and what tools they have left in their toolbox. The main questions: how low can negative interest rates go and how many more bonds can they buy?
The data on Tuesday is likely to be poor, reflecting the slowdown in global trade and turmoil in emerging markets, particularly China. UK CPI is expected to accelerate only incrementally, which probably won’t change anyone’s expectations for Bank of England tightening. The ZEW survey is expected to show both weaker current conditions and weaker expectations for Germany. In the US, the Empire State manufacturing index is expect to improve after the plunge in January, but still remain negative as US manufacturing struggles under the strong dollar. The NAHB housing market index however is forecast to rise a bit, which could help sentiment.
Wednesday the focus will be on the release of the minutes from the January FOMC meeting. Everyone will want to see just how worried the Committee is about the perceived weakening in the US economy and the tightening of financial conditions. US housing starts and building permits for January are expected to show a fairly healthy US housing market, while US industrial production is forecast to show a healthy gain. These indicators could buoy the dollar if people conclude that the rise in rates in December hasn’t hurt the economy. During the European day, UK average earnings and unemployment are expected to show that a tighter UK labor market isn’t pushing up wages, which could set back expectations for Bank of England tightening and weaken the pound.
Thursday will start off with the closely watched Australian employment data, which is expected to show a healthy rise in employment in January – possibly a positive for AUD. During the European day, the focus will be on the minutes of the January ECB meeting as investors look for clarity on why the ECB decided they needed to be “vigilant” and what actions they might take in March. In the US, the Philly Fed manufacturing index is expected to improve but to remain negative, much like the Empire State index.
Friday may see an improving tone for GBP if UK retail sales accelerate as expected. Canada also announces its retail sales. US and Canada release their CPIs for January – they are both expected to show some acceleration in inflation. The jump in US inflation is due more to base effects than any real increase in inflation though as prices are expected to fall on a mom basis. The number therefore might not change many peoples’ views on Fed policy and therefore not do much for the dollar.
Week in Focus Feb. 8-12: China holiday, Yellen testimony, oil market outlook
They say there’s no rest for the weary, but next week is going to be as close as we get to rest for weary FX traders. At least, there’s not much on the indicator calendar for the week, and many traders around the world will be taking time off. China will be on holiday all week, so the volatility emanating out from there will be dampened down. New Zealand is on holiday today (Monday) and Japan on Thursday. Meanwhile it’s President’s Day in the US next Monday, so some people may try to get out of the office early on Friday in order to take advantage of the long weekend.
The big event is Fed Chair Yellen’s twice-yearly testimony on monetary policy to Congress on Wednesday and Thursday, plus some testimony on Friday morning Australian time by RBA Gov. Stevens. Otherwise, as usual on the second week of the month, we have to wait until Friday to get some key US statistics.
Oil is likely to continue to drive the markets this week. Besides the usual weekly data, the International Energy Agency publishes its monthly oil market report and the US Energy Information Administration releases its monthly short-term energy outlook on Tuesday, while on Wednesday, OPEC publishes its monthly oil market report. These reports could change investors’ views on the longer-term oil outlook and thereby affect their inflation views. Thursday, the World Gold Council publishes its report on bullion demand in 2016.
The New Hampshire presidential primary is on Tuesday. It will be a riveting contest as both the Democrat and Republican races are so close. So far the primaries have not affected the currency markets, but if Cruz and/or Trump pull ahead for the Republicans and Sanders starts leading for the Democrats, investors could start to worry about the outlook for US economic policy.
Monday, Feb. 8th:
13:15 GMT & 13:30 GMT Canadian housing starts (Jan) & building permits (Dec): Housing starts have slowed down from the very high pace reached last autumn, but are still quite robust. According to the Bank of Canada, “yearly growth in house prices is robust, sales of existing homes are above their historical average and the recent pace of housing starts exceeds demographic demand.” They expect the housing market to slow despite low interest rates.
Tuesday, Feb. 9th:
07:00 GMT Germany -- Industrial production (Dec): Factory orders for December fell more than expected, but the market expects that output recovered on a mom basis. Nonetheless that would still leave the yoy rate of growth in production lower. EUR-supportive.
09:30 GMT UK – Trade balance (Dec): The market expects only a slight narrowing in the country’s gaping trade deficit. The question is, how will this trade deficit be covered if capital inflows dry up ahead of the referendum on EU membership? GBP-negative.
Wednesday, Feb. 10th:
09:30 GMT UK – Industrial & manufacturing production (Dec): Every category of industrial production contracted in November. December is not expected to have been as bad however, especially manufacturing. GBP-positive.
15:00 GMT Fed Chair Yellen semi-annual Monetary Policy Report to Congress We can hope to get some clarity on the FOMC’s intentions, but I’m not sure the FOMC itself is clear. That is, I expect the Committee’s members are just as confused about the economic picture as the general public is. In that case, she’s likely to try to strike a balanced but cautious stance, trying not to tip the scale either way. New York Fed President Dudley recently stressed that financial conditions have tightened since they raised rates in December; Yellen may also address this point, perhaps to explain in advance why they don’t hike in March. The market will also want to hear her views on how the continued fall in oil prices will affect the Fed’s inflation outlook. Yellen appears before the House on Wednesday and the Senate on Thursday.
Friday, Feb. 12th:
07:00 GMT Germany – GDP (Q4): The country already released its flash estimate for GDP in 2015, without breaking out Q4’s performance. Based on that estimate and hints from the Federal Statistical Office, there shouldn’t be any major surprise here.
10:00 GMT EU – GDP (Q4): The market also expects that growth in the Eurozone as a whole remained steady in Q4. The PMIs showed a fairly healthy economy, as the average for the composite index in Q4 was 54.1, up from 53.9 in Q3. However, the link between growth and inflation or growth and market interest rates seem to have been broken, so even a decent number probably won’t change any views on ECB policy or the EUR.
13:300 GMT US – Retail sales (Jan): December’s figure was weaker than expected, and there were some quite serious snowstorms in January that might have interrupted people’s shopping – or perhaps made them go out and buy gloves and a snowblower? The market expects some recovery in core retail sales (sales excluding autos and petrol stations), which would probably be USD-positive.
15:00 GMT US – U of Michigan consumer sentiment (Feb): With employment continuing to improve, wages rising, and gasoline prices falling, consumer sentiment is expected to rise further. The only question mark is how the fall in the stock market will affect sentiment. USD-positive.
Monday February 1, 2016
01:00 - China - Manufacturing PMI (Jan) - The majority of the turmoil in the markets to start the year has been caused by concerns around the Chinese economy and how much it is slowing. It was this piece of data, released after the markets closed on Dec. 31 2015, which caused much of the initial concern and snowballed from there. The forecast is for a reading of 49.6. Anything lower - look out!
01:00 - China - Non-Manufacturing PMI (Jan) - Not as significant as the number above and actually came in better than expected last month. Not the headline maker, but worth keeping an eye on.
01:45 - China - Caixin Manufacturing PMI (Jan) - This is the independent release as opposed to the 'official' government version 45 minutes earlier. As with the official version, this missed badly to the downside on Dec 31. Estimates this time around are 48.1. Anything lower and we know the likely reaction.
08:55 - Germany - German Manufacturing PMI (Jan) - It's PMI time to start the month. As Europe's largest economy the market watches closely for any signs of weakness. The provisional release came in weaker at 52.1. There is unlikely to be any great reaction unless there is divergence from that.
09:30 - UK - Manufacturing PMI (Jan) - The UK's turn. Like China and Germany, last month's data was weaker than expected. The market is looking for 51.8 this time around. Remember anything over 50 is expansionary, below 50 contractionary.
13:30 - US - Personal Income / Spending (MoM) (Dec) - Much of the focus on US data has been around inflation and jobs, especially as they were the dual mandates for the Fed to hike rates. However, other data has been generally weak, another reason for the market turmoil to begin 2016. While unlikely to move the market on their own, keep an eye on any weakness
14:30 - Canada - RBC Manufacturing PMI (Jan) - The last 5 readings have all been sub 50 which gives a good indication of the current state of the Canadian economy. Weak commodity prices have had a negative effect on Canada, highlighted by the CAD falling to 13 year lows against the USD. There is nothing to suggest this number will provide any relief from that trend.
15:00 - US - ISM Manufacturing PMI (Jan) - Last but not least the US. November and December saw this reading fall below the 50 mark for the first time in 2 1/2 years. This is just another piece of data that suggests the Fed may have hiked rates at an inopportune time e.g. as the economy is slowing. 48.5 is expected. Any divergence will likely affect the USD.
Tuesday February 2, 2016
03:30 - Australia - Interest Rate Decision (Feb) - A Bloomberg survey of 27 economists has only 3 calling for a 0.25% cut. Last week's stronger than expected CPI data has probably dented any realistic chance of that happening but you never know. Will more than likely be about what they say, rather than what they do.
08:55 - Germany - Unemployment Rate (Jan) - 6.3% has been the number for the past couple of months and is unlikely to change. Worth keeping an eye on just in case.
09:30 - UK - Construction PMI (Jan) - The construction sector is a significant one for the UK so any outlying number could move GBP. 57.5 is expected.
21.45 - NZ - Employment Change (QoQ) (Q4) - Q3 saw employment drop for the first time since 2013 so the market will be hoping for a bounce back in Q4 (looking for +0.8%), Anything weaker will likely weigh on an already under pressure NZD.
Wednesday February 3, 2016
00:30 - Australia - Trade Balance (Dec) - Australia has had a trade deficit since the middle of 2014 and that is not changing anytime soon. Any number over -3 bio could adversely affect the AUD.
01:45 - China - Caixin Services PMI (Jan) - Not as important as the Manufacturing PMI, but another key measure of the Chinese economy. December's reading came in significantly lower than expected at 50.2, just marginally above the all-important 50 mark further adding to concerns about the state of the economy. Anything lower than 50.2 this time around will be greeted with obvious consequences.
09:30 - UK - Services PMI (Jan) - Not the most volatile of data releases but an important one nonetheless given the importance of the Services sector to the UK economy. Any significant divergence from expectations could impact GBP.
13:15 - US - ADP Non-Farm Employment Change (Jan) - Yes, it's that time of the month again. This is the precursor to Friday's official government release. While there can be divergence it acts as a decent barometer for the main event. 220k is expected. Any outlying number may impact the USD and equity markets.
15:00 - US - ISM Non-Manufacturing PMI (Jan) - Like a lot of recent US data, December brought a lower than expected reading of 55.3 That number is forecast for January, but the market will be wary of anything weaker.
15:30 - US - Crude Oil Inventories - Once largely ignored by all but Oil traders, this number is now watched by everyone for it's impact on the 'black gold'. The price of Oil is driving most of the moves in equities as well as FX to start the year, so keep a close eye on this one.
Thursday February 4, 2016
12:00 - UK - Interest Rate Decision (Feb) - The Bank of England is unlikely to do anything other than keep rates and the levels of QE as they are. The voting pattern for the 9 person committee is expected to remain at 8-1, with MPC member McCafferty being the odd one out voting for a hike. Most noted economists have put back any thoughts for a BoE rate rise well into the second half of this year, with some even calling for it to be delayed until Q1 2017. Pay close attention to the statement for any change in language.
15:00 - US - Factory Orders (MoM) (Dec) - Another piece of US data that on its own is unlikely to move the markets, but with recent releases being on the weak side, it just adds to concerns about the true state of the US economy.
Friday February 5, 2016
00:30 - Australia - Retail Sales (MoM) (Dec) - The last 4 releases have all been steady in the 0.4-0.5% range, so the markets will be looking for a similar number in December. Any divergence will likely impact the AUD.
13:30 - US - Average Hourly Earnings (MoM) (Jan) - Released along side the NFP data, this number is carrying great significance with each release. Despite the Fed raising rates in December, one of their main concerns is the lack of growth in wages. It will be interesting to see how the market reacts - On one hand there will be probable relief if the data is weak as it will discourage the Fed from hiking again any time soon. On the other hand, more weak US data just adds fuel to the fire that the Fed shouldn't have hiked in December in the first place!
13:30 - US - Non Farm Payrolls (Jan) - 210k is the expected number after a strong 292k last month. Any divergence will impact the USD and equity markets immediately. Be wary of any revisions to the last months data.
13:30 - US - Unemployment Rate (Jan) - 5.0% is expected. Only a real extreme NFP number will likely change that.
13:30 - Canada - Employment Change (Jan) - 22.8K is the forecast number. Unlike the US, Canada releases the breakdown between full time and part time employment, so keep an eye on that. Unfortunately this data is released at the same time as the US NFP, so is often overshadowed by its neighbor.
13:30 - Canada - Unemployment Rate (Jan) - 7.1% expected. As the Canadian economy is increasingly affected by the weak Oil price, there is a danger that this number may tick higher.
Week in Focus: FOMC & Bank of Japan meetings, Q4 GDP data from UK and US to feature
The ECB and the Bank of Canada met last week and the message from both was effectively the same: we’re on hold for now, but we’d like to ease further. There are three central bank meetings this week: the Fed, the RBNZ and the Bank of Japan (BoJ). The focus naturally will be on the Fed, which is looking for reasons to move in the opposite direction, but the market expects that in the end all three will remain on hold. Other highlights of the week will be the first Q4 GDP figures from the UK and US; German and EU CPI for January, which may give us some insight into the problems the ECB is facing; and the usual end-of-month data from Japan.
Monday, Jan. 25th:
German Ifo survey expectations index is expected to decline, as did the preliminary German PMI for January. This could add to the evidence of a slowdown in Europe’s biggest economy and be EUR-negative.
