Good Morning Users;
last week’s highlights included initial Q4 GDP estimates from both the UK and the US. Economic growth accelerated slightly in the UK to 0.5% but slowed in the US to 0.7% from 2.0%. The Fed voted to maintain interest rates at more than 0.25% but less than 0.50%, as expected, while emphasising increased global risks. Key events this week include ECB President Draghi’s testimony on the ECB’s 2015 Annual Report, the Bank of England’s “Super Thursday” February monetary policy meeting, and the US’s January jobs report, out Friday.
GBP – The main release for the UK last week was Thursday’s preliminary Q4 GDP. As expected, growth accelerated slightly in the 4th quarter to 0.5% from 0.4% in Q3. Overall economic growth slowed to 2.2% in 2015. The release was enough to offer the pound some support on Thursday. MPC Member Shafik spoke about UK payments systems, not directly on monetary policy. The pound received support earlier in the week on the back of profit-taking as risk sentiment improved as BOE Governor Carney’s comments before the Treasury Select Committee during his testimony on the Financial Stability Report were no more dovish than expected.
Manufacturing, Construction, and Services PMI start off the UK’s calendar this week. Manufacturing PMI rose more than expected on Monday morning, offering the pound some support after being forecast to dip. Services and Construction PMI are also forecast to tick down. Attention then turns to the Bank of England’s “Super Thursday” meeting. The BOE is unlikely to have significantly changed its tone from recent comments, and will likely again mention that global developments pose an increased risk to economic growth and inflation, and that certain members want to see a pick-up in wage growth before considering raising interest rates. Any changes in the vote—particularly if McCafferty no longer votes for a rate increase—could spark some movement in the pound. BOE Governor will speak following the meeting. The BOE will also release its quarterly Inflation Report, which, given recent global market volatility, could see a downwards revision in its economic growth and inflation projections.
EUR – Last week’s euro data were mixed. German Business Climate fell and German Factory Orders unexpectedly contracted. Preliminary CPI figures from Spain and Germany indicated a decline on a month-to-month basis. The week’s positive releases included a drop in Spain’s Unemployment Rate to 20.9%, its lowest level since 2011, and an increase in Eurozone inflation. Initial estimates indicated that Eurozone CPI rose 0.4% and Core CPI rose 1.0% in January, offering the euro some support towards the end of the week. The euro’s movement was also largely sparked by cycles of risk aversion and improved risk sentiment throughout the week. The euro tends to receive support as a haven currency when market volatility leads to an increase in risk aversion.
This week, ECB President Draghi is to speak twice. On Monday, Draghi testifies on the ECB’s Annual Report, and on Thursday he speaks at the Deutsche Bundesbank’s Marjolin Lecture. His comments should be closely watched for any forward guidance, particularly regarding the likelihood of easing in March following the Bank of Japan’s unexpected cut to interest rates last Friday. The ECB does not meet this month to set monetary policy. Key releases this week include the Eurozone’s Unemployment Rate, Spanish and German Unemployment Change, and German Factory Orders. Risk sentiment may also continue to drive euro movement this week following another disappointing Chinese Manufacturing PMI reading on Monday morning.
USD – The main event for the dollar last week was Wednesday’s Fed meeting, at which the Fed voted to hold interest rates, as expected. The Fed will continue to watch the development of global economic and financial events. Despite mixed data last week, the dollar strengthened. Above-forecast Consumer Confidence and New Home Sales figures started off the week, only to be followed by a contraction in Durable Goods Orders, slower-than-forecast growth in Pending Home Sales, and a drop in Revised Consumer Sentiment. The main release of the week was Friday’s initial estimate of Q4 GDP growth, which slowed to annualised 0.7% from 2.0%, roughly in line with forecasts of 0.8% growth. Growth in 2015 as a whole was 2.4%, as it was in 2014. Friday’s Chicago PMI was also noteworthy, unexpectedly jumping from 42.9 to 55.6.
This week’s highlight is Friday’s jobs report. Non-Farm Employment Change will be first indicated by the ADP figure on Wednesday, which is expected to dip compared to the previous release. The official figure on Friday is expected to confirm a lower figure than December’s unexpectedly strong 292K, while the Unemployment Rate is forecast to remain unchanged at 5.0% and Average Hourly Earnings growth may pick up to 0.3%, which could offer the dollar some support. Other releases to keep an eye on this week include ISM Manufacturing and Non-Manufacturing PMI, Personal Spending, and Trade Balance figures.