As Goldman summarizes recent events - well-known to most - at the end of last week Emerging Market currencies displayed significant risk-off behaviour. This also contributed to JPY and CHF appreciation against the major crosses. Earlier in the week, GBP outperformed after strong UK labour statistics but then gave some of the gains back as risks sentiment deteriorated more broadly. Argentina removed restrictions on its managed exchange rate partly as a result of a deteriorating FX reserves position. The same issue is a problem for the Turkish Central Bank as well, which has very low FX reserves coverage too and with the Central Bank somewhat slow in tightening monetary policy, the currency continues to weaken rapidly. Maybe the biggest concern last week was the slowing in the Chinese Flash PMI together with uncertainty over certain credit markets in China. The implication of slowing growth in the second-largest economy globally may have weighed on risky assets more broadly. Equities sold off and bonds rallied across the board.
This week, much of the market focus will remain on the policymakers' responses to the challenges emerging out of the, well, emerging markets. In particular, the response of the Turkish Central bank will be key. Trade balance data from Turkey and South Africa is due for release on Friday.
This week we also have eight MPC meetings, with the US FOMC on Wednesday standing out. Consensus expects the continuation of the tapering of asset purchases – by another USD10bn, split equally between Treasuries and MBS. Other than that, the announcement should be fairly uneventful. In India GS forecasts an out-of-consensus hike of the repo rate to 8.00% after the central bank published a report on suggested changes to the monetary policy framework. In New Zealand, South Africa, Israel, Mexico, Malaysia and Colombia, consensus expects no change in the monetary policy stance.
Among economic data releases, the focus will be on consumer surveys, as well as business surveys (US, Germany and Italy). There are also inflation numbers from the US, Euro Area, Japan and Brazil. Advanced Q4 GDP data prints will come out for the US and the UK. US consumption and production numbers are due at the end of the week.
Monday, 27 January
- Euro Area ECB Weidmann speaks
- Israel MPC: Consensus has policy rate unchanged at 1.00%
- US New Homes Sales (Dec): Consensus -1.9%, previous -2.1%
- Germany IFO Business Survey (Jan): consensus 110.0, previous 109.5
- Also interesting: Hong Kong Trade Balance (Dec), Mexico Trade Balance (Dec)
Tuesday, 28 January
- India MPC: GS expects a 25bps hike in the repo rate to 8.00% and has other main policy tools - cash reserve ratio and reverse repo rate - unchanged at 4.00% and 6.75% respectively. Consensus has all three policy tools unchanged.
- US Consumer Confidence (Jan): Consensus 78.0, previous 78.1
- US Core Capital Goods Orders (Dec): Consensus +0.3%, previous +4.1%
- US Core Capital Goods Shipments (Dec): Consensus +0.1%, previous +2.7%
- US Durable Goods Orders (Dec): Consensus +1.8%, previous +3.4%
- UK GDP (Q4, adv.): Consensus +0.7%qoq, previous +0.8%qoq
- Turkey Inflation Report (Q1)
- Also interesting: Italy Consumer Confidence (Jan), South Korea IP (Dec) and CA Balance (Dec), Thailand Trade Balance (Dec)
Wednesday, 29 January
- US MPC (FOMC): Consensus have Fed fund rate unchanged at 0.25% and expect further USD10bn reduction in the monthly rate of asset purchases to be announced – split equally between Treasuries and MBS, making them USD+35bn and USD+30bn, respectively. The January FOMC should be fairly uneventful, following significant policy changes made at the prior meeting. Expect no changes to the forward guidance. Although the 6.5% threshold mentioned in the statement is fast approaching, the Committee has probably already enhanced the forward guidance as much as it is willing to in the near term. A recent set of modestly negative data surprises, including most notably the December employment report, has likely not shifted the Fed’s thinking on the near-term outlook in a significant way. The Committee will also have to decide whether to extend the testing period for the fixed-rate reverse repo facility, which is currently authorized through January 29. In the future, the facility may play a key role in monetary policy implementation. However for now, the Committee will want to avoid any suggestion that it would be employed as a tool of monetary tightening in the near future.
- New Zealand MPC: Consensus has policy rate unchanged at 2.50%. There is a non-trivial probability of a rate hike, particularly with domestic economic momentum remaining strong and headline inflation surprising on the upside.
- South Africa MPC: Consensus has policy rate unchanged at 5.00%
- Malaysia MPC: Consensus has policy rate unchanged at 3.00%
- UK BoE governor Carney speaks
- Germany GFK Consumer Confidence (Feb): consensus +7.6, previous +7.6
- Italy Business Confidence (Jan): previous 98.2
- Also interesting: Japan Retail Sales (Dec), Spain Retail Sales (Dec)
Thursday, 30 January
- New Zealand RBNZ Governor Wheeler speaks
- US GDP (Q4, adv.): Consensus +3.2%ann., previous +4.1%ann.
- US Initial Jobless Claims: consensus 330K, previous 326K
- Japan CPI (Dec)
- Japan IP (Dec)
- Japan Unemployment Rate (Dec): Consensus 3.9%, previous 4.0%
- Germany Harmonized CPI (Jan, flash): consensus +1.4%, previous +1.2%
- Spain GDP (Q4, prelim.): Previous +0.1%qoq
- Brazil GP-M Inflation (Jan): Previous +5.51%yoy
- Also interesting: Japan Household Survey (Dec), Germany Unemployment Change (Jan), UK Mortgage Approvals (Dec), Sweden NIER Business and Consumer Survey (Jan), Switzerland KOF Leading Indicator (Jan), New Zealand Trade Balance (Dec)
Friday, 31 January
- Mexico MPC: Consensus has policy rate unchanged at 3.50%. The language may turn slightly more hawkish given the recent acceleration of inflation.
- Colombia MPC: Consensus has policy rate unchanged at 3.25%yoy
- Chile MPC minutes. Minutes should reinforce the dovish bias unveiled in the policy statement, signaling the directors are ready to ease monetary conditions soon.
- US Fed speakers: Fisher (FOMC voter) - has been known for more hawkish policy views in the past
- US U. of Michigan Consumer Sentiment (Jan, final): Consensus 81.0, previous 80.4
- US Chicago PMI (Jan): Consensus 59.0, previous 60.8
- US Personal Consumption (Dec): Consensus +0.2%, previous +0.5%
- US Personal Income (Dec): Consensus +0.2%, previous +0.2%
- US PCE Core Price Index (Dec): Consensus +0.1%, previous +0.1%
- Euro Area CPI (Jan, flash): Consensus +0.9%yoy, previous +0.8%yoy
- Spain Harmonized CPI (Jan, flash): previous +0.3%yoy
- UK GFK Consumer Confidence (Jan): consensus -12, previous -13
- Turkey Trade Balance (Dec): previous USD-7.15bn yoy
- South Africa Trade Balance (Dec): previous ZAR+0.8bn yoy
- Also interesting: US Employment Cost Index (Q4), France Consumer Spending (Dec), Brazil Primary Fiscal Balance (Dec), Canada GDP (Nov)
And the key items from the above, in tabular format from BofA:
Source: Goldman, BofA