Tuesday, Jan. 26th:
In the US, the Conference Board consumer confidence index is seen as improving slightly. So far though strong consumer confidence doesn’t seem to be translating into strong consumption.
Wednesday, Jan. 27th:
In Japan, the Shoko Chukin Bank small business survey for January may be unusually interesting, as that was carried out in early January, when financial markets were particularly turbulent. It could indicate whether the volatility in the financial markets is affecting corporate sentiment.
In the US, the focus will be on the FOMC meeting. I don’t think anyone expects them to hike rates again at this meeting. Since they moved in December, the US economy has slowed, financial conditions have tightened, and financial markets fallen sharply. They will have to acknowledge these changes, but it’s way too early for them to suggest that rates have peaked, much less that they might unwind the December move. I would expect them to stress as usual that future moves depend on the data, not the calendar. A neutral comment could be seen as quietly acquiescing to the market’s expectations that FOMC is overly hawkish (the market is pricing in only a 75% chance of even one rate hike this year, much less the four that the FOMC forecasts) and could therefore be USD-negative. There is no press conference after the meeting, so the market will start to look forward to Fed Chair Yellen’s Fb. 10th semi-annual Monetary Policy Report to Congress.
The RBNZ also meets on Wednesday (GMT time; Thursday morning in New Zealand). I believe it’s unlikely that they would cut rates again so soon after cutting 25 bps in December, especially after they said in their statement that they expect to keep rates stable from now. However, with China’s growth slowing, milk prices edging down again and New Zealand prices falling qoq in Q4, another cut sometime this year looks likely to me, with concomitant weakness in the currency. The key point will be inflation for the current quarter, where the RBNZ is forecasting that the currency depreciation will finally feed through to higher inflation (as in Canada). If that doesn’t happen, I expect them to reconsider their stance.
Thursday, Jan. 28th
The UK announces its Q4 GDP figure. Growth is expected to have picked up slightly on a qoq basis although that would still be a slight slowdown on a yoy basis to 1.9% -- the lowest since Q3 2013. That might further knock back the market’s forecasts for when the Bank of England can start raising rates (currently November 2017) and weaken the pound.
German January CPI is always closely watched as a precursor to Friday’s EU-wide CPI. The renewed fall in oil prices is likely to keep consumer prices under downward pressure, although the base effect may mean a small rise in the yoy rate for Germany in January. An acceleration in the mom rate of decline could be negative for the euro.
The December US durable goods figures are expected to be in line with the disappointing trend in investment that carried on throughout 2015. I’m not sure this will surprise anyone though so I don’t think it will change any views about the currency.
Japan national CPI and industrial production for December (Friday morning Japan time) are expected to show no pick-up in inflation and a further mom decline in output, presenting a difficult picture for the Bank of Japan later in the (Japanese) day.
Friday, Jan. 29th
There is some speculation that The Bank of Japan could choose to ramp up its monetary stimulus at Friday’s meeting. BoJ Gov. Kuroda has often stressed the importance of wage rises, which provide the fuel for higher domestic demand and higher prices. Yet the current round of wage negotiations that is now beginning has shown neither labor nor management aiming particularly high. Some of the major auto unions for example are asking for wage rises of only half what they sought last year. BoJ officials still insist that underlying inflation is rising, but the weak wage demands demonstrate that the population doesn’t believe them. Moreover the yen has started strengthening again and industrial production is flagging. The BoJ can move now and hope that they influence the wage negotiations, or wait until April when the results of the negotiations are known. Personally, I expect that they will join the other central banks that have met recently and decide to “wait and see,” which could cause the yen to strengthen.
US Q4 GDP is expected to confirm the slowdown in the US. As usual, much will be made of the erratic weather – too cold one year, too warm the next (Dec 2015 was the warmest December on record). Slowing consumer spending, a decline in net exports (due to the stronger dollar?) and a fall in business investment are likely to add up to weaker growth. The Atlanta Fed’s GDPNow model is forecasting +0.7% growth, not far off the market consensus of +0.8%. This is below the recent trend rate of growth of 2.2% but it does not (yet) spell the end of the recovery.
Week in Focus for Jan. 18th – 22nd: China data, Carney speech, Bank of Canada & ECB meetings in focus
Markets have been extremely volatile so far this year, but this week’s indicators look set to take the action to a whole new level. While Monday is likely to be a quiet day with US markets, closed, there’s something big happening every other day – including a Bank of Canada meeting on Wednesday and an ECB meeting Thursday. Bank of England Gov. Carney has a big speech scheduled on Tuesday, too. The focus at the beginning of the week will be on China, where several important indicators will be released at the same time. Then at the end of the week, the preliminary manufacturing PMIs for January for several major countries will be released, giving us the first indication of how business is going in the New Year. In between, a lot of important data for the UK will be released, including earnings and retail sales.
Tuesday, Jan. 19th
01.00 GMT – China – Q4 GDP – The market has its doubts about whether China’s GDP data can be trusted. Nonetheless, the market does react to it. Expectations are for a slight decline. The market forecast of 6.8% is in line with the Bloomberg monthly GDP estimate of 6.85% for November. The slight decline from 6.9% in the previous quarter suggests to me that Chinese officials are trying gradually to bring down the GDP figure to match the recent official 2016 forecast of 6.8% growth.
01.00 GMT – China – Fixed Asset Investment, Industrial Production & Retail Sales (Dec) – The market looks for a continuation of the recent trends – investment and retail sales holding steady while industrial output slows further. This is a natural part of the government’s efforts to restructure the economy towards a domestic consumption-led growth model. They may want to see investment slow further, too.
10.00 GMT – Germany – ZEW Economic Index (Jan) – The ZEW Survey of both the current situation and expectations are expected to decline. Sentiment surveys recently have generally shown more buoyant conditions than the hard data, but this may be the first indication that sentiment is starting to catch up with reality.
12.00 GMT – UK – BoE Gov. Carney speaks at London School of Economics – The Peston Lectures focus on the interface between economics and public policy. Gov. Carney is expected to use this opportunity to renounce his previous assessment that the Monetary Policy Committee would begin to consider raising rates around the turn of the year. Although the market no longer expects rates to rise any time soon anyway, formally abandoning that target could depress the pound.
21.45 GMT – New Zealand – CPI (Q4) – An expected decline in New Zealand inflation in Q4 could heighten expectations of an RBNZ rate cut and depress NZD.
Wednesday, Jan. 20th
09.30 GMT – UK – Average Earnings + Bonus (Dec) – The falling rate of pay settlements recently has been a puzzle for the Bank of England. The statement following the recent MPC meeting noted that “despite continued reductions in the rate of unemployment, pay growth remains restrained and appears to have dipped slightly in the most recent data.” It’s expected to dip further in the data to be released Wednesday. That could prove negative for GBP.
09.30 GMT – UK – Employment data (Nov, Dec) – The MPC also noted that the near-term outlook for economic activity is a bit weaker than they had anticipated. A pause in the downward trend of unemployment could indicate a further slowdown in growth.
13.30 GMT – US – Housing starts, building permits (Dec) – Housing starts are expected to rise modestly but the more forward looking building permits are expected to drop. A slowdown in housing could call into question whether the Fed can tighten further and so would be USD-negative.
13.30 GMT – US – CPI (Dec) – CPI is not the Fed’s target but it is of course the most widely recognized measure of inflation. No change from the previous month means some acceleration on a yoy basis, but still not enough for anyone to think that the Fed is near to meeting its target.
15.00 GMT – Canada – Bank of Canada rate decision – Analysts are forecasting a 25 bps cut and the market is pricing in a 60% chance of a cut. They could stand pat however. CAD has been collapsing recently, causing a notable rise in the price of imported food, much to the distress of the average Canadian. Cutting rates further could weaken the currency further and push food prices up more. Nonetheless, with inflation still well below the BoC’s target (December figures to be released on Friday), the BoC may well feel that it has room to help an economy battered by the plunge in oil prices.
Thursday, Jan. 21st
12.45 GMT – Eurozone – ECB Rate Decision – The market expects no change in rates or in the QE program at this meeting – neither do I – and so the focus will be on ECB President Draghi’s comments at the press conference afterwards. The minutes to the December meeting showed that those in favor of cutting rates by only 10 bps rather than 20 bps viewed the more modest move as “leaving some room for further downward adjustment.” Also, they rejected the idea of increasing or extending the bond purchases, but said “a reassessment could be made in the future.” Investors will want to hear how the Council sees the current situation and which way they are leaning. It appears that for now they are in “wait and see” mode. Without a major change in the data, the next trigger could be the new staff projections for inflation and growth to be considered at the March meeting.
13.30 GMT – Philadelphia Fed manufacturing index (Jan) – Some improvement is expected but still within negative territory.
Friday, Jan. 22nd
09.00 GMT – Eurozone – PMIs (Jan, P) – The preliminary Markit PMIs for January for Japan, France, Germany, the Eurozone and the US will be released. These are the first major indicators for the New Year and as such should be closely watched. Until recently the survey data has been stronger than the actual data, but it looks like this discrepancy may start to be rectified – German and Eurozone manufacturing PMIs are expected to decline slightly. That could prove EUR-negative, especially if the US PMI comes in a bit higher, as expected.
09.30 GMT – UK – Retail Sales (Dec) – Expectations are for a mom decline in sales, which could add to the “slowing UK economy” idea and depress GBP.
15.00 GMT – US – Existing Home Sales (Dec) – Contrary to the expected decline in building permits and slowdown in housing starts, existing home sales are forecast to show a good increase. This could prove USD-positive if it changes peoples’ views on the US housing market.
The New Year’s holidays are well and truly over and now we are nearly back to normal in the markets. As usual, the indicators during the second week of the month are not that important. No major US data is released until Friday. The main point of interest then will probably be the many Fed speakers, who may try to counter the market’s interpretation that the FOMC minutes showed no strong consensus for raising rates. The only major central bank meeting on the schedule is the Bank of England, where as usual the conclusion is not in doubt. In Europe, a meeting of the EU finance ministers and the release of the minutes of the December ECB meeting will be a focus. Elsewhere of course all eyes will be on China. In that respect, Wednesday’s China trade data, plus the money supply data to be released sometime during the week, will be another point of concern.
Monday, Jan. 11
2350 - Japan BoP Curent Account (Dec) - The market expects a slight decline in Japan’s current account surplus on an unadjusted basis, which would be a more or less unchanged level on a seasonally adjusted basis. The continued high level of the current account surplus must be matched by outflows on the capital side. With most European interest rates now lower than domestic ones, that means a flow into Treasuries, which should support USD/JPY.
Tuesday, Jan. 12
0930 - UK Industrial production (Nov) - Manufacturing output fell mom in October but industrial output rose slightly. The pattern may be reversed in November, as a drop in oil and gas output could dampen overall IP. That would tend to be negative for GBP.
Wednesday, Jan. 13
N.A. – China Trade data (Dec) - The market looks for the fall in both imports and exports to accelerate, which would be negative for commodity producers and other countries exporting to China. Further volatility in global equity markets could be a result.
1000 - EU Industrial production (Nov) - Eurozone IP rose in October, but it expected to fall back slightly on a mom basis in November. Some of the decline is due to unusually warm weather, which has reduced demand for energy. In any case the output component of the Eurozone manufacturing PMI rose in November and so even a modest mom decline in the actual figure would probably not have much impact on EUR.
Thursday, Jan. 14
0030 - Australia Employment change/Unemployment rate (Dec) - The market expects to see some deterioration in Australia’s employment picture. This could increase speculation about another RBA rate cut and put downward pressure on AUD.
1200 - UK Bank of England rate decision - As usual, the focus will be on whether anyone joins Ian McCafferty in voting for a rate hike or whether he backs off. Since the last meeting on 10 Dec, the country (just) exited deflation and core CPI accelerated a bit, while the unemployment rate fell. However, average weekly earnings growth slowed, Q3 GDP was revised down, oil prices fell further and November manufacturing output declined, as mentioned above. All told there seems to be no urgency to raise rates and I would expect the voting to remain 8-1 for no change, with little impact on GBP.
1230 - EU ECB minutes (Dec) - This was the meeting that failed to live up to ECB President Draghi’s dovish foreshadowing. The market will be keen to understand the Council’s reasoning for not moving as much as expected and learn what the criteria might be for further easing. The minutes should provide some details on members’ views on the limits to negative rates and the risks to the outlook.
Friday, Jan. 15
1330 - US Retail Sales (Dec) - Falling auto sales and gasoline prices suggest that the headline retail sales figure might be bad. As for the core figures, retailers have complained that the unseasonably warm weather and a fall in foreign tourists caused Christmas sales to miss their targets. The result could be some disappointment and a weaker USD.
1330 - US Empire State manufacturing index (Jan) - US manufacturing has struggled due to sluggish global growth and a rising dollar. The index is expected to improve slightly but not enough to change anyone’s view on the US.
1330 - US Industrial production (Dec) - As mentioned above, no respite is likely for US manufacturing. Furthermore, the unseasonably warm weather in the Northeast will have reduced demand for energy. A disappointing figure seems likely.
1500 - USU of Michigan consumer sentiment index (Jan, P) - Despite the problems facing the US, not to mention the Fed rate hike in December, sentiment remains buoyant and the U of M index is expected to rise back to the 2015 average of 92.9.
Happy New Year to everyone.
Please find below a rundown of next week’s significant economic data releases. There is plenty for traders to look at in the first week of the year. All times are in GMT. Feel free to make any additions / amendments as necessary.
