FOREX.com | Feb 10, 2019 11:03
We saw a U-turn in risk-sensitive assets in mid-week as stocks, crude oil and commodity dollars all fell after a bright start. The “risk-off” trade continued to dominate the agenda on Friday when this report was written, with US indices hitting new lows on the week. Investors are concerned by growing evidence of a slowdown in global economy. We have seen several major central banks turn dovish at the same time over the past few days. This is probably alarming some investors, which may explain why stocks have failed to sustain their rally. At the same time, though, this is good news for bond prices and noninterest-bearing and low-yielding assets such as gold and silver. After the Fed’s dovish turn last week, we have seen the RBA deliver a dovish outlook on interest rates earlier this week, while the BoE indicated on Thursday that monetary policy in the UK will remain accommodative for even longer due to Brexit uncertainty. A few weeks ago, the ECB appeared a tad more dovish than expected.
Next week could be even more volatile given that China will return after being out in observance of the spring festival for the whole of this week. In addition, there will be lots of potentially market-moving data to look forward to, not least growth figures from Germany. On top of this, Brexit will remain in focus as a desperate UK Prime Minister Theresa May struggles to re-negotiate the withdrawal agreement with the EU leaders. The European Commission President Jean-Claude Juncker has ruled out legally-binding changes to the backstop clause. Instead, Mr Juncker has indicated that the EU would be open to making small changes in the non-binding future relations document that goes with the withdrawal agreement. It remains difficult to predict what will happen next, but evidently things don’t look great. Mrs May is likely to put any deal she manages to re-negotiate with the EU to a vote in the Commons towards the end of the month.
With that in mind, it is difficult to see how the pound will react to next week’s upcoming macro pointers from the UK. But other currencies, stocks and commodities could move sharply next week. We have lots to look forward to. Below is a summary of the highlights:
Monday: UK GDP (both monthly and quarterly), manufacturing production and business investment
Tuesday: A quiet day for data, but the markets could remain volatile nonetheless given the sharp falls we saw in equity markets towards the end of this week.
Wednesday: RBNZ, UK and US CPI data
Thursday: Important macro numbers from China and Germany could exacerbate growth fears or potentially ease concerns in the unlikely event we see positive surprises.
Friday: Quieter day for data with Chinese CPI, UK retail sales and US industrial production being the highlights. We doubt any of these figures will be market-moving.
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