Week Ahead – Central banks back to the fore

News

Coronavirus developments closely monitored

What a start to the year it’s been. There was so much that could have gone wrong in the opening weeks of 2020 and yet, it’s been the completely unexpected that’s rocked the markets.

This week it was the spread of Coronavirus that’s making investors nervous. We’re not in full panic mode just yet but there’s clearly tensions building and the near-3% declines in China on the final day of trading before the new year holiday is a prime example of that.

Central banks come back to the fore next week with a possible rate cut from the Bank of England and first Federal Reserve meeting of the year the standout events. The meeting marks a end to a messy tenure for BoE Governor Mark Carney and he could be going out with one final rate cut.

Key Economic Events This Week

Monday, Jan 27th

Local Start Date Country Relevance Indicator Name Period Reuters Poll
27 Jan 2020 Denmark Low Retail Sales YY Dec
27 Jan 2020 Germany High Ifo Business Climate New Jan 97.0
27 Jan 2020 Germany High Ifo Curr Conditions New Jan 99.2
27 Jan 2020 Germany High Ifo Expectations New Jan 95.0
27 Jan 2020 Mexico Low Retail Sales YY Nov
27 Jan 2020 United States Low Build Permits R Numb Dec
27 Jan 2020 United States High New Home Sales-Units Dec 0.725M
27 Jan 2020 United States Low New Home Sales Chg MM Dec 0.8%

Tuesday, Jan 28th

28 Jan 2020 Spain Medium Unemployment Rate Q4
28 Jan 2020 Sweden Medium Retail Sales YY Dec
28 Jan 2020 Mexico Low Trade Balance, $ Dec
28 Jan 2020 Russia Low Retail Sales YY Dec 2.7%
28 Jan 2020 Russia High Unemployment Rate Dec 4.6%
28 Jan 2020 Hungary High Hungary Base Rate Jan 0.90%
28 Jan 2020 Hungary High O/N Deposit Rate Jan -0.05%
28 Jan 2020 United States High Durable Goods Dec 0.4%
28 Jan 2020 United States High Consumer Confidence Jan 127.2
28 Jan 2020 United States Not Rated API weekly crude stocks 20 Jan, w/e #N/P

 Wednesday, Jan 29th

29 Jan 2020 Australia High CPI QQ Q4 0.6%
29 Jan 2020 Australia High CPI YY Q4 1.7%
29 Jan 2020 Thailand Medium Manufacturing Prod YY Dec
29 Jan 2020 Germany Medium GfK Consumer Sentiment Feb 9.6
29 Jan 2020 Spain Medium Retail Sales YY Dec
29 Jan 2020 Hungary Low Unemployment Rate 3M Dec
29 Jan 2020 United States Not Rated EIA Weekly Crude Stocks 20 Jan, w/e
29 Jan 2020 United States High Fed Funds Target Rate 29 Jan 1.5-1.75
29 Jan 2020 South Korea Low BOK Manufacturing BSI Feb
29 Jan 2020 New Zealand Medium Trade Balance Dec