Sunday January 3
22:30 - Australia - AIG Manufacturing Index (Dec) - The Australian Industry Group (AIG) Manufacturing index rates the relative level of business conditions in the sector. The data is based on a survey of about 200 manufacturers. A reading above 50 indicates expansion in the sector; below 50 indicates contraction. Traders watch these surveys closely as purchasing managers usually have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.The first half of 2015 was dominated by contractionary numbers. However the the latter part of the year saw data readings above 50, so the market will be looking for a continuation of that trend in December.
Monday January 4
00:45 - China - Caixin Manufacturing PMI (Dec) - This data is compiled from a survey of over 400 Purchasing Managers, While not the official version of this number, it is closely watched. The last 2 months have seen a pickup in this data, although there are still concerns that the Chinese economy is slowing. An outlying number will most likely be reflected in AUD as well as equities.
08:55 - Germany - German Manufacturing PMI (Dec) - The plethora of PMI data continues, this time from Europe's largest economy. 2015 saw a steady release of numbers over the all-important 50 mark. That trend is expected to continue in December with an earlier provisional reading coming in at 53.0. Any significant divergence from that could impact the EUR.
09:00 - Europe - Manufacturing PMI (Dec) - As with the prior specific German number, this is the second and final reading after a provisional release of 53.1. Given the heavy weighting of the German component, there are unlikely to be too many surprises from this number.
09:30 - UK - Manufacturing PMI (Dec) - I wonder if the world's major industrialized nations gang up and decide to release their PMI data on the same day? No provisional readings for the UK so any divergence from the market expectation of 52.7 could impact GBP. Just to to re-iterate, as is the case with all PMI readings, over 50 is considered expansionary.
14:30 - Canada - RBC Manufacturing PMI (Dec) - Canada's turn! The Canadian economy has been struggling of late, with no growth in GDP or Retail Sales. A falling Oil price has weighed on the economy and the last 4 readings of this number have been sub 50. There is little to suggest that this release will show any improvement. Obvious repercussions for the CAD if there is.
14:45 - US - Manufacturing PMI (Dec) - Last but not least on the PMI front is the US. If the provisional reading of 51.3 holds true, this will be the lowest level for this number since late 2013. Even though it will be too soon to affect this data, given the Fed has just raised rates, investors will watch very closely for any negative impact of the Fed's move.
15:00 - US - ISM Manufacturing PMI (Dec) - The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) Report on Business is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies. It is more widely watched than the 'official' version released 15 minutes earlier. November saw a reading under 50 for the first time since June 2013, so all eyes will be on this release to see if that 'unwanted' trend continues.
Tuesday January 5
08:55 - Germany - German Unemployment Change / Unemployment Rate (Dec) - While not watched with the same intensity as the US version, as Europe's largest economy investors look for any significant changes in the German Labor market. 2015 has seen a very gradual reduction in the Unemployment Rate from 6.5% to 6.3% and this reading should confirm that at year end.
09:30 - UK - Construction PMI (Dec) - The Chartered Institute of Purchasing and Supply (CIPS) Construction Purchasing Manager's Index (PMI) measures the activity level of purchasing managers in the construction industry. Construction is an important part of the UK economy so this number is a significant one. Any divergence from an expected reading of 56.0 will likely impact GBP.
10:00 - Europe - CPI (YoY) (Dec) - The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation. As most readers know, the ECB's focus is on getting the inflation rate up to 2%. The FX markets were disappointed that Mr. Draghi and co. did not do more at Decembers meeting. Any inflation data is going to come under close scrutiny, starting here. The chart below shows this data having returned to '2009 financial crisis' levels in 2015, thus the ECB's concern.
Wednesday January 6
09:30 - UK - Services PMI (Dec) - The service sector is an important one in the UK, so this data is significant. Not since late 2013 has there been a reading sub 50, but any departure from the estimate of 55.6 will likely impact GBP.
13:15 - US - ADP Non-Farm Employment Change (Dec) - The ADP National Employment Report is a measure of the monthly change in non-farm, private employment, based on the payroll data of approximately 400,000 U.S. business clients. This acts as a precursor to the government release on Friday and while not necessarily indicative of that number, there is a close correlation. Any significant divergence from expectations of +190k will likely see the USD and equity markets react.
13:30 - Canada - Trade Balance (Nov) -The Trade Balance measures the difference in value between imported and exported goods and services over the reported period. A positive number indicates that more goods and services were exported than imported. This data has been negative for all of 2015, with the lower Oil price having a significant impact. Expectations are for that trend to continue for November's reading.
15:00 - US - Factory Orders (MoM) (Nov) - Factory Orders measures the change in the total value of new purchase orders placed with manufacturers. This will also incorporate a revision of last week's Durable Goods Orders. Whilst not always a market moving data release, it's another gauge of economic activity.
15:00 - US - ISM Non-Manufacturing PMI (Dec) - The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers' Index (PMI) (also known as the ISM Services PMI) report on Business, is a composite index calculated as an indicator of the overall economic condition for the non-manufacturing sector. While less significant than the Manufacturing sector, the markets will still be paying close attention for any significant changes.
Thursday January 7
00:30 - Australia - Trade Balance (Nov) - The past 18 months has seen Australia fall into a negative trade Balance due to the fall in global commodity prices as well as the slowing in China's economy. November's data looks unlikely to break that trend, but any surprise significant improvement could see a positive impact on the AUD.
15:00 - Canada - Ivey PMI (Dec) - The index is a joint project of the Purchasing Management Association of Canada and the Richard Ivey School of Business. December saw a surprisingly high reading of 63.6, so the market will be keen to see if this was a 'one off' or the beginning of some stronger readings. Historically this is a release that is widely watched by investors and will likely have a short-term impact on the CAD.
Friday January 8
00:30 - Australia - Retail Sales (MoM) (Nov) - Retail Sales measure the change in the total value of inflation-adjusted sales at the retail level. It is the foremost indicator of consumer spending, which accounts for the majority of overall economic activity. 2015 saw steady growth in retail sales with 2 minor 'blips' on the radar. Expectations are for November's data to confirm that trend, with analysts looking for an increase of 0.4%. The AUD will likely react to any divergence from that expectation.
09:30 - UK - Trade Balance (Nov) - 3 out of the last 4 months have seen a trade deficit of over 11 bio GBP, the worst deficits on record. Investors will be keen to see a halt to that trend. Failure to do so will likely weigh on GBP.
13:30 - US - Non-Farm Payrolls / Unemployment Rate (Dec) - Not too much explanation needed for these numbers. The most watched and 'reacted to' data release of the month. December's data will not really capture the effect of the Fed hiking rates, but any divergence from an expectation of +200k and an Unemployment Rate of 5.0% will likely cause the usual volatility around the USD and equity markets.
13:30 - Canada - Employment Change / Unemployment Rate (Dec) - Released at the same time as the US version, the Canadian data can often get overlooked by reactions to the US data. After 3 strong months, November saw a sharp drop in the number of people employed. However this change came entirely though losses in part-time employment,, while those entering full-time jobs actually increased. A tough number to trade unless it's a 'polar-opposite' to the US data.
Saturday January 9
01:30 - China - CPI (YoY) (Dec) - While obviously released while markets are closed it will be worth taking a look at prior to the open on Monday. With continuing focus on the Chinese economy, investors will look for any weakness in this data with likely impacts on equities and the AUD if there is.
Not much news but lots of volatility possible
The week ahead is going to be a quiet week for news, as one might expect – few major indicators will be released and there are no big speeches or central bank meetings, at least not from the major countries. Liquidity will probably be low in the run-up to New Years, and spreads may widen out. There could be some sudden moves though as small orders can move the market unpredictably. Volatility tends to increase towards the end of the year, as the following graph of the seasonality of FX vol (using the Deutsche Bank FX Vol index) shows.
We get a similar result if we rank the vol of each week during the year from highest to lowest. Over time each week should tend to converge around average, that is to say, the 26th rank. You can see from this graph too that the end of the year tends to be volatile, with the first and last weeks of the year being the most volatile, on average.
Most of the news out during the week is from the US, but even here it’s largely second-tier. As most of it doesn’t bear on the Fed’s interest rate decision, market participants’ focus may lie elsewhere.
Sunday December 27
01.30 GMT – China – Industrial Profits (YoY) (Nov) – Industrial profits are closely watched as a gauge to the health of the Chinese economy. Falling profits imply less demand for commodities and can therefore be negative for AUD and other commodity-producing countries.
23.50 GMT - Japan - Industrial Production (MoM) (Nov, provisional) - Industrial Production measures the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. As the Japanese economy continues to stumble along, investors will be looking for a third straight month of increasing production on a month-on-month basis, although production is expected to decline for the fourth consecutive month on a year-on-year basis.
23:50 GMT - Japan - Retail Sales (YoY) (Nov) - Retail Sales measure the change in the total value of sales at the retail level. It is the foremost indicator of consumer spending, which accounts for the majority of overall economic activity. With the Bank of Japan so focused on getting inflation to the 2% level, consistent increases in consumer spending are a must. Sales have risen on a yoy basis six out of the last seven months, so the market will be looking for that trend to continue.
Monday December 28
No major data releases. Public holiday in UK.
Tuesday December 29
13:30 GMT - US - Goods and Trade Balance (Nov) - The goods trade balance is the difference in value between imports and exports during the reporting month. Once considered one of the most important data releases, only a significant divergence from market expectations would get the markets attention today. Much of this deficit is due to trade with China, so any changes will be down to market interpretation. The other focus is how much oil the US is importing. With the price of oil falling and the amount the US imports shrinking, the trade gap should continue to narrow, which over time may help USD.
15:00 GMT - US – Conference Board Consumer Confidence (Dec) - Conference Board (CB) Consumer Confidence measures the level of consumer confidence in economic activity. It is a leading indicator of economic optimism. At the end of the calendar year it will be interesting to see how consumers view the economy heading into 2016, especially after November's surprise drop.
Wednesday December 30
07:00 GMT - UK - Nationwide HPI (MoM) (Dec) - The Nationwide Housing Price Index (HPI) measures the change in the selling price of homes with mortgages backed by Nationwide Building Society, a mortgage lender. It is the UK's second-earliest report on house prices. Like most central banks, the Bank of England is carefully watching all inflation data. While market expectations for a rate hike in the UK have been pushed back to late 2016, any significant upticks in house prices could bring those estimates forward.
15:00 - US Pending Home Sales (MoM) (Nov) - The National Association of Realtors (NAR) Pending Home Sales Report measures the change in the number of homes under contract to be sold but still awaiting the closing transaction, excluding new construction. A strong housing market is often seen as the key to a strong economy. The last six releases have all come in lower than market expectations. This data will have been compiled before the recent Fed rate hike, but given that that hike was so widely priced in, it will be interesting to see if there has been any effect on activity in the housing market.
Thursday December 31
14:45 - US - Chicago PMI (Dec) - The last and final significant data release of 2015! The Chicago Purchasing Managers' Index (PMI) determines the economic health of the manufacturing sector in the Chicago region. A reading above 50 indicates expansion of the manufacturing sector; a reading below indicates contraction. November saw a surprise drop below 50, so the markets will be looking for a bounce back in December. Any continued weakness could weigh on the USD.
Friday January 1
Markets closed for New Year holiday.
01.00 GMT - China – Purchasing Managers’ Index (Dec) – The government announces its official PMI both for manufacturing and non-manufacturing. The closely watched manufacturing index has been below 50 since August, indicating that manufacturing is slowing. The market expects a slight rebound but for the index to remain below the 50 line. The upwards direction could encourage some buying of AUD, though.
A quiet week (finally!) as we approach the end of the year
The momentous month is winding down. While many people were hoping for quiet markets that would allow them plenty of time for year-end festivities, the authorities didn’t cooperate: first the ECB and then the Fed made market-moving changes to their monetary policies, while the People’s Bank of China began a similarly significant policy shift, albeit without the fanfare that accompanied the other central banks’ moves.
This week however you are free to leave your PC unattended, for a while at least. There are few economic indicators out in the run-up to Christmas Day on Friday. The final version of several countries’ Q3 GDP figures will be released, but that’s about it.
The only activity is in Japan, where Christmas is not an official holiday. The closely watched CPI figure plus some other figures come out as usual late on Thursday the 24th (Friday the 25th in Japan) along with a speech by BoJ Gov. Kuroda. Otherwise, even the central bankers are on vacation this week, or so it seems.
There is little on the schedule for the following week either, so enjoy the end of the year. You’ve earned it!
Monday December 21
07:00 - Germany - PPI (MoM) (Nov) - The German Producer Price Index (PPI) measures the change in the price of goods sold by manufacturers. As Europe's largest economy, the markets will pay close attention to any type of inflation data. While it's too early to judge the recent ECB actions, any weakness in this data will bring into question whether Mr. Draghi is doing enough to spur inflation.
13:30 - US - Chicago Fed National Activity (Nov) - A monthly report by the Chicago Federal Reserve Bank that tracks economic activity in Indiana, Iowa, Illinois, Michigan and Wisconsin. The index is useful in tracking economic growth and identifying potential inflation. While not the biggest market mover, in the absence of any other significant US data, the USD may react if there is any significant divergence from forecasts.
15:00 - EU – Consumer confidence (Dec, preliminary) – The market expects no change in consumer confidence in December. Given the state of the world and the anticipation of Fed tightening, that would be a reasonably optimistic result.
Tuesday December 22
13:30 - US - GDP (QoQ) (Q3, final) - Gross Domestic Product (GDP) measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy. It is the broadest measure of economic activity and the primary indicator of the economy's health. This is the final release of this data after 2 provisional readings. The first was +1.5%, later revised to +2.1%, now forecast to be revised down to +1.9%. The USD will likely react to any change from the last provisional number.
