Week Ahead | 15/04/2019
Weekly outlook: April 15th to 19th | Inflation and employment data in focus.
We could see Brexit taking a back seat this week and central banks are expected to hit the pause button. The US-Sino negotiations seem to be characterized by optimism, for the two sides to be nearing a deal, while at the same time the US-Japanese negotiations are to kick off this week. On the financial releases front, we expect China’s GDP and industrial output growth rate to be closely watched, as the Chinese economy seemed to show some signs of stabilization. From the UK, inflation, employment and retail sales data are expected to gather attention, while for the Eurozone Germany’s ZEW economic sentiment and preliminary PMI’s affecting the common currency are expected to be the main events. Other inflation rates concerning New Zealand, Japan and Canada could also be dominating discussions and hit the headlines.
USD – US-Sino and US-Japanese negotiations in focus.
US fundamentals are expected to discuss the latest developments in the US-Sino negotiations. Media report that the US seems to be watering down its original position that China should curb industrial subsidies, as it seems to find strong resistance from the other side. It should be noted that there seems to be a generally opimistic tone about the outcome of the negotiations which continues to fuel a risk on approach for the markets. As the US-Sino negotiations seem to be on the path of reconciliation, a new trade front is opening for the US. The US-Japanese negotiations are to start this week and the Japanese seem eager to reach a deal quickly. One tactic which could speed up the negotiations would be to focus only on certain issues and the Japanese side seems to be aiming at exactly that. Please be advised that fundamentaly the USD could also be influenced by flows caused by the US earnings season, which is expected to kick into high gear this week. On the financial releases front, for the greenback it’s expected to be a rather quiet week. Starting on Tuesday with the industrial production growth rate for March (Forecast: +0.3% mom vs. Prior: +0.1% mom) and continuing on Thursday with the retail sales growth rate for March (Forecast: +0.3% mom vs. Prior: +0.1% mom) it seems like the forecasts are favouring the greenback’s long positions. However, the release of the Philly Fed Business Climate on Thursday (Forecast: 10.3 vs. Prior: 13.7), could be blurring the picture somewhat as it is forecasted to drop.
GBP- Brexit taking a backseat and financials in focus
As the new week enters, Brexit seems to be taking a back seat for the pound and financial releases seem to be poised to have a greater influence. However the ongoing negotiations between the UK government and the Labour party could have a number of surprises in store for this week. The negotiations were characterized as being on the right path, however the fact that no details of the progress made have been announced and neither side seems to have ample space to maneuver, has raised some eyebrows. On the flip side, hard Brexiteers are expected to mount pressure on Theresa May’s government and we could see a number of headlines being made. Please note that the UK Parliament will be on recess until the 23rd of April. At the same time, a number of important financial releases are expected from the UK this week. Starting on Tuesday, UK’s employment data are to be released for February. Despite the Average earnings (+Bonus) growth rate (Forecast: +3.4% yoy vs. Prior:+3.4% yoy) and the unemployment rate (Forecast: 3.9% vs. Prior: 3.9%) being forecasted to remain stable at rather favorable levels, the same cannot be said for the employment change figure (Forecast:180k vs. Prior: 222k), which is expected to drop on a 3 month level. On Wednesday, we get UK’s inflation rates for March. Both the headline rate (Forecast: +2.0% yoy vs. Prior: +1.9% yoy) and the core rate (Forecast: +1.9% yoy vs. Prior: +1.8% yoy) are expected to tick up and should the rates accelerate, we could see the pound getting some support as it would be indicative of some inflationery pressures in the UK economy. Last but not least, on Thursday, we get UK’s retail sales growth rate (Forecast: -0.3% mom vs. Prior: +0.4% mom) and if it slows as forecasted it could weaken the GBP, as the forecasted slowdown could imply that the average UK consumer would be less willing and/or able to spent in the UK economy.
AUD – Chinese data eyed along with Australia’s unemployment data and RBA’s minutes.
With RBA’s assistant governor Debelle cooling worries for a possible rate cut by the RBA last week, the release of RBA’s meeting minutes on Tuesday gains on interest. Investors and analysts are expected to scrutinize the document for any further clues about the bank’s future intentions. Also Australia’s employment data release for March on Thursday, is expected to gather attention. Some mixed signals could be sent as the unemployment rate (Forecast: 5.0% vs. Prior: 4.9%) is expected to rise as well as the employment change figure (Forecast: 12k vs. Prior: 4.6k). In every case the release’s importance is elevated especially as the RBA seems to be placing more attention on the employment markets tightness, as evident by Debelle’s recent comment that he considers the labour market as suprisingly strong and employment indicators were solid. But its not only Australia’s data which are of importance for the AUD. The release of China’s GDP growth rate for Q1 (Forecast: +6.3% yoy vs. Prior: +6.4% yoy), could show another slowdown ,negatively affecting the Aussie. On second base, China’s industrial output growht rate (Forecast: +5.8% yoy vs. Prior: +5.3% yoy) could ease the hit somewhat as it is expected to accelerate.
