The US Dollar continued recovering on the “cleanest shirt in the dirty pile” narrative. Can it continue higher? Inflation and retail sales data stand out as well as another deadline for a US government shutdown. Here the highlights for the next week.
The mood markets worsened amid growing worries about the global slowdown. The European Commission and the Bank of England both lowered growth forecasts. Trade talks between China and the US are not going anywhere fast and Trump said he has no scheduled meeting with Chinese President Xi. The Australian dollar suffered the RBA’s openness to cutting rates. The kiwi plunged on a rise in unemployment in New Zealand. The Canadian dollar managed to recover after an excellent jobs report.
- UK GDP: Monday, 9:30. The UK publishes Gross Domestic Growth (GDP) numbers on a monthly basis, but this report is for December, thus concluding the fourth quarter, thus making it a more significant publication. After enjoying a robust growth rate of 0.6% in Q3, a considerable slowdown is due in Q4: only 0.3%. December is projected to see no growth. If GDP data meet expectations, the focus may shift to manufacturing production, which is set to rebound and rise by 0.2% in December.
- New Zealand rate decision: Wednesday, 1:00. After the nation reported an increase in unemployment, the RBNZ may shift its tone to a more dovish one. The interest rate is projected to remain unchanged at 1.75% despite the data and the deteriorating global outlook. The fall in the kiwi supports exports amid the downturn. Governor Adrian Orr will meet the press at 2:00 GMT as the RBNZ also publishes its quarterly inflation expectations report.
- UK inflation report: Wednesday, 9:30. Inflation stood at 2.1% in December, just above the 2% target. The report for January is projected to show a dip to 1.9%, just below the target. Falling energy prices are behind the deceleration in inflation. Core CPI is expected to remain unchanged. While the BOE is Brexit-dependent, inflation data still matters for the day after Brexit.
- US inflation report: Wednesday, 13:30. The Federal Reserve may be patient as inflation remains low. Core CPI stood at 2.2% y/y in December and no significant changes are projected. Headline monthly CPI is forecast to rise by 0.1% in January after a drop of the same scale in December. Core CPI carries expectations for 0.2% m/m, the same as beforehand.
- Japan GDP: Wednesday, 23:50. Japanese figures do not move the yen very often, but GDP is a different animal. The Japanese economy shrank by 0.6% in the third quarter, but such episodes of contraction are not rare in the Land of the Rising Sun. The nation is not expected to enter a recession, with Q4 GDP projected to increase by 0.4%.
- German GDP: Thursday, 7:00. According to the central bank’s projections, the largest economy in the euro-zone barely escaped a recession. After contracting in Q3 by 0.2%, mostly due to new emissions regulations, the “locomotive” of the euro-zone is expected to grow by 0.1% in Q4. However, economic data have been disappointing. Stagnation or an outright second consecutive quarter of contraction, and thus a recession, cannot be ruled out.
- US Retail Sales: Thursday, 13:30. The US finally publishes the retail sales report for December, delayed due to the government shutdown. Headline sales rose by 0.2% in November, and so did core sales. However, the Control Group jumped by 0.9%. Data for December will likely be more moderate: headline sales are predicted to rise by 0.1%, core sales to remain flat, and the control group is unlikely to repeat the same surge. While consumption is central to the US economy, the data is a tad stale. Nevertheless, it will help shape expectations for the belated GDP report due late in February.
- US PPI: Thursday, 13:30. Contrary to the retail sales, the Producer Price Index report is for January, thus more up to date, albeit less important. Headline PPI dropped by 0.2% in December and is now expected to rise by 0.1%. Core PPI also slipped, by 0.1%, and now carries expectations for an increase of 0.2%.
- UK Parliament votes on Brexit: Tentative and may be postponed until late February. UK PM Theresa May continues trying to convince her European counterparts to amend the Brexit deal and change the legally binding text regarding the Irish Backstop. She is repeatedly refused. A Labour initiative to offer support in return for a closer relationship with the EU, close to the Norwegian model, is also on the cards. If there is a new accord, it will be brought to Parliament. The clock is ticking down towards Brexit Day, March 29th, 2019. An extension is also on the cards.
- US Consumer Confidence: Friday, 15:00. The University of Michigan’s Consumer Confidence Sentiment dropped to 91.2 points in January after scoring close to 100 points in previous months. It will be interesting to see if sentiment rebounded in the preliminary release for February. The government shutdown and a slight slowdown in the economy had an impact.
- Government shutdown deadline: Late Friday. The US government reopened after the longest shutdown in history, but only until February 15th. Lawmakers will be scrambling to reach an accord to keep it open. President Donald Trump insists on funding for a border wall on the Mexican border while Democrats vehemently oppose it. Republicans are stuck in the middle. Negotiations are set to accelerate during the week and most analysts expect a positive resolution, but anything can happen and change the market mood.
*All times are GMT
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