15:00 - US - Existing Home Sales (MoM) (Nov) - Existing Home Sales measures the change in the number of existing (not new) residential buildings that were sold during the previous month. This report helps to gauge the strength of the U.S. housing market and is a key indicator of overall economic strength. After a drop in October, the market will be looking for a rebound in November's data.
Wednesday December 23
09:30 - UK - GDP (QoQ) (Q3, final) - Similar to the US reading, this is the final release after 2 provisional releases. Both prior readings showed an increase of 0.5%. Any deviation from that number will likely impact GBP.
13:30 - US - Durable Goods Orders (MoM) (Nov) - Durable Goods Orders measures the change in the total value of new orders for longer-lasting manufactured goods. The market focuses on the core figure, which excludes transportation equipment such as aircraft. Because aircraft orders are very volatile, the core number gives a better gauge of ordering trends. As a strong barometer of manufacturing activity, the USD will likely react to any outlying number.
13:30 - US - PCE Deflator (MoM) (Nov) - The Personal Consumption Expenditure (PCE) deflator measures the changes in the price of goods and services purchased by consumers. Here too the market focuses on the core figure, which excludes the volatile food and energy categories. The two are of key importance because the Fed uses the PCE, not the more widely known Consumer Price Index (CPI), as its inflation target. As the Fed have now raised rates for the first time since 2006, investors will watch closely for confirmation that inflation is moving towards their target.
13:30 - US – Personal Income & Expenditure (Nov)
13:30 - Canada - Retail Sales (MoM) (Oct) - The last 3 readings have either been flat or negative. Given the CAD has recently touched 11 year lows against the USD, any continued weakness from the consumer is likely to lead to more CAD weakness.
15:00 - US - Michigan Consumer Sentiment (Dec) - This is the final reading of this data after a provisional release of 91.8. It will be interesting to see if there is any captured reaction to the Fed hiking rates and subsequent rally in equity markets.
Thursday December 24 / Friday December 25
23:30 – Japan – CPI (Nov) - The National CPI for November is expected to show prices rose once again at +0.3% yoy, the same as in the previous month. Core CPI (excluding food & energy) is expected to accelerate to +0.8% yoy from +0.7%. As inflation creeps up, expectations about further Bank of Japan easing recede. That could benefit JPY if it continues.
Early close at 17:00 on the 24th for FXPRIMUS. Closed all day on the 25th.
We will have no “Market Insight by Marshall Gittler” pieces from then until Jan. 8th.
FXPRIMUS Week in Focus: All Eyes on the FED
Those who were expecting a quiet end to the year so that you can attend to other matters are going to be bitterly disappointed! This week sees a slew of important economic and political events. The highlight of the week of course will be Wednesday’s FOMC meeting, when the Fed is expected to raise rates for the first time since June 2006. The key then will be what they say about the future pace of rate increases. Sweden’s Riksbank, Norway’s Norges Bank and the Bank of Japan also meet this week – no rate changes are expected, but as we’ve seen many times, there can still be FX market volatility around these meetings, particularly with the market thinned out for the holidays.
As for the indicators, Japan’s closely watched Tankan starts the week off. It’s expected to show that corporate confidence remains steady, but whether that’s good or bad for the yen is an open question.
Inflation numbers from the Eurozone, US and Canada come out. The market will be interested to see if there are any signs of a pick-up in inflation anywhere, or are we going to need to see further QE.
Finally, a lot of forward-looking data from the Eurozone comes out: the German ZEW and Ifo indices plus the preliminary PMIs from France, Germany and the Eurozone.
In politics, the results of the second round of the French regional elections will be coming out as Asian trading starts on Monday. A victory for the National Front could heighten political risk around the euro, especially ahead of Sunday’s general election in Spain. There’s also an EU summit on Thursday, where UK PM Cameron may try to win agreement on his conditions for staying in the EU. That could increase the risk around GBP.
Sunday December 13
EU - Second round of French regional elections - The National Front (NF) leads after the first round of voting in the country's regional elections last weekend. The party won 28% of the vote, leading ahead of Nicolas Sarkozy's Republicans and allies (27%) and President François Hollande's ruling Socialists (23%). The NF could win a region for the first time ever. That could heighten the political risk associated with the EUR, particularly ahead of next Sunday’s Spanish general election.
23.50 - Japan - Tankan (Q4) – The Tankan, or the Bank of Japan Short-Term Economic Survey of Economic Conditions, is a quarterly survey of business sentiment showing the status of the Japanese economy via different sectors. Many Japanese data releases fail to have a meaningful impact on JPY. The Tankan is one that does, although not always the way investors anticipate: the report can move the stock market, and USD/JPY often moves in line with the Tokyo stock market. A better-than-expected Tankan can therefore weaken the yen, and vice-versa. The most closely watched figure is the large manufacturers’ diffusion index. The market is looking only for a small drop to 11 in Q4 from 10 in Q3, which would mean that corporate confidence remains solid despite the concerns about overseas economies and the upcoming Fed rate hike. The Q1 2016 forecast is expected to remain steady at 11. Watch the predictions for Q1 as well as the outcome for Q4.
Monday December 14
10:00 - Euro - Industrial Production (MoM) (Oct) - Industrial Production measures the output produced by manufacturers, mines, and utilities. Four out of the last five releases have shown a contraction from the previous month, so the market will be looking for that trend to end in October. Failure to do so will likely weigh on the EUR.
Tuesday December 15
08:30 - Sweden – Riskbank rate announcement - The market expects Riksbank to leave rates unchanged at -0.35% although there are a few economists expecting a further reduction.
09:30 - UK - CPI/PPI (MoM) (Nov) - The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. As the most widely watched piece of inflation data, this release is as important as any in the UK. As the Bank of England alluded to last week, inflation pressures are subdued, most notably by the drop in the price of oil. Forecasts for a UK rate hike have been put back to the end of next year by many economists. Any deviation from forecasts will likely have an immediate impact on GBP.
10:00 – Germany – ZEW Survey (Dec) – The market is looking for a decline in the current situation index but a significant rise in the expectations index. This could prove EUR-positive.
13:30 - US - CPI / Core CPI (MoM) (Nov) - With one day to go before the Fed's December rate decision, this could not be a more significant piece of data. As has been well communicated, the Fed has twin goals of a robust labor market and inflation at 2% to justify a hike in rates. The recent NFP data will certainly have satisfied their first criteria. A strong CPI number would almost guarantee a hike in rates. However, the recent move lower in oil and other commodities could weigh on the headline number, so be prepared for a volatile reaction from the USD.
13:30 - US - NY Empire State Manufacturing Index (Dec) - The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A reading above zero indicates improving conditions. While not necessarily representative of the entire country, this release is closely watched. However, given the release alongside the CPI data, it is unlikely to garner much reaction.
15:00 - US - NAHB Housing Market Index (Dec) - The National Association of Home Builders (NAHB) Housing Market Index (HMI) rates the relative level of current and future single-family home sales. As the largest single component of consumer spending, a healthy housing market is key to a robust economy. The USD will likely react to any significant deviation from market forecasts.
Wednesday December 16
08:00 to 09:00 – France, Germany & Eurozone flash PMIs (Dec) - The preliminary estimates of the Purchasing Managers’ Indices (PMIs) for the EU are forecast to be little changed. The risk in my view is that they disappoint to the downside as the European economy takes on board the shocks from the refugee crisis and the Paris bombings.
09:30 - UK - Average Earnings Index + Bonus (Oct) - The Average Earnings Index measures the change in what businesses and the government pay for labor, including bonuses. One cause of concern for the Bank of England has been a lack of wage growth, although there has been a pick-up over the past 3-4 months. The market will be looking for a continuation of that improving trend as we approach the end of the year.
10:00 - Euro - CPI (MoM) (Nov) - Much has been made of the recent ECB meeting and the markets’ disappointment at their perceived lack of action. While too early to judge whether Mr. Draghi and Co. were correct in their actions, any further weakness in this data will only add to calls for an increase in QE and possible additional rate cuts.
13:30 - US - Housing starts (MoM) (Nov) - Housing Starts measures the change in the number of new construction underway. The housing market is a very important sector for the US economy and can be a significant barometer of economic health. However, given the FOMC meeting, only an extreme number is likely to attract much attention.
19:00 - US - Federal Reserve Interest Rate Decision and statement - Has a Fed meeting ever been so much in focus? The expectation is for a hike in the Fed funds target rate of 0.25%. After that it will be about what they say. The Fed has gone to great lengths to communicate that any future rate rises beyond the initial 'lift off' will be gradual. The focus will be on what they say about the likely path of rate increases this year and beyond. As we all witnessed with the recent ECB rate decision, any disappointment can be met with extreme volatility. Given the time of year, when markets are thinner than usual, and the significance of the moment, expect some fireworks from both the FX and equity markets.
21:45 - NZ - GDP (QoQ) (Q3) - Last week the RBNZ cut interest rates by 0.25%, yet the NZD rallied. For all their rhetoric around expectations for a lower NZD, there was an upward revision to their GDP estimates. The market will watch closely to see if that is reflected in the Q3 data, although in the aftermath of the Fed it might not garner as much attention as usual.
Thursday December 17
EU (UK) - EU Summit: UK PM Cameron hopes to bring up his demands for renegotiating Britain’s membership in the EU at this two-day meeting, rather than at the next one in February. If agreed, the document would form the basis for Cameron’s in/out referendum, which has to be held by the end of 2017 but could take place as early as next summer.
09:00 – Norges Bank rate announcement – Economists look for Norges Bank to hold rates steady, although a few are looking for a further cut. Although Norway is the one industrial country where the central bank isn’t worried about inflation being too low, I expect Norges Bank to take a dovish stance as oil prices continue to decline and the economy as a whole suffers. That could prove negative for NOK.
09:00 – Germany – Ifo Survey (Dec) – The survey is expected to be unchanged from November, with expectations forecast to improve slightly. That would be a vote of confidence in ECB policy and could cause EUR to firm.
09:30 - UK - Retail Sales (Nov) - Retail Sales measure the change in the total value of inflation-adjusted sales at the retail level. It is the foremost indicator of consumer spending, which accounts for the majority of overall economic activity. Any deviation from market forecasts of around +0.5% will likely have an immediate impact on GBP.
13:30 - US - Philadelphia Fed Manufacturing Index (Dec) - Much like the NY Empire State Manufacturing Index earlier in the week, this is a widely watched piece of data, although it may not necessarily be representative of the country as a whole. Any reading above zero indicates improving conditions.
Friday December 18
03:00 – Japan – Bank of Japan MPM /Gov. Kuroda press conference - The BoJ ends its two-day Monetary Policy Meeting (MPM). It looks to me like the BoJ is adopting a “wait and see” policy. They are therefore likely to maintain their current policy at Friday’s meeting, unless there is some shocking result from the Tankan earlier in the week.
13:30 - Canada - CPI / Core CPI - The Bank Of Canada is as focused on inflation as any other central bank. The main concern for them will be the effects of a lower oil price. Having recently held rates at current levels, any weakness in this data will possibly renew calls for a cut in interest rates.
Sunday, December 20th
EU – Spanish General Election -- The election is likely to deliver an unprecedentedly fragmented Parliament. The country has been governed by one of the two major parties for more than 30 years, but this time, the left-wing Podemos Party and the pro-business Citizens Party threaten to deny any party a majority. Given the stunning result of the recent elections in France and Poland, this election will be closely watched.
After last week’s excitement, this is a relatively quiet week for the G10. China on the other hand announces a number of major indicators during the week, including trade, inflation, industrial production, retail sales and fixed asset investment. These reports may clarify some of the confusion about Chinese growth that developed last week when the country’s two PMI reports diverged.
For the G10, Thursday is the big day, when there are three central bank meetings: New Zealand (Thursday morning their time, Wednesday evening GMT), Switzerland and the UK. Only the first is expected to result in a change in rates (see comments below). There are also three ECB members talking on Thursday: Liikanen, Coeure and über-hawk Weidmann. Bank of Japan Gov. Kuroda speaks Monday morning and Bank of Canada Gov. Poloz on Tuesday. Only one Fed speaker is scheduled, St. Louis Fed President Bullard on Monday, as the Fed goes into purdah ahead of its meeting next week. Aside from that, Eurozone finance ministers meet in Brussels on Monday and Tuesday. They will be discussing how to clamp down on terrorist financing, which could have an impact on Bitcoin and other virtual currencies as well as the market in physical gold.
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Monday December 7th
07:00 - Germany - German Industrial Production (MoM) (Oct) - As Europe's industrial powerhouse, this data is always keenly watched. The last 5 readings have all come in lower than forecast with 3 of the last 4 being negative. Another weak release is likely to weigh on EUR.
23:50 - Japan - GDP (QoQ) Q3 - Gross Domestic Product measures the change in the inflation-adjusted value of all goods and services produced by the economy This is the final version of this data, after the provisional number showed a decline of 0.2%. Any deviation from that initial reading will likely have consequences for the JPY. Technically, Japan is in recession as GDP has declined two quarters in a row, but with the working-age population shrinking, we may have to change our expectations about what is “normal” for Japan, because with a shrinking population, overall GDP can decline even as per capita GDP rises.
Tuesday December 8th
00:30 - Australia - NAB Business Confidence (Nov) - The National Australia Bank (NAB) Business Confidence Index rates the current level of business conditions in Australia based on a survey of around 350 companies. While not an official release, this survey is widely watched for a barometer of current economic health. Any reading above zero indicates improving conditions.
