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The Week Ahead – Stats, Impeachment, and Brexit to Take a Back Seat as Iran Takes Center Stage

Bob Mason

On the Macro

It’s a busy week ahead on the economic calendar, with 51 stats to monitor. In the previous week, just 27 stats had been in focus.

Following the holiday season and lack of stats to provide direction, we could see some major moves as volumes return to normal levels.

For the Dollar:

On Tuesday, November factory orders and December ISM non-manufacturing PMI figures will provide direction.

The focus will then shift to ADP nonfarm employment change figures for December due out on Wednesday. Solid labor market conditions have continued to support the U.S economy, so expect sensitivity to the numbers.

With economic data limited to the weekly jobless claims on Thursday, nonfarm payroll and wage growth figures wrap things up on Friday.

While the ADP numbers will provide direction, expect wage growth and the NFP numbers and unemployment rate to have the greatest impact.

Finalized Markit PMI numbers on Monday and trade data on Tuesday will likely have a muted impact on the Dollar.

On the geopolitical front, the signing of the U.S – China phase 1 agreement, Brexit and the Middle East will also need considering.

The killing of Iran’s military commander Soleimani raises the prospects of the U.S getting caught up in proxy wars across the region.

The Dollar Spot Index ended the week down by 0.08% to $96.838.

For the EUR:

It’s also a particularly busy week ahead on the economic data front.

On Monday, November retail sales figure out of Germany will be the key driver at the start of the week.

December service sector PMI numbers out of Spain and Italy and the Eurozone’s finalized composite PMI will also provide direction.

The focus will then shift to Eurozone retail sales figures due out on Tuesday and German factory orders on Wednesday.

Expect a responsive EUR ahead of German trade and industrial production and Eurozone unemployment numbers on Thursday.

There are no stats due out on Friday to provide direction, which will leave the EUR in the hands of geopolitics.

The UK Parliament recess ends on Thursday, so expect the political chatter to build late in the week. While Brexit remains a key area of focus, the markets may well be distracted by the Middle East in the week ahead.

On the monetary policy front, ECB monetary policy meeting minutes are also due out on Thursday.

The EUR/USD ended the week down by 0.14% to $1.1161.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. Key stats include finalized service sector and composite PMI numbers on Monday and the BRC Retail Sales Monitor numbers on Thursday.

3rd quarter labor productivity numbers will also provide direction on Wednesday.

We will expect December house price figures due out on Wednesday and Thursday to have a muted impact on the Pound.

Outside of the numbers, it will be all eyes on Parliament, as MPs return on Thursday. Brexit chatter will certainly build, with Johnson likely to want to quash any negative chatter towards trade negotiations.

The GBP/USD ended the week up by 0.04% to $1.3083.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar. After disappointing GDP numbers ahead of the holidays, we can expect some movement in the week ahead.

Key stats include November trade data and December’s Ivey PMI on Tuesday and December employment figures on Friday.

November RMPI numbers on Monday will also influence, while housing sector numbers on Thursday will likely be brushed aside.

There’s a lot riding on the USMCA and U.S – China phase 1 agreement delivering a boost to global trade. While the markets may be forgiving, some dire numbers could test the markets’ resolve…

On the monetary policy front, BoC Gov. Poloz is also scheduled to speak late on Thursday. Any shift in sentiment towards monetary policy will have a material impact on the Loonie. Poloz had previously viewed interest rates as appropriate to support the economy. Since those comments, stats have been far from impressive. While the numbers suggest the need for further support, the wrap up of the USMCA should ease immediate pressure to make a move.

The Loonie ended the week up by 0.60% to C$1.3001 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s also a relatively busy week ahead.

November trade figures due out on Thursday and retail sales figures on Friday will have the greatest impact.

December’s AIG Manufacturing Index and November building approvals due out on Monday and Wednesday will likely be brushed aside.

While hopes of a pickup in global trade have provided support to the Aussie Dollar, the RBA continues to rely on household spending.

Expect plenty of sensitivity. Trade chatter from Beijing and Washington will also influence as will any increased tension in the Middle East…

The Aussie Dollar ended the week down by 0.43% to $0.6950.

For the Kiwi Dollar:

There are no stats due out of New Zealand in the week ahead.

The lack of stats will leave the Kiwi Dollar in the hands of market risk sentiment and commodity prices in the week.

The Kiwi Dollar ended the week down by 0.52% to $0.6664.

For the Japanese Yen:

It’s a quiet week on the economic calendar. Finalized private sector PMI numbers on Tuesday and November household spending figures on Friday will be in focus.

We expect household spending figures to have the greatest impact.

While the stats will provide direction, sentiment towards the Phase 1 trade agreement and likely impact on the Japanese economy will be the key driver.

A Yen move towards ¥105 levels could be on the cards should the situation in the Middle East escalate.

The Japanese Yen ended the week up by 1.23% to ¥108.09 against the U.S Dollar.

Out of China

It’s a relatively busy week on the economic data front. December’s service sector PMI is due out on Monday.

While the manufacturing sector activity continues to have a greater impact, service sector contribution to the Chinese economy has been on the rise.

Expect the markets to respond to Monday’s numbers.

On Thursday, December inflation figures will also be in focus. Wholesale inflation will need to find some upside to ease concerns over margins and corporate profitability…

The Yuan ended the week up by 0.42% to CNY6.9663 against the Greenback.

Geo-Politics

Impeachment: There was little progress made last week, the start of Trump’s impeachment trial could be delayed until mid to late January. The timing of the U.S drone attacks in the Middle East was interesting, however… We’ve yet to hear of any Republicans looking to jump from the Republican Unity Ship… This could change with the talk of additional impeachment articles hitting the news wires.

Trade Wars: A 15th January signing of the Phase 1 agreement remains positive for the markets. The focus will then shift to what lies ahead, with few expecting a full-blown trade agreement to be wrapped up before the Presidential Elections. Existing tariffs may continue to weigh on global trade, numbers through the 1st quarter will be telling.

UK Politics: The UK Parliament returns on 5th January. Expect chatter on Brexit to pick up as Britain prepares to leave the EU on 31st January. The first order of Business and, 1st test for the British PM, is how to deal with the U.S moves in the Middle East. Britain was not advised of the attack in advance…

Iran and the Middle East: The drone killing of Iran’s most senior military commander rattled the markets on Friday. There was no immediate response from the Iranians. An Iranian response is anticipated, however, with the UK also sending troops to the region in readiness.

While Trump may be alone in wanting to take on Iranian to nullify its power within the region, his allies will need to jump in. It could end up in a puff or a full-blown Shia v Sunni war, with the West siding with the Sunnis once more.

How Iran responds will be key. Trump has already stated that the U.S would respond to any retaliation.

This article was originally posted on FX Empire

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