The turbulence in markets continued for another week, and China could not be blamed for this one. GDP data from Japan, Draghi’s speech Inflation data from the UK and the US, employment data in the UK and in Australia and the FOMC meeting minutes stand out. These are this week’s top forex events. Join us as we explore these market movers coming our way.
Federal Reserve Chair Janet Yellen testified before Congress reiterating that the central bank was set on returning to “normal” monetary policy if a worsening should occur in global stock markets. However, Yellen still expects the Fed to raise rates gradually this year in light of steady growth and solid employment data. Despite global weakness Fed Chair Yellen warned the Senate Banking Committee against overestimating the extent of the overseas threat to the growing U.S. economy. Will the Fed continue with its rate hike plans this year? Markets are pricing it out. Another big mover was the yen, with suspected intervention to weaken it after the big gains. Let’s start,
- Japan GDP data: Sunday, 23:50. The preliminary GDP estimate for the third quarter of 2015 showed a 0.2% contraction, despite the ultra-easing policy adopted by the BOJ. Domestic demand plunged 0.3%, while the major contraction occurred in the private non-residential investment, falling 1.3%. The public investment contracted 0.3%. On a yearly base, GDP fell by 0.8% against the forecasts of a 0.2% fall. This was the second consecutive quarter with a contraction in the Japanese economy, indicating renewed recession trend. The initial estimate for the fourth quarter is expected to be -0.2%.
- Mario Draghi speaks: Monday, 14:00. ECB President Mario Draghi will testify before the European Parliament’s Economic and Monetary Affairs Committee, in Brussels. He may refer to the downside risks to the Eurozone’s economy from the slowdown in China, the mild inflation and growing geopolitical uncertainties. Market volatility is expected.
- UK inflation data: Tuesday, 9:30. UK inflation rate edged up 0.2% in December, rising for the first month since January. The main rise occurred in transport costs, particularly air fares, and to a lesser degree motor fuels. While alcohol, tobacco, food and non-alcoholic beverages prices declined. Furthermore, house price inflation which is not included in the CPI index, surged 7.7 in the year. However, despite this rise, CPI remains at historically low levels. Economists expect CPI to rise 0.3% this time.
- Eurozone German ZEW Economic Sentiment: Tuesday, 10:00. German analysts and investors’ confidence declined less than expected in January, as a slowdown in China and other emerging markets continued to weigh on the outlook for Europe’s largest economy. Economic sentiment deteriorated to 10.2 points from 16.1 in December, the lowest reading since October. However, the score was higher than the market forecast for 8.2 points. Despite the growth trend in 2015, the economy is suffering from external headwinds such as China and emerging markets. Analysts’ confidence is predicted to increase by 0.1% in February.
- UK Employment data: Wednesday, 9:30. UK unemployment rate fell to its lowest level in a decade during the last quarter of 2015. Unemployment rate posted 5.1% with 31.4 million people in work. Claims for jobless benefits decreased by 4,300 in December 2015 as the claimant remained unchanged at 2.3%. Meanwhile, wage growth excluding bonuses increased 1.9% on a yearly base, a slight decline from the 2% gain recorded in the previous quarter. Analysts expect wage growth to accelerate in the first half of 2016 triggering higher inflation. The number of jobless claims is expected to decline by 2,900 in January.
- US Building Permits: Wednesday, 13:30. Building permits declined 3.9% in December to a 1.23 million-unit rate. The drop followed two months of sharp gains. Permits for the construction of single-family homes rose 1.8 percent in November. Multi-family building permits decreased 11.4%. Furthermore, U.S. housing starts also faltered, dropping 2.5% to a seasonally adjusted annual pace of 1.15 million units. The number of Building permits is expected to decline further to 1.21 million units.
- US PPI: Wednesday, 13:30. U.S. producer prices plunged in December by 0.3%, recording their biggest fall in more than three years. The continued decline in energy costs were the main force behind this decline. Economists expect inflation to slow in the coming weeks. However, the energy-driven weakness is believed to be transitory and predict the next rate hike would occur in June. Producer prices are estimated to decline 0.2% in January.
- FOMC Meeting Minutes: Wednesday, 19:00. These are minutes from the January meeting, in which the Fed left rates unchanged and still left the door open to a hike in March. They did warn about global developments did not mention risks. The minutes will reveal more data on how the Fed sees the economy and where the wind is blowing.
- Australian employment data: Thursday 0:30. The Australian employment market shed 1000 jobs in December. Full-time employment rose by 17,600 while 18,500 part-time jobs were lost. The reading was considerably better than the 11,000 job contraction estimated by analysts. Furthermore, the unemployment rate remained unchanged at 5.8% while expected to rise to 5.9%. But, the participation rate decreased from 65.3% to 65.1%, meaning there were less people in the labor market. Overall, there was a positive trend in the labor market compared to the same month a year ago. Australian job marlet is expected to gain 13,200 jobs while the unemployment rate is predicted to remain at 5.8%.
- US Philly Fed Manufacturing Index: Thursday, 13:30. Manufacturing activity in the Philadelphia-region contracted for the second consecutive month in January, declining to -3.5 from -5.9 in the previous month. Analysts expected a more negative reading of -5.8. Shipments increased, but new orders and employment declined mildly. The price indexes suggest continued downward pressure on manufacturing prices. Manufacturing activity in the Philadelphia-region is expected to reach -3.1 points.
- US Unemployment claims: Thursday, 13:30. The number of Americans filing new claims for unemployment benefits declined sharply last week, suggesting the labor market remains resilient despite tepid economic growth. The number of jobless claims dropped 16,000 to a seasonally adjusted 269,000. Analysts expected 287,000 new claims this week. The four-week moving average of claims fell 3,500 to 281,250 last week. Analysts believe that a part of the lukewarm economic data is related to temporary factors does not reflect the real situation. The number if jobless claims is forecasted to reach 275,000 this week.
- US inflation data: Friday, 13:30. Jan 20 U.S. consumer prices fell unexpectedly in December by 0.1% following a flat reading in November. Energy prices continued to decline while services rose moderately. Despite this fall, the CPI increased 0.7% in the 12 months through December, the biggest increase in a year. Meanwhile, core CPI, excluding food and energy costs, edged up 0.1% after rising 0.2% for three straight months. On a yearly base, the core CPI rose 2.1%, the largest gain since July 2012, after climbing 2.0 percent in November. CPI is estimated to decline by 0.1%, while core CPI is expected to gain 0.2%.
That’s it for the major events this week. Stay tuned for coverage on specific currencies
*All times are GMT.
Our latest podcast is titled What’s the Deal with the Death Cross? + Yellen and yen