02:00 - China - Trade Balance (Nov) - The Trade Balance measures the difference in value between imported and exported goods and services over the reported period. Since China devalued the Yuan back in August there has been a succession of strong numbers. However, this is only because imports are falling even faster than exports are falling. The real interest will lie in the breakdown between the two. While the market is expecting a decline in both, any data worse than forecasts will once again bring into focus just how much China's economy is slowing. Expect a reaction in AUD, which is often used as a liquid proxy for any Chinese data, as 36% of the country’s exports go to China.
09:30 - UK - Industrial / Manufacturing Production (Oct) - After a succession of weaker than expected PMI readings, many economists have put back their forecasts for a possible hike in UK rates. Any weakness in either of these releases will add to that argument. Expect this data to have an immediate impact on GBP.
10:00 - EUR - GDP (QoQ) (Q3) - This will be the final version of this data, with the provisional forecast showing a rise of 0.3%. While last week's disappointing ECB meeting and subsequent sharp rally in the EUR is still fresh on many trader's minds, any surprise weakness in this final release is likely to weigh on the single currency.
Wednesday December 9th
01:30 - China - CPI/PPI (Nov) - Like all Chinese data at the moment, the market is looking for any evidence of further slowing in the economy. While PPI is expected to fall due to lower commodity prices, the real focus will be on CPI. The basic laws of economics state that price is determined by supply and demand. Weaker demand = lower prices. Forecasts are for a drop of just 0.1%. Any release greater than that will like negatively impact both AUD and equities.
15:00 - US - Wholesale Inventories (Mom) (Oct) - Wholesale Inventories measures the change in the total value of goods held in inventory by wholesalers. A higher reading is taken as a negative as goods are not being sold. While the Fed are closely watching inflation and labor market data, recent weak PMIs have started to cast some lingering doubt over the Fed's case for a December interest rate hike. Any significant jump in this data will only add to those concerns and could see a negative reaction from the USD.
20:00 - NZ - RBNZ Interest Rate Decision - The current Bloomberg survey of 18 economists has 16 going for a cut of 0.25%. While the RBNZ has consistently communicated that further rate cuts are possible, recent housing data could cause them to think twice. Pay careful attention to the statement even if they do cut.
Thursday December 10th
00:30 - Australia - Employment Change / Unemployment Rate (Nov) - Last month saw a surprise rise of 58.6k, well above forecasts of 15k. Also encouraging was 40k of that increase coming in full time jobs. Watch for any revisions to that data following the new reading. There will be obvious consequences for AUD.
08:30 – Switzerland – Swiss National Bank (SNB) Interest Rate Decision – While Switzerland has given up on the EUR/CHF floor, it has not given up attempting to weaken the CHF, as the sight deposit data suggests. The rise in EUR following the ECB meeting last week takes some of the pressure off SNB to loosen further. They are therefore likely to keep their target range for the three-month CHF LIBOR rate at the same level once again.
12:00 - UK - Bank of England MPC Vote / Interest Rate Decision - As has been the case for the past few meetings, more focus is likely to be on the voting pattern of the 9 person committee rather than the actual outcome, which is more or less a foregone conclusion. Both rates and the level of QE are expected to remain unchanged, with a voting pattern of 8-1 in favor of doing so. Any change in that breakdown will have consequences for GBP.
Friday December 11th
13:30 - US - Retail Sales / Core Retail Sales (Nov) - Retail Sales measure the change in the total value of inflation-adjusted sales at the retail level. It is the foremost indicator of consumer spending, which accounts for the majority of overall economic activity. Given that December's Fed meeting is only a few days away, all eyes will be on this important barometer of economic activity. The market will be looking for a 5th consecutive release of positive data.
13:30 - US - PPI (MoM) (Nov) - The Producer Price Index (PPI) measures the change in the price of goods sold by manufacturers. It is a leading indicator of consumer price inflation, which accounts for the majority of overall inflation.The last 2 months have seen a drop in PPI due to weaker commodity prices. A further small drop is expected for November, but any more than the 0.1% forecast may catch the Fed's eye.
15:00 - US - Michigan Consumer Sentiment (Dec) - The University of Michigan Consumer Sentiment Index rates the relative level of current and future economic conditions. This is the provisional reading, with the final reading coming in 2 weeks’ time. Any significant deviations from forecasts could have an impact on the USD.
Saturday December 12th
05:30 - China – Retail Sales, Industrial Production & Fixed Asset Investment (Nov) – There is much confusion nowadays about the strength of the Chinese economy, particularly after last week’s two manufacturing PMIs diverged notably. Saturday’s data is expected to highlight how the government’s efforts to restructure the economy are impacting the economy: retail sales are expected to remain robust, while industrial production is expected to languish at relatively low (for China) levels.
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Our investment research team has collated a summary of the most important upcoming economic events for this week, helping you on your journey to successful trading. All times listed below are in GMT.
Monday November 30th
13:00 - Germany - German CPI (Nov) - The German Consumer Price Index (CPI) measures the change in the price of goods and services purchased by consumers. As Europe's largest economy and with all eyes on possible ECB action later in the week, the market will watch carefully for confirmation of continuing benign inflation data. This is the provisional release, with the final version coming on December 11th.
14:45 - USA - Chicago PMI (Nov) - The Chicago Purchasing Managers' Index (PMI) determines the economic health of the manufacturing sector in the Chicago region. A reading above 50 indicates expansion of the manufacturing sector; a reading below indicates contraction. While not necessarily representative of the whole country, this number can have an immediate impact on the USD. 2015 has seen 5 releases sub 50 thus far. Prior to that, you would have to go back to April of 2013 for the last reading under 50.
15:00 - USA - Pending Home Sales (MoM) (Oct) - The National Association of Realtors (NAR) Pending Home Sales Report measures the change in the number of homes under contract to be sold but still awaiting the closing transaction, excluding new construction. The housing market is an important barometer of economic strength within the US economy. The last last 5 readings have all been negative, so investors will be looking for a rebound in October, especially given the Federal Reserves proximity to a possible hike in interest rates.
Tuesday December 1st
00:30 - Australia - Building Approvals (MoM) (Oct) - This data measures the change in the number of new building approvals issued by the government and is a key indicator of demand in the housing market. In general quite a volatile number but a better than expected release should have positive consequences for the AUD.
01:00 - China - Manufacturing / Non-Manufacturing PMI (Nov) - This data provides an early indication each month of activity in the Chinese economy. Every month questionnaires are sent to over 700 manufacturing and non-manufacturing businesses across China. The data is compiled from the responses about their purchasing activities and supply situations. A reading over 50 is considered expansionary, below 50 contractionary. Given the global concern over the slowing of the world's second largest economy, investors will watch nervously for a 4th consecutive sub 50 Manufacturing number. Any impact is likely to be seen in global equities as well as the AUD.
01:45 - China - Caixin Manufacturing PMI (Nov) - This is the unofficial version released by the Caixin media company and is compiled from a monthly survey of around 430 purchasing mangers. While the market tends to focus on the 'official' release 45 minutes earlier, many economists believe this data gives a more accurate picture of the current economic situation. As with the official version, look for a reaction from AUD and equity markets.
03:30 - Australia - Interest Rate decision (Dec) - A Bloomberg survey of 29 economists has just 2 calling for a cut in rates, with the rest looking for no change. As is often the case with Central Bank rate decisions, it will likely be more about what they say than what they do.
08:55 - Germany - Manufacturing PMI (Nov) - The German Manufacturing Purchasing Managers' Index (PMI) measures the activity level of purchasing managers in the manufacturing sector. A reading above 50 indicates expansion in the sector; below indicates contraction. This is the final release following the provisional reading of 52.6 on November 23 rd. Any revision is likely to have an immediate reaction from the EUR.
08:55 - Germany - Unemployment Rate (Nov) - The German unemployment rate measures the percentage of the total work force that is unemployed and actively seeking employment during the reported month. This release has been steady at the 6.4% level since early 2015 and is not expected to change this time around.
09:30 - UK - Manufacturing PMI (Nov) - Same as other PMIs for the manufacturing sector. Last month saw a spike higher to 55.5 after several months of weaker readings, Investors will watch closely to see if this was just a 'one-off' reading with obvious consequences for GBP.
13:30 - Canada - GDP (MoM) (Sep) - After a series of negative readings, the last 3 months have shown positive growth. The market will be looking for a continuation in this trend. Note, unlike other G7 nations, Canada releases GDP data on a monthly rather than quarterly basis.
15:00 - USA - ISM Manufacturing PMI (Nov) - The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies. Like other PMI data, 50 is the line in the sand. Both September and October saw readings very close to that level. One would have to go back to June of 2013 for a sub 50 release. Anything under 50 should see an immediate negative impact on the USD.
TBD - UK - "Super Tuesday" in UK with the Financial Stability report , Financial Policy Committee report, and 2015 Bank Stress Test results. Keep an eye on the latter for any banks failing the stress test and a possible negative impact on GBP.
Wednesday December 2nd
00:30 - Australia - GDP (QoQ) (Q3) - Gross Domestic Product (GDP) measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy. It is the broadest measure of economic activity and the primary indicator of the economy's health. Forecasts are for an increase of 0.6% for the quarter or 2.2% on an annualized basis. Expect the AUD to react to any data releases outside of those forecasts. The weakness in commodity prices as well as the slowdown in China during Q3 could negatively impact the final reading.
09:30 - UK - Construction PMI (Nov) - The construction sector is an important one for the UK economy, so any release significantly outside of market forecasts is likely to have an immediate impact on GBP. You would have to go back to May 2013 for a reading sub 50.
10:00 - Euro Zone - CPI (YoY) (Nov) - The most direct and simple measure of inflation, CPI measures measures the change in price of goods and service from a consumer perspective. Given this data comes just a day before the ECB's December meeting and possible introduction of further easing measures, this release takes on greater significance. Looking at the graph below, we can clearly see the prolonged drop in CPI since late 2011.
13:15 - USA - ADP Non-farm employment change (Nov) - The ADP National Employment Report is a measure of the monthly change in non-farm, private employment, based on the payroll data of approximately 400,000 U.S. business clients. It acts as a gauge for Friday'sofficial government release. Any outlying number is likely to have an immediate impact on the USD.
15:00 - Canada - Interest Rate decision - A Bloomberg survey of 16 leading economists has all of them calling for no change in rates. As per the RBA earlier in the week, it's likely to be more about what they say than what they do.
Thursday December 3rd
00:30 - Australia - Trade Balance (Oct) - The Trade Balance measures the difference in value between imported and exported goods and services over the reported period. Weaker commodity prices and a slowing Chinese economy have kept Australia in a trade deficit since May 2014. Unless the data is way off market forecasts, expect little impact on the AUD.
09:30 - UK - Services PMI (Nov) - The Service sector is very important to the UK economy so the market will pay close attention to this data. Like all PMI data 50 is the important level, but expect GBP to react to any data that diverges from market forecasts.
12:45 - Euro Zone - Interest Rate Decision (Dec) - There has been a lot of rhetoric and speculation around this particular ECB meeting. As the ECB have said themselves, there are many tools available to them to ease rates and spur inflation. It is widely expected they will do something, but what is open to much debate. The most likely course of action appears to be a cut in the Deposit Facility Rate, but there could well be other initiatives. The reaction for EUR will very much depend on the degree of action from the ECB. Expect a lot of volatility around the announcement and more over the ensuing press conference.
15:00 - USA - ISM Non-Manufacturing PMI (Nov) - The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers' Index (PMI) report is a composite index, calculated as an indicator of the overall economic condition for the non-manufacturing sector. While not usually claiming as much attention as the Manufacturing PMI, any divergence from economists forecasts will likely see a reaction from the USD.
Friday December 4th
00:30 - Australia - Retail Sales (MoM) (Oct) - As the foremost indicator of consumer spending and overall economic activity, this data will act as a barometer for the current health of the Australian economy. Current forecasts are looking for an increase of 0.3% after 2 consecutive months of 0.4% growth. Expect AUD to react to any significant miss on this number.
13:30 - USA - Non-farm Payrolls (Nov) / Unemployment Rate (Nov) / Average Hourly Earnings (Nov) - It's that time of the month people. The last 2 months have seen much volatility around this number, with September missing badly to the downside and October surprising to the topside. With the Fed eagerly eyeing a 'lift-off' in rates at their December meeting, they will look for confirmation that the economy is still creating jobs in numbers. While the current consensus is for a headline number of +200k, expect a strong reaction from the USD to any divergence from this forecast. Also keep a close eye on revisions to last month's release. While the Unemployment Rate is expected to remain unchanged at 5%, look for any increases in Average Hourly Earnings. The Fed has long complained that lack of wage growth has held them back from raising rates, so they will be looking for a strong number here.
13:30 - Canada - Employment change (Nov) / Unemployment Rate (Nov) - Not to be outdone by their cousins to the south, Canada also has employment data. Unlike the US reading, Canada breaks down any gains and losses in employment between full-time and part-time jobs, with full-time changes carrying far greater weight. Expect the Unemployment Rate to remain at 7%. CAD reaction is difficult to predict as the US numbers often swamp the market and distort any significant changes in the CAD data.
15:00 - Canada - Ivey PMI (Nov) - The final PMI for the week is a joint project of the Purchasing Management Association of Canada and the Richard Ivey School of Business. As usual 50 is the line in the sand between expansion and contraction. March of this year was the last sub 50 reading. The earlier employment data in both the US and Canada might dampen the reaction to this release, but the 'Ivey' is still a respected barometer for Canada's overall economic health.
TBD - OPEC meeting - The Organization for Petroleum Exporting Countries has it's December meeting in Vienna, Austria. Watch for any headlines around supply and an immediate impact on the price of Oil as well as possibly CAD. The Press Conference is scheduled for15:00 GMT but there could well be headlines from as early as 09:00 GMT.