Thursday, Jan 30th

30 Jan 2020 Norway Medium Retail Sales Ex. Auto Dec -0.6%
30 Jan 2020 Denmark High Unemployment Rate Dec
30 Jan 2020 Switzerland High KOF Indicator Jan 96.5
30 Jan 2020 Hong Kong Low Imports Dec
30 Jan 2020 Hong Kong Low Exports Dec
30 Jan 2020 Germany High Unemployment Rate SA Jan 5.0%
30 Jan 2020 Italy Medium Unemployment Rate Dec 9.7%
30 Jan 2020 Euro Zone High Unemployment Rate Dec 7.5%
30 Jan 2020 United Kingdom Medium BOE MPC Vote Hike Jan 0
30 Jan 2020 United Kingdom Medium BOE MPC Vote Unchanged Jan 6
30 Jan 2020 United Kingdom Medium BOE MPC Vote Cut Jan 3
30 Jan 2020 United Kingdom High BOE Bank Rate Jan 0.75%
30 Jan 2020 United Kingdom Low GB BOE QE Gilts Jan 435B
30 Jan 2020 United Kingdom High GB BOE QE Corp Jan 10B
30 Jan 2020 Mexico Not Rated GDP YY Flash Q4
30 Jan 2020 Mexico Not Rated GDP QQ Flash Q4
30 Jan 2020 Germany High HICP Prelim YY Jan 1.7%
30 Jan 2020 Russia Low Cbank Wkly Reserves 20 Jan, w/e
30 Jan 2020 United States High GDP Advance Q4 2.1%
30 Jan 2020 United States High Initial Jobless Claims 20 Jan, w/e
30 Jan 2020 Canada Not Rated Average Weekly Earnings YY Nov
30 Jan 2020 South Korea Medium Industrial Output YY Dec
30 Jan 2020 Japan High CPI Tokyo Ex fresh food YY Jan 0.8%
30 Jan 2020 Japan High CPI, Overall Tokyo Jan
30 Jan 2020 Japan High Jobs/Applicants Ratio Dec 1.56
30 Jan 2020 Japan High Unemployment Rate Dec 2.3%
30 Jan 2020 Japan High Industrial O/P Prelim MM SA Dec 0.7%
30 Jan 2020 Japan Medium Retail Sales YY Dec -1.8%
30 Jan 2020 Japan Not Rated Large Scale Retail Sales YY Dec

 Friday, Jan 31st  

31 Jan 2020 United Kingdom Medium GfK Consumer Confidence Jan -9
31 Jan 2020 China (Mainland) Low NBS Non-Mfg PMI Jan
31 Jan 2020 China (Mainland) High NBS Manufacturing PMI Jan 50.0
31 Jan 2020 China (Mainland) Not Rated Composite PMI Jan
31 Jan 2020 Singapore Low Unemployment Rate Prelim SA Q4
31 Jan 2020 France High GDP Preliminary QQ Q4 0.2%
31 Jan 2020 France Not Rated GDP YY Prelim Q4
31 Jan 2020 Germany Medium Retail Sales YY Real Dec
31 Jan 2020 Turkey Medium Trade Balance Dec
31 Jan 2020 Switzerland Medium Retail Sales YY Dec
31 Jan 2020 Thailand Medium Exports YY Dec
31 Jan 2020 Thailand Medium Imports YY Dec
31 Jan 2020 France High CPI (EU Norm) Prelim YY Jan 1.7%
31 Jan 2020 Spain High Estimated GDP QQ Q4 0.4%
31 Jan 2020 Spain Medium Estimated GDP YY Q4 1.7%
31 Jan 2020 Norway Medium Reg’d Unemployment SA Jan 76.70k
31 Jan 2020 Italy High GDP Prelim QQ Q4 0.1%
31 Jan 2020 Italy High GDP Prelim YY Q4 0.3%
31 Jan 2020 Euro Zone High HICP Flash YY Jan 1.4%
31 Jan 2020 Euro Zone High GDP Flash Prelim YY Q4 1.1%
31 Jan 2020 Euro Zone High GDP Flash Prelim QQ Q4 0.2%
31 Jan 2020 South Africa Medium Trade Bal (Incl. Region) Dec 12.00B
31 Jan 2020 United States Medium Personal Income MM Dec 0.3%
31 Jan 2020 United States Medium Personal Consump Real MM Dec
31 Jan 2020 United States High Consumption, Adjusted MM Dec 0.3%
31 Jan 2020 United States Medium Core PCE Price Index MM Dec 0.2%
31 Jan 2020 United States Low Core PCE Price Index YY Dec 1.6%
31 Jan 2020 United States Low PCE Price Index YY Dec
31 Jan 2020 Canada High GDP MM Nov
31 Jan 2020 United States High U Mich Sentiment Final Jan 99.3

Country

UK

The Brexit bill as received royal ascent, which means that – in case it wasn’t already clear – the UK will leave the EU on 31 January and enter into the 11-month transitional period. This is subject to EU lawmakers passing the Brexit deal on Wednesday but there’s not expected to be any complications there. Although it would be very Brexit if there was one last twist.

