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Markets: What is most important next week? – Nordea Markets

Analysts at Nordea Markets suggest that in the upcoming week, most eyes will be on the FOMC meeting concluding Wednesday night and many will in particular be looking  for clarity from Jerome Powell, who has been uncharacteristically capricious in recent weeks.  

Key Quotes

We would be surprised if Powell sounds ready to discuss the pace of the balance sheet run-off as a policy tool already, especially given that the calmer markets have provided him with some leeway.”

“Also,  the market will likely be even more sensitive towards the US ISM index than usual (Friday), given the 5-index point drop in December. Even though regional surveys hint of a more benign January report, we see mainly downside risks, as in particular the swiftly slowing import component of the Chinese PMI hints at a weaker ISM index. Also, even with the recent rebound of equities, financial conditions still suggest more medium-term downside in the ISM Manufacturing index.  Hence, we see downside risks to the early consensus of an unchanged reading of 54.1 in the ISM Manufacturing index.”

“The monthly US job report has “government shutdown” written all over it on Friday, as data on everything from the size of the labour force to wages could be distorted by the shutdown.  Furloughed public workers will though not count as unemployed in the NFP, but the indirect effects on private contractors (working for the public sector) may be substantial.”

“Outside the US, Draghi’s hearing in Brussels on Monday could prove interesting.  It is noteworthy that his hawkish “vigorous inflation” remarks were made at a similar hearing in the autumn. We have noted a tendency for Draghi to sound a little more upbeat on the inflation target when speaking in front of the policy-makers in Brussels (ultimately his employers).  Next week’s EUR core inflation figure will not provide Draghi with any renewed optimism, though, as we expect core inflation to have moved sideways at 1% for another month (Friday).”

“On Tuesday, the House of Commons is expected to vote on Theresa May’s Brexit plan B, including amendments put forward by others. We still struggle to see any breakthrough in the Brexit process being just ahead and consider the current GBP/Brexit optimism too excessive (short-term).”

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