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Our investment research team has collated a summary of the most important upcoming economic events for this week, helping you on your journey to successful trading. All times listed below are in GMT.
This week we get several countries’ preliminary PMIs, revised GDP figures, and sentiment indices. There are speakers from the ECB, BoE, RBA and Norges Bank, but no Fed officials. The focus will probably be on the PMIs on Monday, the central bank speakers on Tuesday and Wednesday’s UK Autumn Statement and Spending Review. The end of the week should be quieter.
Monday, 23 November
Preliminary Markit Purchasing Managers’ Indices (PMIs) for November for France (0800 GMT), Germany (0830 GMT), Eurozone (0900 GMT) and US (1445 GMT). Last month, the Eurozone flash composite PMI surprised on the upside thanks to a stronger services reading and a stable manufacturing sector. This month, it’s expected to be largely unchanged at 54.0, which would be consistent with relatively robust GDP growth of some +0.4%-+0.5% qoq in Q4, at the high end of market estimates. This is not likely to affect the ECB’s view however as the Council has recently highlighted the divergence between a steady domestic recovery and a fragile external environment.
The US indicator is also expected to be stable. Thus the figures should show no change in the economic picture and therefore may not have that much of an impact on FX markets.
The events in Paris are not likely to have an impact as the people filling out the form are asked how current activity compares to the previous month’s activity, not how they expect the next month’s activity to be.
US Existing Home Sales (October) 1500 GMT: The pace of home sales has picked up modestly so far this year. The market expects some fall back in the figure in October, but not significantly enough to affect the view of a steadily improving housing market, particularly as housing starts and building permits for October were respectable.
Tuesday 24 November
: German Q3 GDP (final revision), 0700 GMT. The final revision is expected to confirm the initial estimate, so the focus will be as usual on the details: how much the expansion was driven by the private sector and the government, and how big a drag were investment and net trade.
Germany: Ifo business survey (November), 0900 GMT: The current assessment is expected to fall slightly but the future assessment is expected to rise by about the same amount. That could prove EUR-negative, as in general a fall in the current index seems to carry more weight with the market than a rise in the expectations index. Furthermore, the surveys were filled out before the attacks in Paris and so the market may discount even an improved expectations index.
US: Q3 GDP (2nd revision), 1300 GMT: The market expects to see US GDP revised up to slightly over 2% qoq SAAR, which would be in line trend growth estimates. That means growth would not be a stumbling block for the Fed to raise rates next month. A turnout in line with market estimates or higher may therefore be positive for the dollar. The Core Personal Consumption Expenditure index (PCE), the Fed’s favorite gauge of inflation, is not expected to be revised.
Tuesday is a big day for central bank speakers. ECB Council members Costa, Mersch, Nouy and Panetta (Bank of Italy Governor) all speak, in addition to the RBA’s Stevens. Bank of England Gov. Carney and Chief Economist Haldane testify to the Parliamentary Treasury Committee. Also the Bank of Japan meeting minutes will be released.
Wednesday, 25 November
UK: Autumn Statement and Comprehensive Spending Review 2015, 1230 GMT: Shortly after the election, Chancellor Osborne announced GBP 12bn of spending cuts and said he would give the details of a further GBP 20bn in cuts in the Autumn Statement. He also has to find some GBP 4bn that he was hoping to save from tax credit reform, not to mention increased security costs now. This means he could revise up his borrowing forecasts. That could be negative for the pound.
US: Durable Goods orders (Oct), 1330 GMT: Durable goods orders have largely stagnated this year. Economists are looking for some rise in October, which would add to the view of an economy on the mend.
US: Personal Income & Spending (Oct), 1330 GMT: Both income and spending are expected to show a decent rise over September’s pace of growth, which could bolster the Fed’s view that the labor market has recovered to the point that workers are starting to benefit. The yoy rate of increase in the PCE deflator is expected to accelerate somewhat as well, which would also add to their confidence about raising rates next month. Possibly USD-positive.
US: New Home Sales (Oct), 15:00 GMT The pace of new home sales has picked up somewhat this year, but the market expects that it fell back a bit in October. This should not be enough to change anyone’s view on the economy however.
Thursday, 26 November
EU: Money supply figures (Oct), 0900 GMT Money supply growth is expected to remain steady. Private sector loan growth fell slightly in September but may have rebounded in October, as the latest ECB Bank Lending Survey shows that loan demand continues to grow. In theory that could take some of the pressure off of the ECB to ease at next month’s meeting, but in fact they have so actively foreshadowed a further easing at the meeting that it would take some remarkable improvement to stall it.
Japan: National CPI (Oct), 2330 GMT: The national CPI for October is expected to move into positive territory on a yoy basis, but the core figure, excluding food and energy, is expected to decelerate a bit. These mixed signals on inflation should keep the pressure on the Bank of Japan, which in any case is looking at its own indicator of inflation – which conveniently shows a rate much closer to its target. Potentially JPY-negative.
Friday, 27 November
UK: Q3 GDP (2nd revision) 0930 GMT The market is not predicting any change in the Q3 GDP figure from the disappointing flash release. The focus then will be as usual on the breakdown of the figures and particularly how much of a drag net exports will be on growth, following their positive contribution in Q2. That could be a negative factor for sterling on the day.
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FXPRIMUS’ Senior Analyst, Dave Hannigan has collated a summary of the most important upcoming economic events for your convenience, helping you on your journey to successful trading. All times listed below are in GMT.
Monday 9th November
07:00 - EUR - German Trade Balance (Sep) - As Europe's largest economy, the financial markets watch for any data from Germany with a keen eye. Last month's Trade Balance came in significantly lower than expected, so the market will be looking for a pick-up from the lowest reading in six months. Expect any renewed weakness to weigh on EUR.
Tuesday 10th November
00:30 - AUD - NAB Business Confidence (Oct) - The National Australia Bank Business Confidence Index is a well respected barometer of economic conditions and possible future economic performance. The data is collected from a survey of approximately 350 companies, with a reading above 0 indicating improving conditions. A significantly stronger or weaker number should have immediate consequences for the AUD.
02:00 - CNY - CPI (Oct) - The Consumer Price Index measure the change in the price of goods and services from a consumer's standpoint - one of the most significant readings of inflation. Much focus has been on the Chinese economy over the past 3 months, with global equity markets selling off sharply in August as a reaction to the PBoC's attempts to stimulate their economy. Equities have regained much of their losses, but the markets are still wary of any sign of Chinese weakness. A significantly weak number will only add to those concerns. Expect equities and AUD to react to any outlying number.
06:45 - CHF - Unemployment rate (Oct) - The Swiss Unemployment rate is not the most volatile of data releases, but any significant divergence from market expectations could have short-term consequences for the CHF.
Wednesday 11th November
05:30 - CNY - Industrial Production / Retail Sales (Oct) - As with any data release from China, the markets watch nervously for any sign of weakness. The trend for Year on Year Industrial production has been lower since reaching a peak of over 19% in November 2009 . October's forecast number of 5.8% is the lowest forecast in 6 years, so watch carefully for any divergence from that number. Retail Sales in China have started to pick up since a low of 10% in April. Investors will be keen to see that trend continuing.
09:30 - GBP - Average Earnings Index / Unemployment Rate (Sep) - Last week's Bank of England rate decision and statement pointed to downside risks for inflation and growth. Much has been made of the BoE potential to hike rates in the near term, but the timing has now been pushed well back into 2016 and GBP has suffered as a consequence. One of the most significant elements of inflation for any central bank is wage growth, so watch carefully for any stronger than expected data, as GBP is likely to react positively, especially given the weakness over the past week.
Thursday 12th November
00:30 - AUD - Employment Change (Oct) - Australia's equivalent of NFP day. Any strength or weakness will have immediate consequences for the AUD. Unlike in the US, there will be a breakdown between the changes in full-time and part-time employment, so keep an eye out for that. Greater weight is given to the full-time component.
07:00 - EUR - German CPI (Oct) - The ECB have repeatedly expressed concerns about the lack of inflation in the Euro Zone and the tools they have at their disposal to tackle the problem. No doubt, they will be watching the German data carefully after September's weak data. This is the final reading for October - the provisional number released on October 29th showed an increase of 0.3%.
13:30 - USD - Initial Jobless Claims - This is a weekly release, showing the number of individuals who filed for unemployment insurance for the first time over the past seven days. Last week saw a surprise jump from 260k to 276k, butFriday's stronger than expected NFP data will have overshadowed that. Any divergence from the forecast number could have short-term consequences for the USD.
Friday 13th November
04:30 - JPY - Industrial Production (Sep) - After two consecutive months of negative readings, the market is expecting a bounce back in September. The provisional release showed an increase of 1% so any number significantly above or below that number could have seen a reaction from the JPY.
07:00 - EUR - German Gross Domestic Product (GDP) (Q3) - Like any German data, there are broader consequences for EUR if there is any divergence from the expected release. This is the provisional release for Q3 with the final number being published on November 24th.
13:30 - USD - PPI / Retail Sales (Oct) - This is the most important data release from the US this week. PPI measures the change in the price of goods and services sold by manufacturers and is a leading indicator of consumer price inflation.The Core data excludes the more volatile food and energy sectors. As the Fed move ever closer to a 'lift-off' in interest rates, any measures of inflation are going to come under ever-increasing scrutiny. Last weeks NFP data will have satisfied the 'employment' part of their equation. Inflation needs similar confirmation. Retail sales is a significant indicator of economic activity so watch for a USD reaction to any strength or weakness in that data.
15:00 - USD - Michigan Consumer Sentiment (Nov) - The data is collected from a survey of around 500 consumers and focuses on the relative levels of current and future economic conditions.This is the provisional release for this number, with the revised reading coming two weeks later. Forecasts expect a slight increase from October's release of 90.0.
FXPRIMUS’ Senior Analyst, Dave Hannigan has collated a summary of the most important upcoming economic events for your convenience, helping you on your journey to successful trading. All times listed below are in GMT.
Monday November 2nd
08:55 - EUR - German Manufacturing PMI (Oct) - The Purchasing Managers Index measures the activity of purchasing managers in the manufacturing sector. This data is widely watched as purchasing mangers usually have early access to data about their company's performance which can be a leading indicator of overall economic performance. As Europe's largest economy, the market watches Germany closely for any sign of economic weakness. Any number over 50 is considered expansionary, below 50 contractionary.
09:30 - GBP - UK Manufacturing PMI (Oct) - As per the German number 35 minutes earlier, the market will watch closely for significant data away from market expectations. Since reaching a high reading of 58.1 in February, the data has been trending lower, although the market is still expecting a release above 50.
15:00 - US - ISM Manufacturing PMI (Oct) - Not to be outdone by Germany and the UK, the Institute of Supply Management produces a PMI for the US based on responses from over 400 industrial companies.The expected number is 49.6 which would be the first sub 50 reading since June 2013. Watch for any negative market reaction to the data.
Tuesday November 3rd
03:30 - AUD - Interest Rate Decision - In a Bloomberg survey of 29 economists, 18 go for no change and 11 go for a cut of 0.25%, The lower CPI reading of last week coupled with low commodity prices could sway the RBA into a cut in rates. If they do not cut, pay close attention to the accompanying statement.
09:30 - UK - Construction PMI (Oct) - This PMI reading focuses on the all important construction industry. Last months number of 59.9 was the strongest since October 2014 so investors will watch closely for a continuation of that trend.
21:45 - NZD - Employment Change Q3 - The RBNZ statement last week was fairly dovish, suggesting further rate cuts could be on the cards. Any weakness in employment is likely to tip their hand, so keep a watchful eye on the market reaction to a weak number.
Wednesday November 4th
00:30 - AUD - Retail Sales and Trade Balance (Sep) - Although the RBA rate announcement will have been released 21 hours earlier, the market will watch very closely for any signs of weakness in both retail sales and the trade balance. With China being such a significant trading partner for Australia, any slowing in the worlds second largest economy will have a direct impact. Last months trade number was considerably worse than expected, so traders will be bracing themselves for a repeat performance.
09:30 - UK - Services PMI (Oct) - Yet another PMI reading, this time for the services sector. Last month saw a surprising dip for this number, reaching it's lowest level since May 2013. The service sector is very important to the UK economy so watch for any continuation in that weakness.
13:15 - US - ADP Non-farm Employment Change (Oct) - It's that time of the month! ADP is the largest provider of payroll services in the US, releasing their own data ahead of the official government data on Friday. Historically it has acted as a good barometer for the official number, although last month there was a significant divergence. The market will likely react to a number straying far from the forecast, but will save most of its energy for Friday's official release.
15:00 - US - ISM Non-manufacturing PMI (Oct) - It must be global PMI week! This time the non-manufacturing sector (services sector). Once again 50 is the line in the sand. Any number significantly away from the forecast will likely impact the USD.
Thursday November 5th
12:00 - UK - Interest Rate decision - Like the Fed, the Bank of England has been hinting at a future hike in interest rates off the current 0.5% base rate. The expected increase in inflation has yet to fully materialize so expect rates to remain unchanged. The real market reaction will come from the voting pattern (expected 8-1 in favour of no change) and what they say in the statement. As we have seen from both the ECB and Fed, a few choice words here and there can get the market moving quickly!
15:00 - CAD - Ivey PMI (Oct) - Even Canada has a PMI this week! The Richard Ivey Business School teams up with the Purchasing Management Association of Canada to produce this data. The first 3 months of the year saw contractionary data, but since then there has been a significant improvement.
