MORNING ROLL CALL
FX; the week ahead will be dominated by politics and central bank decision making
Political issues may still prove to be the dominant forces moving the FX markets over coming weeks, over and above the usual flurry of data releases and prescribed economic calendar events. The Trump presidency is still in its infancy, but many of his policies, in the form of executive orders, are beginning to be revealed. How the markets react to his unorthodox presidency is impossible to predict, what is certain is that the equity markets and as a consequence the value of the dollar, are both likely to fluctuate in correlation to his policy announcements.
Central bank meetings and subsequent statements, will feature prominently during the week ahead. Both the USA’s and UK’s central banks are responsible for currencies which are highly politically sensitive at the current time, both are due to hold meetings, publish policy statements and reveal decisions. The BOJ is also scheduled to meet and review this week, as is the Royal Bank of Australia.
Early Tuesday morning the BOJ will reveal its decisions with regards to the stimulus/asset purchase programme still in place and the current base rate. This meeting will take place with the backdrop of Japanese retail sales improving, as are what’s termed “large retailer sales” numbers. However, household spending is still considered to be weak, whilst industrial production is predicted to have fallen, from 4.6% annually to 3%. Therefore, it’s unlikely that the BOJ will taper the stimulus, or raise base rates.
Australia witnessed both its inflation rate and GDP rate fall in the last three months of 2016. The RBA will publish its quarterly report later this week and naturally any accompanying narrative will potentially alter the value of the Aussie dollar, versus its major peers. The value of the Aussie may come under more pressure if the RBA still believes it has room in the near term to lower its base rate, in order to stimulate inflation and the domestic economy.
Personal income growth in the USA is forecast to have risen to 0.4% in December, after flat growth was recorded in November, whilst inflation is predicted to be 0.1% for December. The Conference Board consumer confidence index is published on Tuesday, perhaps falling back marginally to 112.5 in January, having reached a fifteen year high in December.
The USA’s ISM manufacturing PMI is predicted to have improved to 55.0 in January when the data is released on Wednesday. December factory orders are released on Friday in the USA, but this data will be overshadowed by the monthly NFP latest jobs report. Non-farm payroll jobs are anticipated to have risen by 172k in January, with the unemployment rate static at 4.7% and average earnings growth up by 0.3% monthly.
The Fed holds its first monetary policy meeting of the year on January 31st to February 1st. Analysts feel certain there’ll be no hike in interest rates. It should be noted that during its December meeting, after the 0.25% raise, the Fed signalled three more hikes would be forthcoming in 2017, the first could be announced as early as the March meeting.
The UK’s BoE holds its first meeting of 2017 during February 1st to February 2nd, the bank will thereafter publish its quarterly inflation report. There is little expectation of a rise in the UK’s base rate, or an extension of the current asset purchase schemes, given the central bank is effectively on Brexit watch. One troubling issue on the horizon could be the rapid rise in inflation in the UK, as a consequence of a falling pound spiking import prices. Therefore the Bank of England governor Mark Carney could broadcast some forward guidance, indicating the BoE’s willingness to raise rates, if the 2% inflation rate is dramatically overshot.
Markit Economics PMIs for the UK will be published for: manufacturing, construction and services this week. All three are forecast to fall (marginally) in January, but still remain above the critical 50 median line; separating growth from contraction.
The biggest risk event for sterling this week comes in the shape of the Brexit bill debate in the UK’s parliament throughout Tuesday and Wednesday. British MPs are expected to approve the bill, authorising the government to trigger Article 50. Opposition parties may finally step up to the plate and demand amendments, forcing the government to reveal more detail. MPs may also demand guarantees on single market access, before voting in favour.
Inflation and GDP growth data for the Eurozone will be published this week, whilst the final Markit PMI releases for manufacturing and services relating to 2016 will also be published. The headline CPI is expected to have risen to 1.5% annually in January, the highest since 2013. GDP in the single currency zone is also expected to have edged higher, with the flash reading for the fourth quarter of 2016 forecast to reveal economic growth rising to 0.5% in the last quarter, confirming recent surveys suggesting solid growth in the Eurozone’s economy towards the end of 2016. The Eurozone’s statistics body also reveals the latest unemployment rate and retail sales, over the coming week.
