A very busy week left the US Dollar stronger against several currencies. The Brexit saga got more complicated and US data was mixed. What’s next? Three critical events are lined up for Wednesday: the ECB decision, the FOMC Meeting Minutes, and the EU Summit on Brexit. And there are a few additional events. Here the highlights for the next week.
The US economy gained 196K positions in March, a return to normal numbers, and also wages are back to previous levels: 3.2% y/y. Other figures were mixed as well, with the ISM PMI going in both direction, retail sales missing on the headline but enjoying upwards revisions and more. The US Dollar came on top against its peers as additional signs of weakness were seen in Europe, while Brexit did not near any resolution. UK PM May reached out to the opposition Labour party but talks were not fruitful. Parliament failed to pass any resolution in its indicative votes. The saga reaches another peak now.
- UK GDP: Wednesday, 8:30. The UK shifted to publishing GDP growth data on a monthly basis. Despite Brexit, the economy kicked off the year by growing by 0.5% m/m, a robust rate. A more modest rise of 0.2% is on the cards for February. The components of growth are also of interest: Manufacturing output, which leaped by 0.8% in January, is also forecast to advance by only 0.2%, while Construction Output is set to fall by the same scale.
- ECB decision: Wednesday: decision at 11:45, press conference at 12:30. Back in March, the European Central Bank made a clear dovish twist, pushing back on its guidance regarding raising interest rates, announcing an upcoming new lending program for banks (TLTRO), and cutting forecasts. This time, the ECB convenes on a Wednesday for a change, does not publish new forecasts, and no policy announcement is due. Nevertheless, President Mario Draghi may provide fresh comments about the economic situation. There have been some tentative signs of a recovery in some places, but the general picture remains worrying. Will Draghi drag the euro down again? He may also say that details regarding the TLTRO will be set out in June. Announcing them now would be seen as a sign of concern and could weigh on the common currency.
- US inflation: Wednesday, 12:30. The Consumer Price Index has decelerated in recent months due to lower energy prices and it could now pick up again. Month over month, a rise of 0.3% is due after 0.2% beforehand. More importantly, Core CPI also ticked down, standing at 2.1% y/y. It is expected to remain at 2.1% on an annual basis but rise 0.2% m/m after 0.1% beforehand. The Fed is closely watching the data.
- EU SUmmit on Brexit: Wednesday, leaders arrive at 16:00, but headlines are due before, during and after the gathering. All EU leaders, including UK PM Theresa May, convene at a special summit to discuss what to do with Brexit, just two days before the updated official exit date of April 12th. After repeatedly failing to pass the accord in Parliament, and after Parliament failed to come with alternative options in the process of “indicative votes”, May has asked for the same extension once again: only until June 30th. The aim is to prevent the UK from participating in the EU Parliament elections that are held on May 26th and the new MEP will convene for the first time on July 2nd. However, the EU wants the UK out by Friday or to grant a long extension. Despite some angry voices, coming especially from France, the EU is likely to grant a long extension and ask the UK to participate in the elections. A delay until March 2020 is on the cards. There can be quite a few ups and downs until that event, with ongoing talks between the government and the opposition Labour party, threats to oust May from her own party that does not want new elections, and preparations for a cliff-edge Brexit in the background. These are going to be quite a few busy days for pound traders. In general, the longer the extension, the higher the pound can go. And if the UK leaves the EU without a deal, Sterling could crash quite spectacularly.
- FOMC Meeting Minutes: Wednesday, 18:00. The Federal Reserve took a dovish twist in its March meeting by signaling no rate hikes in 2019 and announcing the early termination of the balance sheet reduction program in September. Chair Jerome Powell expressed concern about the global economy but seemed confident about the US one. The meeting minutes may shed more light on the thinking behind the move and will provide more data on the level of worry among officials. Comments on inflation and growth will be watched closely.
- US Consumer Sentiment: Friday, 14:00. The University of Michigan’s Consumer Sentiment gauge stabilized at 98.4 points in March, after a drop earlier in the year. The measure is considered a leading indicator of consumption. The preliminary read for April is projected to show a similar level of 98.1 points.
*All times are GMT
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