Friday November 6th
09:30 - UK - Industrial and Manufacturing Production (Sep), Trade Balance (Sep) - While the Bank of England's main focus is inflation, they will be watching all other barometers of economic health very closely. Look for an immediate reaction from GBP if there is any divergence from the forecasts
13:30 - US - Non-farm Payrolls, unemployment rate (Oct) - The Fed have said it many times and reiterated just last week - any rate hikes are data dependent, most significantly around the labor market and inflation. Last months data saw a bad miss to the downside with the USD getting sold aggressively immediately after the number. The market will not want to see a repeat this month, despite the hawkish rhetoric from the Fed. +180k appears to be the consensus forecast with the unemployment rate remaining at 5.1%.
13:30 - CAD - Employment change, unemployment rate (Oct) - Canada's version of NFP. The only difference being a breakdown in the changes in full-time and part-time employment. Watch carefully for that breakdown as any move towards more full time jobs is viewed more positively.
FXPRIMUS’ Senior Analyst, Dave Hannigan has collated a summary of the most important upcoming economic events for your convenience, helping you on your journey to successful trading. All times listed below are in GMT.
Monday October 26th
09:00 - EUR - German IFO Business Climate Index (Oct) - This index is compiled by the Institute for Economic Research and is based on a survey of builders, manufacturers, wholesalers and retailers. It is widely viewed as key barometer of future economic sentiment. Any significant divergence from market expectations will likely impact the EUR.
14:00 - USD - New Home Sales (Sep) - This data measures the annualized number of new single-family homes that were sold during the prior month. The number will give insight into the largest single component of consumer spending as well as the building industry. A higher than expected reading should be positive for USD.
21.45 - NZD - Trade Balance (Sep) - The trade balance is the difference in value of exported and imported goods and services over the month. Given the recent drop in dairy prices and the slowdown in imports in China, the market will be looking for any impact on this data with immediate consequences for the NZD.
Tuesday October 27th
09:30 - GBP - Gross Domestic Product (Q3) - This is the first of two provisional readings before a final number at the end of December. GDP measures the annualized change of the inflation-adjusted value of goods and services in the economy. While most focus is on the final number, the market will be looking for any release significantly outside of expectations. The Bank of England has reiterated a number of times that they expect an uptick in inflation and with it a hike in interest rates. However, any economic weakness will push that event further back. Keep a close eye on this number.
12:30 - USD - Durable Goods Orders and Core Durable Goods Orders (Sep) - This is a measure of the value of long lasting manufactured goods orders. (The Core number strips out large, volatile transportation items such as aircraft.) Outside of housing, these items tend to be the next most significant component of consumer spending and thus a strong barometer of economic health.
14:00 - USD – Conference Board Consumer Confidence (Oct) - As a measure of overall consumer confidence this data can act as a strong predictor of consumer spending, which plays a major role in economic activity. A stronger number should be positive for the USD.
Wednesday October 28th
00:30 - AUD - CPI (Q3) - The Consumer Price Index is a key indicator of inflation. The recently released RBA minutes were not as dovish as the market had been expecting. So all eyes will be on this data to confirm a continuation in the pick-up in inflation seen in Q2, after weak readings in the prior two quarters.
12:30 - USD - Goods Trade Balance (Sep) - This number does not attract the attention it once used to, however the market will be watching closely for any further deterioration after the Chinese devalued the Yuan back in August.
18:00 - USD - FOMC Rate Decision - As many FOMC members have alluded to, this is a live meeting, meaning if they want to make a change in rates they can. As the market has been told many times, any rate change will be data dependent. So has the data been strong enough? All will be revealed, with obvious consequences for the USD. If they don’t change policy at this meeting, they may use the statement following the meeting to signal their intentions and whether a rate hike this year is still likely. With the Chinese stock market more stable and the VIX index down sharply, look for any comments on improvements in “global economic and financial developments.” The main point of course would be any changes in the key sentence setting out the Fed’s criteria for hiking rates, namely, “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
20:00 - NZD - RBNZ Rate Decision - It's also 'rate day' in New Zealand. The market is not expecting any change, however given the recent rhetoric from the RBNZ coupled with weaker data (not to mention the ECB’s more dovish stance), be prepared for any surprises. As per the ECB last week, it could be more about what they say than what they do. They may decide, like the ECB, to wait to make any change in stance until after the publication of the quarterly Monetary Policy Statement (MPS) on 10 Dec., but hint at a change this time around.
Thursday October 29th
12:30 - USD - GDP (Q3) - This will be the first of two provisional readings before a final number at the end of December. Q3 was a volatile quarter with the market turmoil and Yuan devaluation in August. Financial markets will be watching closely for any signs of weakness, albeit a day after the FOMC meeting.
14:00 - USD - Pending Home Sales (Sep) - The National Association of Realtors report shows the change in the number of homes under contract to be sold. Like all the housing data, as the single largest component of consumer spending, it acts as a strong barometer of economic health.
Friday October 30th
04:00 - JPY – Bank of Japan Rate Decision – Bank of Japan meetings are usually non-events for the market, but this one is likely to cause major volatility in the FX market. The October meeting brings an update of the Bank’s forecasts, and nearly half of the market analysts polled expect the Board to respond to yet another downgrade in inflation expectations with further loosening, probably by increasing the monthly bond purchases in the QQE program. Last Thursday’s ECB meeting made a move even more likely, as its acceptance of deeply negative deposit rates now puts the BoJ’s target for the unconditional call rate into play as well. However, BoJ Gov. Kuroda continues to emphasize that the economy is recovering and that the BoJ’s new inflation measure (excluding fresh food and energy) is rising steadily. He has also been happy to defer the target when inflation was depressed by low oil prices. Moreover, research has shown that the BoJ is already buying up so much of the Japanese government bond market that it would be difficult for it to source more paper. Thus Friday’s decision is up for grabs. I expect that there is more upside risk to USD/JPY than downside risk; that is to say, I expect USD/JPY to move a decent amount either way, but that the pair is likely to move up in response to further easing more than it’s likely to move down in case they do nothing.
10:00 - EUR - CPI (Oct) - Given last week’s comments from the ECB around their asset purchase program and their determination to get inflation higher, this number will be watched closer than ever. The ECB could well use a variety of tools at their December meeting to ease rates further and any weakness in this data is likely to tip their hand.
12:30 - USD - Employment Cost Index (Q3) - Historically this is not a number that has caused a great deal of market reaction, however that changed with the release of a weak Q2 number at the end of July. With the Federal Reserve so focused on inflation and in particular weak wage growth, I would watch this number carefully, even though it comes 2 days after the FOMC meeting.
12:30 - CAD - GDP (Aug) - Unlike other major industrialized nations, Canada releases GDP on a monthly rather than quarterly basis. After three consecutive months of negative growth, June and July showed positive numbers. The market will be looking for a continuation in that trend, especially given the rather downbeat Monetary Policy Statement from the Bank of Canada last week.
14:00 - USD - Michigan Consumer Sentiment (Oct) - This is the updated reading after the preliminary number 2 weeks ago. A stronger than expected number should be positive for the USD
Monday 12th October
US - Holiday - Columbus Day
Canada - Holiday - Thanksgiving Day
Japan - Holiday - Health-Sports Day
20:30 - AUD - National Australia Bank Business Confidence (Sep) - Several of the Australian banks conduct their own independent surveys on business confidence. The NAB index is the most widely respected and can be an early signal of economic activity. Keep in mind this data was collected in September when there was still turmoil in equity and commodity markets. A significantly lower number could weigh on AUD.
23.15 - China - Trade Balance (Sep) - Even though the focus on a slowing Chinese economy has dwindled in the past 2 weeks, the markets will be keen to observe just how much the world's second largest economy is slowing. Expect a significant reduction in the trade balance from August, with both exports and imports to fall. As usual, the AUD will most likely be impacted the most from an extreme number.
Tuesday 13th October
04:30 - UK - Consumer Price Index (Sep) - As the Bank of England alluded to in their MPC minutes released earlier this week, the near term inflation outlook has weakened. With that, any rate increase expectations have been pushed back deeper into 2016. Markets will be watching closely for any deviation from the expected number, especially to the downside.
05:00 - EUR - German ZEW economic sentiment (Oct) - This number has been in steep decline since March and is once again expected to fall. Some of that decline would have been attributable to the Greek crisis, but recent developments in global equity markets as well as weak data from Germany are likely to weigh further on this reading. Watch for EUR to react to any significant divergence from an expected number of 6.0.
21.30 - China - Consumer Price Index and Producer Price Index (Sep) - In line with the theory that the Chinese economy is rapidly slowing, investors will look to this inflation data for further evidence. Any weakness will likely have a negative effect on equities as well as AUD.
Wednesday 14th October
04:30 - UK - Average Earnings Index + Bonus (Aug) - Given the focus on UK inflation and the consequences for the timing of any rate hike, this number will take on added significance. Although the data is old (August) and the BoE have since admitted that the UK inflation outlook has weakened, expect any divergence from the forecast +3.1% to have an immediate impact on GBP.
04:30 - UK - Claimant Count and Unemployment Rate (Sep, Aug) - Released at the same time as the earnings data, this number will likely take a back seat. No change in the unemployment rate is expected.
08:30 - US - Retail Sales (Sep) - One of the most important indicators of economic activity. There will be 2 numbers - the headline number and the core reading which excludes food and energy. The markets will be looking to see if the sharp sell off in US equity markets in August had any direct impact on consumer spending.
08:30 - US - Producer Price Index (PPI) (Sep) - Focus will be on the core number which excludes the volatile food and energy sector. PPI measures price change from the perspective of the seller. When producers pay more for goods and services, they are more likely to pass on the higher costs to the consumer. Therefore PPI is considered a leading indicator of consumer inflation. We all know the Fed are most concerned with reaching specific inflation targets, so watch carefully for market reaction around this number.
20:30 - AUD - Employment Change (Sep) - The headline number will be broken down by full-time and part-time employment changes. Pay particular attention to any losses in the full-time category - an increase in the headline number alone is not necessarily positive for the AUD.
Thursday 15th October
08:30 - US - CPI and core CPI (Sep) - With the Fed's current focus on inflation and the consequences for the timing of a hike in interest rates, this data is probably of equal importance to the Non-Farm Payrolls number. Any divergence away from the expected increase of 0.1% in the core number (ex food and energy) will have immediate consequences for the USD and global equity markets.
10:00 - US - Philadelphia Fed Manufacturing Index (Oct) - The "Phily Fed" index is compiled from a survey of about 250 manufacturers in the Philadelphia region. While not necessarily representative of the whole country, the market watches closely for any fluctuations in economic conditions. Zero is the watermark, any level above indicating improving conditions, below, worsening.
Friday 16th October
09:15 - US - Industrial and Manufacturing Production (Sep) - 2 more barometers of economic strength. While not as significant as inflation and employment data, the Fed will be watching for any weakness in either number, which will likely cause the USD to move lower.
10:00 - US - Michigan Consumer Sentiment (Oct) - This is the provisional version of the data, with the final version released 2 weeks later. A straight forward index of consumer sentiment, this gives insight into how consumers view the economy and the likely impact on their spending habits, which make up a high percentage of overall economic activity.
Monday September 28th
08:30 USA - US Personal Income and Personal Spending (August) - Since the September FOMC meeting and subsequent comments by Fed Chair Janet Yellen, the markets will be looking for any confirmation of health in the US economy, especially inflation. Personal Income measures the change in the total value of income from all sources, which in turn directly affects the amount of consumer spending. Remember, wage growth was one of the Fed's concerns that led them to keeping rates unchanged. This data should take on more significance than usual.
10:00 USA - US Pending Home Sales (August) - This number measures the change in the number of homes under contract to be sold, excluding new construction. With housing being the single largest item in most household budgets, this data is a good barometer of overall economic health.
Tuesday September 29th
08:00 - GER - German CPI (September) - This is a provisional reading of the change in the price of goods and services for Europe's largest Economy. With all eyes on inflation amid recent rhetoric from the ECB about having the tools to increase Quantitative Easing (QE) should their inflation goals not be met, any weakness is likely to negatively impact EUR.
10:00 - USA - CB Consumer Confidence (September) - The Conference Board measure of consumer confidence indicates the level of consumer economic optimism. This will be the first data set to fully include the equity market turmoil of August and September. It will be interesting to see how negatively confidence is impacted as there are direct implications for consumer spending.
Wednesday September 30th
04:30 - UK - UK GDP (Q2) - This will be the 3rd and final release of this data. As the broadest measure of economic health, the market will look closely for any revision of the prior preliminary releases. GBP has suffered since the FOMC meeting as the market believes the Bank of England will view the current world economic situation in a similar light to the Fed. As a result, projections for any UK rate hike have been put further back into 2016. While not a measure of inflation, any divergence from market expectation will have an immediate impact on GBP.
08:15 - USA - ADP Non-farm Employment Change (September) - ADP handles the payroll needs for over 400,000 US businesses. This number acts as a precursor to the official government data released on Friday. Whilst not a perfect correlation to the official data, it will give the market some idea of the hiring trends for September.
08:30 - Canada - GDP (July) - Unlike a lot of countries, Canada takes monthly measures of GDP, rather than quarterly ones. After a series of negative releases, June finally showed some positive growth. While the Oil price drop is expected to negatively impact July's number, the market is still looking for a positive reading. Any weakness will negatively impact CAD.
21:00 - China - Manufacturing PMI (September) - With the world watching China's economy closely, the Purchasing Managers Index will give an updated indication of China's economic health. A release below 50 is considered contractionary, and will negatively impact currencies with strong ties to China such as AUD. Note - this is the official government release.
21:45 - China - Caixin Manufacturing PMI (September) - As above, but this is independent data gathered by HSBC and often considered a better indicator than the official version 45 minutes earlier. This will be an update on last weeks release, which saw the index sink to a multi-year low.
