RBNZ’s interest rate decision and GDP rates in focus

The new coronavirus remains a main concern for the markets, foremost for the deaths it claims, however also for the drag it may cause for the Chinese but also subsequently for the global economy, to a greater or lesser extent. Despite some hopes for a possible drug to fight the virus, there is still no end in sight. On a different note, RBNZ could prove the main monetary policy event this week, yet also Riksbank is to announce its interest rate decision, after leaving negative rates behind it in December and central bankers world-wide will be watching. As for financial releases we tend to note the preliminary GDP growth rates of the UK, Germany and the Eurozone for Q4. Also, China’s inflation measures, Eurozone’s industrial production for December, Japan’s Corporate Goods Prices for December could gather trader’s interest, while from the US the retail sales growth rates for January, the industrial production growth rate also for January and the preliminary reading of the University of Michigan Consumer Sentiment could affect the direction of their respective currencies. However, first things first.

USD – Powell’s testimony front and center

With the US President being acquitted by the Senate of the impeachment charges in a largely partisan vote, the impeachment drama finds first closure. On the other hand, the race for the November US elections is on as the kick start was given in Iowa, even though there was a technical hiccup for the Democrats which delayed the release of the results. There were two surprises in the Iowa’s results for the Democrats. The first is the winner, which was Pete Buttigieg, even marginally. However that is explainable, as Sanders and Warren were busy at the Senate with the impeachment trial of the US president. The second surprise was the low position of Biden, which was considered the most electable from the Democratic candidates, as he came in fourth, despite him being free to devote his time and energy to the Iowa caucus. The results set a big question mark for Biden’s success and the coming election processes in New Hampshire all more interesting as Sanders seems to have the lead, according to polls. On the monetary front, we have a number of speeches scheduled from Fed officials during the week, yet the most interesting one is expected to be Fed Chair Powell’s on Tuesday. The Federal Reserve Chairman Jerome Powell testifies on the semimanual monetary policy report to Congress before the Senate Banking Committee and analysts are expected to shed lots of ink commenting on his opinions. The higher than expected readings from the ISM PMI’s (both manufacturing and non-manufacturing) released in the past few days as well as the high NFP figure released today, along with the acceleration of the average earnings growth rate all for January, could provide for some optimism despite the tick up of the unemployment rate for the same month. As for financial releases from the US, we tend to note the release of the CPI rates for January on Thursday and on Friday, the release of the retail sales growth rates for January, the industrial production for January and the University of Michigan consumer sentiment for February.

GBP – Worries weigh on the pound

The pound fundamentally seems to be affected mainly from two sources. The first could be the negotiations of the UK with the EU about the post Brexit relationships of the two. The first signalls were all but encouraging for the oncoming negotiations as the UK’s Prime Minister Johnson and EU’s top Brexit negotiator send out diverging messages about what each side expects from a future trade deal. Especially fishing water, whether the UK will comply with EU regulations and if such a scenario is to be included in the deal and signed seem to create most of the friction. Yet a recent report, that the EU may rewrite the playbook of the finance sector, Mifid 2, seems to create even more worries. Given that the UK may no longer be in the team of authors of such regulations the EU may take aim at the City of London, promoting Frankfuhrt as an alternative and delivering a substnatial hit to the UK financial services. The second source of concern emerged quite recently and is in regards to the UK Government’s intentions to actually provide a fiscal stimulus and the possible size of it. UK news agencies seem to show a dispute within the UK Government about the size of the stimulus which was promised in the Preelection period by Boris Johnson. Please note that delivering such a stimulus for the UK economy was considered at the time of the essence, given a possible Brexit chaos at the time. We expect that both issues could continue to trouble the pound in the coming week. As for financial releases next week, we get a slew of data on Tuesday as the GDP rates for the UK are due out along with manufacturing output growth rates, the industrial output growth rates and the trade balance for December.

