US Employment report and RBA in focus

With worries about the spread of the coronavirus still present and the UK leaving the EU, marking the end of an era, we turn our attention to the coming week. Main events which are expected to shake the markets could include the US employment report on Friday and RBA’s first interest rate decision for the year. Also, a substantial amount of financial data such as China’s Caixin Mfg and Services PMIs for January, New Zealand’s employment data for Q4 along with Canada’s employment data for January and Australia’s retail sales growth rate for December are to become available. However, first things first.

USD – US employment report in focus

Making a start with the US political scene, signs are that the impeachment trial of US President Trump at the Senate, may prove to be a short one. The above scenario is to be realised, especially if the Democrat’s bid for more witnesses is denied by the Senate majority, foreshadowing a possible acquittal of the US President. On the international scene, the US-Sino relationships seem to be calm, yet the US seems to be tightening controls and issuing new warnings for its citizens to avoid travelling to China, due to the new Coronavirus. On the monetary front, the Fed’s interest rate decision, passed largely without much market distortion, providing little new. The bank remained on hold at +1.75% and seemed determined to bring inflation back to its target of +2.00% yoy, while also highlighting the tight conditions of the US labour market. The decision was once again unanimous, displaying a unified front for the markets. Please note, that the composition of the voting members changed thanks to the Fed’s rotating system. We expect any further comments made by Fed officials in the coming week to reflect this monetary policy as decided in the latest meeting. As for financial releases, the highlight of the week is expected to be the US employment report for January. Forecasts seem to show another picture of a tight US labour market, which could provide further confidence for the Fed and provide a boost for the USD. As for other financial releases USD traders could be looking at a busy week as we note the release of ISM manufacturing PMI for January on Monday, on Tuesday the factory orders growth rate for December and on Wednesday the ISM non-manufacturing PMI for January.

GBP – Leaving the EU

So, the day has come, when the UK is to leave the EU. A United Kingdom which will have to heal the wounds left behind from Brexit radicalisation (on both sides) in its society. At the same time will have to gather any unifying forces available, to maintain sovereignty at a regional level, especially with Scotland. Yet the markets are looking ahead and in this case worries about the uncertainty regarding the future economy of the UK, which seem to be on the horizon increasing worries. In this era the deal which is to be struck between the UK and the EU, until the 31st of December 2020, is of the essence for the UK economy. Negotiations could prove to be hard as EU officials reminded today by stating that with no memberships in place, no benefits are to exist either. On the other hand, the UK seems to be seeking a Canada-style free trade agreement with the trading bloc. At the same time we have to bear in mind that the UK will have to strike new deals with other countries as well and the trade relationships with the US seems to have a special weight for the UK economy, without neglecting other countries such as China. In the latter two cases, the Chinese tech giant Huawei seem sto play an important role as to how the UK plans to move ahead and developmetns in the UK’s 5G market, could prove critical. On the monetary front, we are leaving a quite uncertain interest rate decision behind us as the BoE remained on hold at +0.75%. The accompanying statement seemed well balanced and struck a more decisive tone for the bank to act in order to achieve its inflation target of 2%. It seems that the jump of the preliminary PMI’s, managed to ease the worries among policymakers about the outlook of the UK economy somewhat. In his last press conference as Governor of the BoE, Mark Carney highlighted some signs of a pick up in the UK economy and at the same time maintained a rather wait and see position for the signs to be translated into hard data. We could see the pound being more data driven in the future, with indicators for inflation drawing more attention. As for financial releases next week, analysts are to be anxiously waiting for the confirmation of January’s preliminary PMI readings, on Monday, Tuesday and especially Wednesday, when the final services PMI reading is released and is considered very important. On Friday we tend to note the release of the Halifax house prices for January

EUR – Quiet week ahead

In Eurozone’s political theatre the situation seems to be rather quiet now, especially after Salvini’s Lega failed to win the local elections in the Emilia Romagna area of Italy. Never the less, Eurozone’s politics seem to be dominated by Brexit and the future deal with the UK at the current stage. As for the monetary policy front ECBs’ President Lagarde along with ECB’s De Guindos and Lane have scheduled appearances throughout the week. Lagarde’s speech at Grand Prix de l’économie des Echos could create some headlines on Wednesday, yet the main interest could gather around her speech at the Committee on Economic and Monetary Affairs of the European Parliament on Thursday. We would not be surprised to hear Ms. Lagarde reiterating the opinion that more must be done in the fiscal front in order to boost Eurozone’s economy. As for financial releases next week despite analysts noting the release of the final PMI readings for January on Monday and on Wednesday, we also tend to focus on the release of the area’s producer prices growth rate for December on Tuesday, as well as Eurozone’s retail sales growth rate for the same month on Wednesday. From Germany, we get the industrial orders and output growth rates, on Thursday and Friday respectively.

AUD – RBA interest rate decision to provide further direction

With the new coronavirus still spreading at considerable speed, the Aussie had a rough week against the USD as worries for the economic consequences on the land of the down under increased. Never the less the Aussie had a couple of shining moments in the past week as the CPI rate outperformed expectations even by a bit, while the drop of the chinese manufacturing activity for January seems to be somewhat contained. In the coming week the main inerest of the markets seems to be turning towards the RBA interest rate decision during Tueday’s Asian session. The bank is expected to remain on hold at +0.75% and currrently AUD OIS imply a probability of 87.4% for such a scenario. It is characterisitc that in a recent Reuters poll the majority of the economists surveyed agreed that the bank would remain on hold at the current stage. It should be noted though that the market seems to be pricing in a rate cut at the early to mid 2nd quarter of the year. This was also the result of the prementioned Reuters survey. As unemployment remains at rather low levels for Australian standards and the CPI seems to be picking up a bit, we could see the bank maintaining a wait and see position. On the other hand the GDP growth rate, along with the uncertainty created by the new Corona virus in China advises caution for the bank. For the time being we expect that, should the bank remain on hold we could see it maintaining a neutral tone in the accompanying statement similar to the last one, reiterating that the Australian economy has reached a gentle turning point, while the risks surrounding the global economy are tilted to the downside. Some concerns about the wage growth and the construction market, as well as the consumer side of the economy could also be expressed. As for financial releases, Aussie traders are to have an early start this week, as during Monday’s Asian session, we get from Australia the building approvals growth rate for December, as well as the Chinese Caixin manufacturing PMI for January. On Wednesday also from China we get the Caixin services PMI for January, while on Thursday Aussie traders are to be zooming into the release of Australia’s retail sales growth rate for December, as well as the trade data for December. Also please note that on Friday we get China’s trade data for January.

JPY – Safehaven flows dictating direction

Safehaven flows concerning the new Coronavirus left a clear mark on JPY’s path in the past week and we expect that it may contninue to do so in the coming week. The World Health Organization declared the new Coronavirus a public health emergency yet also stated that this should not be considered as a vote of no confidence for China. At the same time the organization praised China’s efforts to limit the spread of the virus to other countries. After WHO’s press conference market worries seemed to ease somewhat, yet it should be noted that the US and Japan warned their citizens to avoid travelling to China, while Japan also announced that it will bring forward more drastic measures from the 8th of February to the 1st (this Saturday). Media reports seem to imply that Beijing is pushing Chinese companies to extent the holidays to the 10th of February, in order to provide more room to manuevre. Should negative headlines continue to reel in and increase worries about the new Coronavirus we could see safe haven inflows for JPY rising and vice versa. As for financial releases, early during Monday’s Asian session we get the Jibun manufacturing PMI for January. On Wednesday we get Japan’s Services PMI for the same month, while on Friday we get the household spending growth rates.

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