Thursday October 1st
10:00 - USA - ISM Manufacturing PMI (September) - Another important barometer of economic health. The Institute of Supply Management compiles this report from responses from over 400 industrial companies. As with all PMI readings, 50 is the critical level. While not an official government release, both the markets and the Fed will be watching closely.
21:30 - AUD - Australian Retail Sales (August) - Australia's economy is highly dependent on China due to the significant amount of commodity and raw material exports to the world's second largest economy. As commodity prices have fallen and China's economy has slowed, the Australian economy has been negatively impacted and the AUD has weakened. After the turmoil in global equity markets in August, the markets will be looking to see if there has been any direct impact on consumer spending, with likely immediate consequences for the AUD.
Friday October 2nd
08:30 - USA - Non-farm Payrolls (September) - Normally the most watched data release of the month, this measures the total change in the number of people employed outside of the farming sector. The recent FOIMC meeting expressed confidence in the current Labor market situation, with Fed Chair Yellen even suggesting the US economy is approaching 'full employment'. Any drastic variation from market expectations will have immediate consequences for the USD
08:30 - USA - Average Hourly Earnings (September) - This is a direct measure of the cost of Labor (wages), something the Fed expressed direct concern about. Released at the same time as the NFP number, it normally takes a back seat to the employment data, However, given the Fed's focus on inflation and the consequences for the timing of a rate hike, this number will be of far greater significance than normal.
FXPRIMUS’ Senior Analyst, Dave Hannigan has collated a summary of the most important upcoming economic events for your convenience, helping you on your journey to successful trading. All times listed below are in EST.
Monday 21st September
All Day - Japan Holiday - Respect for the Aged Day
10:00 - US - Existing Home Sales (Aug) - A key measure of economic health. After last week's FOMC meeting, the market will be closely watching for any perceived weakness in the US economy, potentially pushing back any rate hikes even further.
Tuesday 22nd September
All Day - Japan Holiday - National Holiday
21:45 - China - Caixin Manufacturing PMI (Sep) - Formerly known as the HSBC PMI. This is the flash reading, meaning an estimated reading, before the final figures are released at the end of the month. Any number below 50 is considered contractionary. Given the concern around global economic growth and in particular China, a lot of attention will be paid to any Chinese data as a gauge to the severity of any slowdown. In terms of currencies, AUD is often most affected by data from China, but also keep an eye on Asian equity market reaction.
Wednesday 23rd September
All Day - Japan Holiday - Autumn Equinox
03:30 - Germany - German Manufacturing PMI (Sep) - A measure of the activity level of purchasing managers in the manufacturing sector. Over 50 is considered expansionary. As Europe's largest economy, significant data from Germany is always watched closely. This a provisional reading ahead of the final number on October 1st.
08:30 - Canada - Retail Sales and Core Retail Sales (Jul) - The Core data excludes any automobile purchases. The most important indicator of consumer spending and a leading barometer of the overall health of the economy. Any weakness and CAD could make new lows for the year.
09:45 - US - Manufacturing PMI (Sep) - This is also a provisional reading, but will be watched closely for any deviations away from market expectations. While the Fed alluded to having concerns around the lack of inflation in the US economy, they will also be watching closely for any signs of new weakness, especially as the effect of China's August devaluation of the CNY begins to filter through.
Thursday 24th September
04:00 - Germany - German IFO Business Climate - A measure of the current German business climate and measures expectations for the next 6 months. With the recent equity market turmoil and uncertainty around the global economic picture, the market will be looking for any indication that optimism in Europe's strongest economy is being adversely affected. Any weakness will likely weigh on EUR.
08:30 - US - Durable Goods and Core Durable Goods Orders (Aug) - Durable goods are defined as long lasting manufactured goods. The Core number excludes aircraft orders. Being this is the data for August, it will only partially capture the period when equities started to fall and China devalued their currency. Like any other US data post last weeks FOMC meeting, the market will be watching closely for any weakness and the effect on any future Fed rate decisions.
Friday 25th September
08:30 - US GDP (Q2) - This will be the 3rd and final release of this data. No change on last month's provisional reading of +3.7% is expected but any deviation will have immediate repercussions for the USD. Gross Domestic Product is the broadest measure of economic activity, and will be very closely watched by the Federal Reserve. The only caveat here is that this number is only looking back to economic activity till the end of June, so will not capture much of the downturn in global commodity prices and equity markets.
FXPRIMUS’ Senior Analyst, Dave Hannigan has collated a summary of the most important upcoming economic events for your convenience, helping you on your journey to successful trading. All times listed below are in EST.
Monday 14th September
05:00 EUR European Industrial Production (July) - a broad, key measure of economic health for the entire Euro-zone. As the ECB has hinted recently, there is every chance they may increase the level of Quantitative Easing (QE) in the near future. Although this is mainly an attempt to push inflation up to the key 2% level, any weakness in data such as Industrial Production will no doubt give them more cause for concern. A weak number should weigh on EUR.
Tuesday 15th September
04:30 GBP UK CPI (August) - much of the recent rhetoric from the Bank of England has been around a perceived upturn in inflation towards the end of this year and the subsequent need to raise interest rates. The Consumer Price Index is a key measure of inflation and will be keenly watched by the BoE. Any strength in this number will bring a hike a step nearer, and should benefit GBP.
08:30 USA US Retail Sales (August) - the most significant measure of consumer spending, which accounts for the majority of economic activity. The latter part of August saw major volatility in the equity markets amid concerns for global growth, most specifically in China. As Friday's U. of Michigan Consumer sentiment reading showed, global concerns have a direct impact on the US consumer. While this number will only capture part of the volatile period, it will be interesting to see if there has been a direct impact on US spending habits. Obvious short-term implications for the USD/ The Fed will be watching closely.
Wednesday 16th September
04:30 GBP UK Average Earnings Index (July) - as noted above with the UK CPI data, the Bank of England is watching carefully for any increase in inflation. This data is very specific to the Labour market, but an important measure nonetheless. Anything stronger than expected will be another step towards forcing the BoE's hand, with positive consequences for GBP.
08:30 USA US CPI and Core CPI (August) - The Core CPI number is really the one to watch here, which strips out volatile food and energy components from the headline data. This will be the last significant piece of economic data before the Federal Reserve makes an announcement of any interest rate changes at their September meeting. As the YoY (year on year) reading nears 2%, it will only give the Fed more reason to hike sooner rather than later.
Thursday 17th September
04:30 GBP UK Retail Sales (August) - as noted with the US Retail Sales data release earlier in the week, it will be interesting to see if spending patterns have changed due to the turmoil in global equity markets. Again, this data will only capture part of that period of volatility, but the Bank of England will be watching closely for any significant weakness.
14:00 USA Federal Reserve Interest Rate announcement - quite possibly the most highly anticipated FOMC meeting since the global financial crisis and the most important release of the year thus far. Will they or won't they? Ask 10 different economists and you will get 10 different answers. A month ago, there was strong belief in the market that this would be the meeting where they hiked rates. Much has changed in a month. Is the US data strong enough to warrant a hike? Can the Fed really ignore what is going on in the global economy and markets? All will be revealed. The only certainty is that there will be a lot of volatility in all financial markets following the decision and subsequent statement.
14:30 USA Fed Chair Yellen speaks - She will have a prepared statement around the outcome of the meeting, followed by a Q&A session for members of the media. The markets will hang on her every word, so expect further volatility. A detailed explanation of any decision can be expected and no doubt the media will be pushing for clarity on any future rate moves.
Friday 18th September
08:30 CAD Canadian CPI (August) - As with the UK and US, the Core CPI number is the one to watch. During the week just gone, the Bank of Canada left rates on hold, surprising some economists who had expected a cut. Any weakness in this data and a rate cut may well be back on the table.
FXPRIMUS’ Senior Analyst, Dave Hannigan has collated a summary of the most important upcoming economic events for your convenience, helping you on your journey to successful trading. All times listed below are in EST.
Monday 7th September
All day - US - Labor Day holiday
All day - CAD - Labour Day holiday
02:00 - EUR - German Industrial Production - As the largest economy in Europe, the market is always looking to Germany to lead the way in economic 'health'. A weaker or stronger number will have direct consequences for the EUR.
22:00 - CNY - Chinese Trade Balance- As there has been so much focus recently on the health of the Chinese economy, this number will take on extra significance. Any weakness will no doubt cause further turmoil in global equity markets as well as in currencies most directly affected by China eg. AUD
21.45 - CNY - Caixin Manufacturing and Services PMI- As above, but this number is compiled by HSBC, rather than the so called 'official' version 45 minutes earlier.
Tuesday 8th September
22:00 - CNY - CPI (YoY) (Aug) - Consumer price index for August in annualized terms. As above, with the focus so heavily on China, any deterioration in prices will no doubt be a cause of concern for both FX and equity markets.
Wednesday 9th September
04:30 - UK - UK industrial and manufacturing production -As has been the case in the US, the recent sell off in global equity markets and concerns around China's economy, has put any thoughts of an imminent rate hike in the UK on the back burner. Any strength or weakness in this data will have direct short term consequences for GBP.
10:00 - CAD - Interest rate decision -While not expected to change rates, the accompanying statement will be watched carefully. Recent weakness in the Canadian economy, coupled with the weak Oil price may well have the Bank of Canada sounding rather dovish and see CAD make new lows.
18:45 - NZD - Interest rate decision -A 0.25% cut is largely expected, so it will be more about what they say than what they do. Since the last RBNZ meeting, global equity markets have been hit hard and concern around China may well force them to sound more dovish than at their last meeting. NZD has however continued to weaken against the USD, so I would be surprised to see a direct reference to the level of the NZD.
Thursday 10th September
07:00 - UK - Bank of England Interest rate decision - Rates are expected to remain unchanged, so focus will be on the voting pattern of the 9 person committee. If you remember from August (on 'Super Thursday'). the market was hoping for 7-2 and got 8-1, causing GBP to be sold down. All eyes will be on that split once again.
Friday 11th September
08:30 - US PPI (Aug)- the Producer Price Index for August will be the last piece of inflation data before the Federal Reserve meeting on the 16th and 17th September. The market is expecting a slight reduction in the headline number (mainly due to the fall in the Oil price), but a slight increase in the core number which excludes food and energy. Any weakness or strength is like to have immediate consequences for the USD.
FXPRIMUS’ Senior Analyst, Dave Hannigan has collated a summary of the most important upcoming economic events for your convenience, helping you on your journey to successful trading.
Monday August 31st
UK Bank Holiday - Guaranteed to rain!
05:00 - EUR - Eurozone Consumer Price Index (CPI) - A Measurement of the change in price of goods and services from the perspective of the consumer. This is particularly important this week following on from last week's comments from the ECB, that they were concerned about the lack of inflation in the economy and have further tools to assist in reaching their targets. Any weakness in this number and expect EUR to suffer.
21.00 - CNY - Manufacturing PMI and Non-Manufacturing PMI - The Purchasing Managers Index is compiled from the responses of a broad spectrum of companies, about their purchasing activities and supply situations. A number below 50 is considered contractionary, above 50 expansionary. Given the significant focus on the Chinese economy over the past couple of weeks and the repercussions for global financial markets, this number will take on added focus.
21.45 - CNY - Caixin Manufacturing and Services PMI- As above, but this number is compiled by HSBC, rather than the so called 'official' version 45 minutes earlier.
Tuesday September 1st
00:30 - AUD - Interest Rate Decision - Expected to remain unchanged, so it will be more about what they say than what they do. With the focus on China's weakening economy over the past couple of weeks, all eyes will be on any specific reference from the RBA and possible consequences for the Australian economy.
04:30 - UK - Manufacturing PMI - (Description as above.). Before the recent market turmoil there was a lot of focus on the Bank of England potentially raising interest rates in the near future. GBP has weakened significantly over the past 10 days, with the market conceding any future rate rise will likely be delayed. However as markets return to some calm, any strength in data (such as PMI), could see GBP strengthen one more.
08:30 - CAD - GDP (MoM) (Jun) - Canadian GDP for June. After several consecutive months of decline, the market will be looking for a return to growth, Obvious consequences for the CAD.
10:00 - US - ISM Manufacturing PMI - Another survey of Purchasing Managers, with the usual 50 mark being the line in the sand between expansion and contraction. Obvious consequences for the USD - the Fed will be watching!
Wednesday September 2nd
08:15 - US - ADP Non-farm Employment change - ADP is the largest payroll manager in the US. This survey of over 400,000 businesses measures the change in non-farm, private employment. The precursor to Friday's NFP data, this number often acts as a good barometer for the official reading. Any significant deviation from the forecast 215,000 increase will likely have economists amending their forecasts for Friday, with immediate consequences for the USD.
Thursday September 3rd
07:45 - EUR - ECB interest rate decision - No change expected in rates or the amount of QE, but given last week's comments from the ECB on inflation (or lack thereof), all focus will be on what they say. Any further dovish comments will be negative for the EUR
Friday September 4th
08:30 - US - Non-Farm Payrolls - You could argue this becomes the single most important piece of data for the year. After the volatility in global markets over the past couple of weeks amid concerns around the strength of China's economy, many investors have changed their views on the timing of any US rate hike. Some have moved that to Dec.2015, some out to Mar 2016. We have even seen a couple of notable economists call for a rate cut in the form of QE4! However, as several FOMC members alluded to yesterday, they are not going to be swayed by short term market volatility, and their perception of the US economy is still one of strength. The Fed has always been consistent with it's message that any rate hikes will be data dependent. If this is a significantly stronger number, a hike in September could well be back on the table and the USD will likely appreciate rapidly.
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