Before we drill into the week’s trading data let’s highlight an increase in geo-political risk.
Last week saw some large influences on volatility.
• Russia caught the ire of European markets by unveiling a new nuclear weapon
• The US riled the global with the President foreshadowing protectionist policies – watch China this week.
• China (basically) announced that it will change the constitution to allow a president an indefinite term – that’s a long-term issue for the region.
Keep one eye on the VIX – it’s becoming a reasonable indicator of market angst due to increased geo-political risk
(intraday chart of the US VIX – post the President’s remarks)
Data, data, data
• Service and manufacturing PMI – The services PMI is at the highest rates since 2007. January’s read of 58 was highest since March 2007.
• Q4GDP – final read; The year-on-year preliminary read of 2.7% was the strongest read since the third quarter in 2007.
• ECB meeting which is accompanied by a press conference – no change. However, Draghi is turning ‘neutral’ which might jolt European markets.
EURUSD has weaken right off over the past week to $1.22 – positive data from any of these three is likely to test $1.24. NFP likely to push it the other way if January data translates into February
• ISM non-manufacturing – booming piece of data currently, previous read of 59.9 is driving optimism for employment in the sector – strong forward indicator for growth and USD driver.
• Canadian PMI – has been at strongest level in 3 years and Canadian trade balance.
• Bank of Canada rates decision – no change. Governor Stephen Poloz did catch the market off guard last year by raising rates – he is rather hawkish. USDCAD is moving nicely.
• US Non-Farm (NFPs) – could be the biggest piece of data of the week. Looking past the headline release to the average hour earnings – market is gunning for any signs of US inflation. Bond market and equity market risk event. USD likely to spike.
• Japanese GDP, trade balance, current account and CPI with Bank of Japan to finish. Kuroda has remained steadfast in his stance around monetary policy – Shouldn’t impact the JPY too much.
• Chinese trade balance – this should be volatile as Chinese Lunar New Year will impact the read. Look through the data
• building permits, job adds, service and manufacturing PMIs, retail sales, the current account
• Fourth quarter GDP: quarter-on-quarter estimates 0.7% – 3% year-on-year – this is pushing towards the RBA’s target level released in the Statement of Monetary (SoMP) policy in January.
• RBA: Interbank and swaps markets along with all economists surveyed see no change to the cash rate.
AUDUSD is now stuck in a range of 77.5-79.0 – with the RBA out of the market – this week will likely see the AUD moving through this range as China and Australian data pushes the AUD side of the pair while European and North American data pushes the USD side – again the NFP is the main event for currencies and bond markets alike.