Last Friday we saw that the US economy is still strong, and its possible slowdown, although it is becoming visible, will not come soon. Risks remain: in the light of a trade agreement that has not yet been concluded with China, and a possible second “shutdown” beginning from February 15, in the absence of consensus between Republicans and US Democrats.
The coming week will be interesting data on business activity, speeches of members of the board of regulators (both the ECB and the Federal Reserve), US GDP and the ECB monthly report and its economic forecasts.
ECB Board Member Yves Mersch will begin the week. Since the Asian markets rest most of the week due to holidays, all attention will be shifted to Europe and the USA. On the night of Monday to Tuesday (Moscow time), the head of the Federal Reserve Bank Loretta Mester will speak.
Business activity in the services sector in Germany, France, and the EU as a whole will be released on Tuesday. The EU will also publish data on retail sales, which is a leading indicator of both inflation and consumer sentiment. The United States will report mirror business activity in the services sector, non-manufacturing sector and the composite index.
Wednesday will be no less volatile. The US real estate sector will start the day, reporting the number of building permits issued. Next, there is data on the orders of durable goods and the base retail sales index. We will also see the light of the volume of imports/exports, the balance of foreign trade in goods. Finally, another estimate of GDP will be revealed, as well as the labor costs for the 4th quarter.
On Thursday night, (Moscow time) the head of the US Federal Reserve Jerome Powell will present. After the press conference of the US regulator last week, when the Federal Reserve chief expressed excessive caution in the rhetoric of the regulator, this presentation will also be interesting. Closer to the Thursday afternoon, the ECB will publish a monthly report and economic forecasts of the EU. In the afternoon, we will find out the number of initial claims for unemployment benefits.
On the last day of the trading week, market participants are likely to take profits, studying the information received for this five-day week. Since on Friday there will be no strong news relating to the economic calendar. What you will not see in the calendar, is the speech of the President of the United States before Congress on Tuesday.
This week, as from the beginning of the year, it is important not to forget to pay attention to the political background. Since questions remain between the Democrats and the Republicans in the United States, the nature of Britain’s withdrawal from the European Union remains open in the Eurozone.
GBP / USD
The UK continues to occupy the front pages of the tabloid world media, which is not surprising. The risks of withdrawing from the EU without a deal from the UK are growing, while around 48% of companies operating in the United Kingdom are transferring production to the mainland of the Eurozone, fearing Brexit without a deal.
As early as Monday, British Prime Minister Theresa May, with loud statements such as “I will fight for Great Britain with Brussels,” will renew attempts to raise the revision of the Brexit deal with the EU heads. There is very little optimism about this, the top management of the European Commission has already commented on the current situation, saying that there will be no review of the deal and the best deal has now been reached. Further developments will certainly affect both the mood of business in the United Kingdom and the Pound Sterling itself.
From economic news, the following releases are expected. On Monday, there is data on business activity in the construction sector. On Tuesday - the volume of retail sales and business activity in the services sector. On Thursday, the Bank of England will hold a conference, after which it will announce its decision on the interest rate, and publish the minutes of the meeting of the Monetary Policy Committee. No one expects a rate hike, since the uncertainty from Brexit binds the regulator's hands, but the rhetoric itself will affect the Pound Sterling.
Black gold found support last Friday evening. The message from Baker Hughes about the next reduction in the number of derricks from the USA, against the background of production cuts by OPEC member countries and new US sanctions on Venezuelan oil, provided significant support for quotes.
Additional optimism to market participants gives progress in trade negotiations between the United States and China. Both sides expressed rather positive comments on the results of the meeting in Washington last week. On Friday, US President Donald Trump announced that he plans to meet with Chinese leader Xi Jinping, most likely twice, in the middle and at the end of the month. Against this background, market participants believe that demand will begin to grow as trade disputes are settled and, despite the slowdown in global economic growth in the world.