There may be no big ben bong for Brexit – if you’ve not heard this story, I envy you – but the trade negotiation phase can now get underway. Not only is the UK keen to agree a new relationship with the EU in that time, it also has admirable ambitions to strike one with the US as well. That may be less complex but at the same time, it doesn’t make for an enjoyable 11 months for UK civil servants.

Thankfully this coming week the topic of conversation will instead focus around the Bank of England. Thursday’s meeting has gone from a fond farewell to Mark Carney (although Brexiteers may remember him less fondly) to an actual live meeting. Carney leaves the BoE in mid-March, before the next meeting later that month. It’s become a coin toss for a rate cut which typically means it will be unchanged but odds have fluctuated quite dramatically over the last couple of weeks so that could change as we get closer to the vote.

US

The Fed is on hold and while no one expects any changes to the target range, policymakers could tweak the IOER and provide some clarity on how they will end their purchases of Treasury bills next quarter.  The January FOMC meeting will likely see limited changes as the data since the December meeting has been slightly softer but countered by improved optimism following the US-China phase-one deal.

The dollar will stubbornly remain strong on safe-haven flows, but long-term Fed policy should provide a backdrop for weakness, as the Fed seems set for a path to see further balance sheet growth.

Mexico

The Mexican peso will look to see if it remains one of the best performing currencies in LATAM.  The focus for peso traders will fall on preliminary fourth quarter GDP reading.  Mexico is likely to see a boost from the USMCA deal and while we could see a soft GDP reading raise calls for one more easing, we may only see one or two more cuts by the Banxico.  Mexico has one of the best outlooks in LATAM and if the central bank maintains a high overnight rate, carry traders may find the peso very attractive in 2020.

Hong Kong

Coronavirus is front and centre of concerns as Chinese New Year starts tomorrow on the Mailand. Hong Kong is off from Monday to Wednesday. A SARS-like induced economic slowdown could be a body blow to Hong Kong economy already in a protest induced recession.

One silver lining is that protests will likely be muted by coronavirus fears. An escalation in the coronavirus emergency could see Hong Kong stocks collapse next week on their return to work.

China

Coronavirus concerns are increasing with more cases and deaths and the complete quarantining of Wihun city and its 11 million people. Chinese stock markets fell 2.75% today. China is now on holiday until the 30th of January.

A serious escalation of coronavirus emergency could see China stockmarkets collapse on Friday 31st and the risk of a recession come very quickly. The yuan could depreciate quickly, upsetting the United States.

India

India’s Supreme Court to release judgement on the legality of Modi’s citizenship law. Protests are possible and if Supreme Court backs Modi, foreign direct investment could dry up, deepening India’s slowdown. Some parts of the financial sector are still on life support. Potentially very negative for the the rupee and Indian equities.

Market

Oil

Oil prices have been quite volatile this week, not to mention one area that’s been particularly sensitive to the breakout of Coronavirus. Fears about the economic impact of a more severe outbreak appear to have hit oil prices at a time when demand dynamics are already a point of concern.

This is a very different response to what we saw in the aftermath of the Libya outage, which says a lot about where the concerns really lie in these markets. Brent has sold off quickly though so may be less sensitive to modest increases in the spread of the virus. Support may start to come in as it approaches $60.

Brent Daily Chart

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Gold

Gold prices have been relatively stable over the last couple of weeks since events in the middle east settled down. Rallies are being sold into at the moment which signals weakness but the breakout of Coronavirus could complicate things.

We’re not seeing any significant safe haven moves right now but as the close in China on Thursday, prior to the weeklong new year holiday, risk aversion is creeping in. That could become more pronounced as the virus spreads and be supportive for gold prices.

Gold Daily Chart

Bitcoin

Bitcoin is as volatile as ever and enthusiasts are desperate as ever to attribute any market event that impacts regular instruments to the cryptocurrency market. We saw it earlier this year with the escalation in the middle east but they’ve gone a little quiet this week.

Bitcoin has been paring gains even as investors become a little more cautious, once again raising huge question marks over its haven status. Still, enthusiasts are relentless and that keeps the market volatile.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years’ experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.

Craig Erlam

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