Last week the global focus was on President Joe Biden inauguration as he became the 46th President of the United States and signed a flurry of executive orders, including addressing the COVID health crisis. Following his inauguration, the US Dollar weakened as speculation grew of the passing of the $1.9 trillion economic relief plan. This improved risk sentiment and pushed up equity markets; subsequently resulting in a weaker US Dollar.
The other big focus was the ECB meeting where there were comments from various central bankers about the strength of the currency. As expected, the ECB held interest rates at 0.0% following the latest council meeting and also made no changes to the asset-purchase programme with bond buying under the PEPP programme continuing until at the least March 2022. The statement did note that the full envelope of bond purchases did not need to be used if there was an improvement in financing conditions. The central bank also stated that they are ready to recalibrate policy if there is a negative inflation shock over the next few months. ECB President Laggard stated that the bank was monitoring the forex rate very carefully and that currency appreciation is a drag on inflation. Laggard also stated that risks to the growth outlook were tilted to the downside, although the risk is now less pronounced. Given the absence of dovish references within the meeting and a weak dollar, the Euro strengthened.
Sterling has remained resilient as the vaccination program continues to be rolled out despite negative economic data. It was not a surprise that consumer spending was down given the restriction and cancellation of the 5 days of Christmas. The CBI industrial orders index declined to -38 for January from -25 previously and weaker than consensus forecasts of -35. Retail sales grew by 0.3% for December after a 3.8% decline the previous month and below expectations of 1.2%. In the meantime, comments from Bank of England chief economist Haldane and Gov Bailey helped maintain the optimistic view. Haldane stated that the bounce back from the COVID pandemic may be sharper than that for the financial crisis whilst Gov Bailey was optimistic that the UK economy would not see the same amount of scarring as was seen after the 1980’s recession.
The week ahead will continue to focus on COVID developments both domestically and international. In the meantime, the market will be keen to see how President Biden’s administration tackle the economy in their first full week in power. Headline labour data is due from the UK on Tuesday and the FOMC meeting is due on Wednesday.
- ECB President Lagarde Speaks
- German IFO Business Climate
ECB President Lagarde is due to speak twice today. As head of the ECB, she has more influence over the euro’s value than any other person and as a result the market scrutinise her speeches for clues on future policy. Lagarde is due to speak at a virtual event hosted by the Institute for Law and Finance and later in the day participate in a virtual panel discussion titled “Restoring Economic Growth” at Davos 2021. The German IFO will be watched to and examine for trending sentiment following the recent positive ZEW sentiment. The IFO is an index based on surveyed manufacturers, builders, wholesalers, services, and retailers.
- UK Employment data
- UK CBI realised sales
- US CB Consumer confidence
The headline unemployment data from the UK is set for release with the unemployment rate expected to push higher to 5.1%. Another data set to watch will be the claimant count change and the average earning. Following last week’s retail sales we have the UK CBI realised sales which survey around 125 retail and wholesale companies asking respondents to rate the relative level of current sales volume. Retail has been under massive pressure since the pandemic began. The US CB consumer confidence is set for release, following events in the capital since the turn of the year, the market will be keen to articulate how the new measures and stimulus.
- US Durable goods
- FOMC Rate decision and Statement
The main focus will be on the FOMC meeting. It is expected that rates will remain at record lows whilst Fed Chairman Powell will continue to play down talk of ‘tapering’ of bond purchases as premature. The US durable goods are also set for release. Durable goods are defined as products that have a life expectancy of more than 3 years, such as automobiles, computers, appliances, and airplanes; bigger price items. As a result they tend to be a good representation of consumer sentiment.
- German inflation
- US GDP
- US weekly jobless claims
German inflation is expected to remain low as indicated by the ECB recently; a by-product of a strong single currency. The headline figure of the day will be on the first of three releases of US GDP data. Growth is expected to continue to advance albeit at a slower rate following the record high of +30% for Q3 following the easing of restrictions. The pace of growth is expected to print a figure of 4.2%. Employment numbers have been gradually getting worse with the weekly jobless claims being keenly watched to see if this trend is continuing.
- Spanish and French GDP
- German Unemployment
- US UoM consumer sentiment
Both French and Spanish GDP are expected to release negative GDP readings following the lockdown deployed in December. The German unemployment report is expected to show that unemployment is on the rise but by a small amount. The second reading of the University of Michigan consumer sentiment is set for release from the US, it is expected to report no change.
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