Weekly market preview – 20 January 2014
A mixed week ahead, where much of the focus is likely to be upon European releases. The US economy’s 4 day week signifies the tone for the week where the only event of notes come on Thursday, when the unemployment claims figure is released. In the UK, a slow week is largely dominated by BoE votes, along with the unemployment data which are all released on Wednesday. Meanwhile, in Europe a raft of PMI releases dominate proceedings while we await a potential resolution to the German court hearing with regards to the OMT policy.
In Asia, the BoJ announcements due on Wednesday will be keenly watched, whilst the Chinese HSBC manufacturing PMI will dominate proceedings on Thursday.
US
A particularly quiet this week, where the existence of Monday Martin Luther King signals a four day week. The only real events of note come on Thursday, when the unemployment claims and existing home sales figures are released.
Of those two, the main figure to keep an eye out for is the weekly unemployment claims number, which is expected to rise to 331k following a figure of 326k last week. The obvious reason to watch out for this figure is owing to the association between the jobs market and potential tapering from the FOMC next week. Given that the jobs report seen earlier this month were so poor, many will have discounted a January taper immediately. However, given that much of this effect was a consequence of the adverse weather seen across the US earlier this month. Thus the shorter time-frame outlook of this measure will be invaluable for the Fed to gauge what the true conditions are for employment. I would expect to see a better than expected figure provide a boost of the USD and weaken equities, with the reverse being expected should the figure rise higher than market expectations.
UK
A mixed week for the UK, where the majority of the week sees the focus upon the World Economic Forum in Davos. However, on Wednesday, the release of the latest BoE votes from the last MPC meeting is coupled with jobs data to provide a day of note to look out for. All these releases occur at 9.30am GMT, bringing about expectations of a particularly volatile start to the trading day.
The BoE announcement on Wednesday will likely to geared predominantly towards the MPC minutes rather than the actual announcement of MPC votes given that we have not seen a change for some time now. A vote for a change in either the interest rate or asset purchase facility seems highly unlikely under the framework of supposed ‘stability’ as provided by the forward guidance policy. Thus look to the minutes for an indication of whether the members are foreseeing any changes in stance given the faster than expected unemployment rate in recent months.
It is that unemployment rate which is also released at the same time as the minutes on Wednesday, with the headline rate once again expected to fall. The 7.0% threshold for consideration of a rate rise from the BoE is fast approaching and thus the faster this measure falls, the less accommodative the BoE is perceived to be in their mindset. Currently the rate is at 7.4%, however should we see a fall to 7.3% it would mean we have seen 0.5% shaved off the rate in just five months.
Eurozone
A busy week in the Eurozone, where the release of a raft of PMI figures is going to be key, whilst there is the potential for the much anticipated German constitutional hearing with respect to the eurozone OMT programme.
The release of PMI figures for the eurozone is always somewhat of an event, owing to the fact that this provides a key clue to how industry specific sectors are faring for some of the major economies in focus. On this occasion, the figures are all ‘flash’ releases which means they are the first estimate. On the whole this means we are likely to see more volatility than with revisions later in the month. The key figures to watch out for are typically the German and French manufacturing sectors, along with eurozone composite. On the manufacturing front, there could be additional focus upon France this month. This follows the contrasting fortunes of the majority of eurozone readings, which appear to be largely in expansion and improving and the French story which is one of accelerating contraction. Market expectations point towards the figure remaining at 47.0, however hopefully thee will some form of improvement.
On Tuesday, watch out for the potential announcement from the German constitutional court with regards to their ruling in relation to the OMT programme. This has been postponed on a number of occasions and thus I am a little skeptical as to whether we will see it this week. However, be aware that should we hear that they do not see the OMT programme as constitutional, it could cause significant shockwaves in the markets.
Asia & Oceania
The major focus this week out of Asia is likely to be the Japanese monetary policy statement on Wednesday, when the BoJ decide whether to amend the current asset purchase and interest rates in place. The imposition of a sales tax increase later in the year, coupled with doubts over whether the 2% inflation rate can be achieved as promised are two reasons why we could see a looser policy from the BoJ. However, I do not expect to see that change this month and thus it is the accompanying statement which could provide clues as to whether the BoJ are leaning that way.
Later on Thursday, the HSBC flash manufacturing PMI figure from China is released, where market expectations point towards a marginal rise to 50.6 from 50.5. The validity of some of the official figures has been called into question throughout 2013 and thus such HSBC figures are really key in understanding whether the economy is really growing as expected. The economy has been showing weaknesses following poor industrial production and fixed asset investment figures on Monday. And thus we will be looking for a strong figure to prop up the outlook for the time being.
Read the full report at Alpari News Room