EUR – Preliminary PMIs and Germany’s ZEW indicator to affect EUR’s direction.
Albeit Mario Draghi’s (ECB President) comments on Saturday about the Fed’s independence and IMF’s projected slowdown reaching the headlines and being quitre interesting, they seemed to have little effect on the markets. The same applied for Weidman’s and Praet’s comments that the possibility of a rate tiering by the ECB cannot be ruled out. Despite the fact that ECB officials could continue to make related comments in this week, we tend to focus on the financial releases. Starting on Tuesday, with the release of Germany’s ZEW economic sentiment for April (Forecast: 1.0 vs. Prior: -3.6), the EUR could be getting some ground, as the reading is forecasted to get out of the negatives after a year, indicating optimism once again from Germany for the next six months. On Thursday, a number of preliminary PMI’s affecting the EUR for April are due out. Without neglecting the broader picture provided by the sum of the releases, we tend to concentrate on Germany’s manufacturing (Mfg) PMI (Forecast: 45.0 vs. Prior: 44.1) and Eurozone’s Composite PMI (Forecast: 51.7 vs. Prior: 51.6). Despite Germany’s Mfg PMI expected to be once again under the cutting point of 50.0, showing a contraction in economic activity, some stabilisation seems to be in the cards. Overall, the results don’t seem to be convincing to lift the common currency’s momentum, as they remain lukewarm, but the stabilisation could prove to be positive.
JPY – Inflation rates and trade data to be the main events.
From the land of the rising sun, Friday’s CPI releases for March, are expected to gather the most attention. The headline rate is expected to tick up (Forecast: +0.8% yoy vs. Prior: +0.7% yoy) and should there be an acceleration for the core rate as well we could see the Yen getting some support, as it could create hopes for further inflationery pressures in the Japanese economy. Please be advised that the rates (especially the headline rate) seems to be at just one step away from deflation elevating the significance of the release and as discussions of the planned sales tax are weighing in. Also please note that last week BoJ officials were sending some mixed signals for the possibility of expanding the allready loose monetary policy, yet with considerable side effects. Before that, Yen traders are expected to be watching the release of Japan’s trading data for March on Wednesday. The trade balance figure (Forecast: +310B vs. Prior: +352B) and the exports growth rate (Forecast: -2.7% yoy vs. Prior: -1.2% yoy) are expected to be closely watched and if they slip as forecasted, we could see the JPY weakening. The release may gain further on attention as the US-Japanese trade negotriations are to start this week and could also have their effect on the JPY.
CAD- Inflation, retail sales and trade balance to gather attention.
On Wednesday we get Canada’s inflation rates for March. The headline rate is expected to pick up pace and reach +1.8% yoy, if compared to prior month’s reading of +1.5% yoy. Should the core rate also have a similar acceleration it could weaken arguments for a dovish outlook from the BoC. On second base the trade balance figure for February (Forecast: -3.5B vs. Prior: -4.25B) could provide some optitmism should the deficit narrow as forecasted. Also the exports figure is expected to be closely watched. On Thursday, the retail sales growth rate for February, is expected to pick up pace and reach +0.5% mom, if compared to prior reading of -0.3% mom. Should the rate accelerate as forecasted, we could see the CAD getting some further support as the rate’s acceleration is substantial and the rate gets out of the negatives. Such an acceleration could be indicating that the average Canadian consumer is willing and able to spend more in the Canadian economy, lifting BoCs’ spirits somewhat.
NZD-CPI rate to confirm RBNZ’s view.
In its last interest rate decision, RBNZ remained on hold at +1.75%, yet at the same time introduced a dovish bias, as it mentioned that the next move would more likely be down. On Wednesday we get a key piece of the puzzle, namely the inflation rate for quarter 1. The rate is forecasted to slowdown reaching +1.7% yoy, if compared to prior quarter’s reading of +1.9% yoy. Should the actual rate meet its forecast, we could see the Kiwi weakening, as such a deceleration would ienhance worries for a possible rate cut and indirectly confirm RBNZ’s outlook. Despite an inflation rate of +1.7% yoy, still being in the bank’s inflation target range of 2.00% ±1% yoy, the fact that it distances itself away from the median target of +2.00% yoy, could spark further dovishness by RBNZ.