EUR – GDP rates to be main releases

Germany’s politics were quite shaken last week as the local CDU (Merkel’s party) branch of Thuringia, along with the Liberals and the far right Alternative for Germany, aligned to form a government. The news hit Berlin with a bang, where the Chancellor’s socialdemocratic allies called for an emergency meeting to discuss the issue over the weekend. Despite ultimately the newly elected Liberal PM of the state resigning after the outcry, the incident served as a strong reminder of the instabililty in German politics and the possible deadend in the after Merkel era. In Ireland, Varadkar seems poised to loose the coming elections this Saturday according to media. On the contrary left leaning, Sinn Fein seems to be leading the polls at the current stage in the latest polls. For the time being it remains uncertain what exactly the repurcassions will be on the Brexit negotiations, but some hardening of Ireland’s stance can not be ruled out. As for the monetary policy front its expected to be a bit more quiet in the coming week, yet a number of speeches by ECB officials are scheduled throughout the week. It should be noted that in the past days ECBs’ President Lagarde’s comments that low inflation has substantially reduced scope to further ease policy and that negative rates are not fully to be blamed for rising house prices and weaker bank profitability created some stir, yet little volatility for the common currency. As for financial releases, the release of the GDP growth rates of Germany and Eurozone as a whole, on Thursday and Friday respectively could gather the attention of traders and should they outperform expectations we could see the EUR getting some support. Also Eurozone’s industrial output growth rate for December on Wednesday, as well as the moreforward looking Sentix Index for February could gather some interest.

NZD – RBNZ’s interest rate decision in focus

The bearish momentum of the Kiwi against the USD, which started at the beginning of the year seems to continue. A number of analysts tend to note that the threat of the economic impact of the coronavirus on New Zealand’s economy, is still looming, hence not much should be expected. However, the financial data may be telling a differrent story. On Wednesday’s Asian session, we get RBNZ’s first interest rate decision for the year. The bank is widely expected to remain on hold at +1.00% and currently NZD OIS imply a probability of 92.84% for such a scenario currently. Should the bank remain on hold as forecasted, we could see the market’s attention turning to the accompanying statement and Governor Orr’s following press conference. Given the recently released employment data which showed an improved (lower) unemployment rate and the substantial acceleration of the headline CPI rate all for Q4, we tend to be inclined into expecting a less dovish tone coming from the RBNZ. Main reason for such expectations could be located to RBNZ’s dual mandate over inflation and unemployment. Additionally one must also note that the GDP growth rates for Q3, showed a substantial acceleration. On the other hand the threat of the possible adverse effects of the corona virus on New Zealand’s economy could be advising caution for the bank. We expect that the bank may have a slightly more oprtimistic tone in its language yet at the same time, warnings about the Coronavirus may be issued. Should the tone of the event actually be less dovish, we could see the Kiwi finally getting some support, yet there is still lots of ground to be covered until Wednesday, when the release is due out. As for financial releases Kiwi traders are to have an early start next week, as on Monday we get New Zealand’s Reserve assets for January as well as China’s inflation measures for the same month. On Tuesday we get the electronic card retail sales for Janaury and on Thursday we get the manufacturing PMI also for January.

JPY – Is the safehaven flow effect easing for JPY?

JPY had been weakening against the USD since Monday as safehaven outflows seemed to weaken the Japanese currency while at the same time strong financials boosted the USD. Since Thursday there were the first signs of a change of fortunes for the Japanese currrency. Under normal circumstances, the spread of the coronavirus and the ongoing headlines along with the increasing death toll, should inflate the Yen. We could see the issue continue to affect Yen’s direction, yet may require more fundamental news to actually move it. For the time being it should be noted that local unconfirmed sources seem to mention that Japanese authorities are selling JPY in order to maintain calm in the Japanese markets and according to others to maintain attractiveness for Japanese exports. On the monetary front BoJ Governor Kuroda’s warning on Tuesday, seemed to underscore the need for constant surveilance regarding the new Coronavirus and the impact it may have on corporate Japan’s supply chains as well as the amount of incoming tourists from China. As for financial releases, albeit usually with little effect on the JPY, we would like to point towards the release of Japan’s Current account balance for December in the early Asian session on Monday and Japan’s Corporate Goods Prices gorwth rate for January on Thursday.

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