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The Week Ahead – Expect Market Volatility to Linger, with the Virus, Stats and the ECB in Focus

Bob Mason

On the Macro

It’s a quieter week ahead on the economic calendar, with 46 stats to monitor in the week ending 14th March. In the week prior, 66 stats had been in focus.

For the Dollar:

It’s a relatively busy week ahead on the economic calendar, though it is a quiet start to the week.

The markets will need to wait until Wednesday for February inflation figures. While we tend to see the Dollar sensitive to inflation, the latest FED rate cut should limit any reaction.

Expect the Dollar to respond in a similar way to wholesale inflation numbers due out on Thursday.

We will expect greater sensitivity to the weekly jobless claims figures, however. The markets are looking for any negative fallout and the jobless claims figures will certainly be one area of focus.

On Friday, March prelim consumer sentiment figures due out on Friday will also influence on Friday.

The spread of the coronavirus in the U.S will likely weigh on consumer sentiment in March. Perhaps the FED rate cut may have spooked consumers. After all, the last time the FED delivered an emergency rate cut was during the GFC…

On the positive side, the U.S equity markets found support last week, which should limit any material slide in consumer confidence. That is assuming of course that there’s no sell-off at the start of the week…

Outside of the numbers, expect updates on the coronavirus, chatter from the Oval Office and election news to be the key drivers.

The Dollar Spot Index ended the week down by 2.08% to 96.093.

For the EUR:

It’s also another busy week ahead on the economic data front.

In the 1st half of the week, key stats include industrial production and trade data out of Germany on Monday.

We will expect any upside to have limited impact on the EUR.

On Monday, Eurozone investor confidence figures for March will influence, however.

On Tuesday, 3rd estimate, 4th quarter GDP numbers for the Eurozone will also have a muted impact on the EUR and the European majors.

A lack of stats on Wednesday leaves the markets to focus on the ECB monetary policy decision on Thursday.

While the FED delivered an emergency rate cut ahead of next week’s FOMC, the ECB has taken the time to assess the situation and consider its options.

No doubt some coordination with member states on intentions vis-à-vis fiscal policy is ongoing behind the scenes.

Forecasts are for the ECB to stand pat on policy this time around.

Finalized inflation figures out of member states through the week will have a muted impact on the EUR…

The big question in the week will be whether ECB President Lagarde manages the situation and whether fiscal support is on the cards…

The EUR/USD ended the week up by 2.34% to $1.1284.

For the Pound:

It’s a busier week ahead on the economic calendar.

On the data front, the markets will need to wait until Wednesday for key stats.

Expect manufacturing and industrial production to be the key drivers on the day.

The January stats are unlikely to present too many shocks, however, though they will need to support the survey-based numbers that led supported a BoE hold on the monetary policy front.

Expect trade data to have a muted impact.

The Autumn Budget will be the key driver in the week, however.

Expectations had been high before the spread of the coronavirus. The markets will be wanting more now, which leaves the Pound vulnerable…

On the geopolitical front, there’s also Brexit chatter to consider though, with the G7 in focus, animosity may need to take a back seat…

The GBP/USD ended the week up by 1.75% to $1.3048.

For the Loonie:

It’s a particularly quiet week ahead on the economic calendar.

Key stats are limited to housing sector figures due out on Monday. Expect the Loonie to brush aside the numbers…

The focus will on the IEA and OPEC monthly reports and supply intentions. Crude oil prices took a dive at the end of last week as Russia-OPEC talks broke down.

A combination of G7 fiscal support and a material cut in OPEC output would give the Loonie a boost.

The markets will need to continue to assess the damage from the coronavirus, however. Even a marked cut in production may not be enough to bolster crude oil prices and the Loonie near-term.

History suggests that fiscal policy support would likely fall short.

The Loonie ended the week down by 0.08% to C$1.3418 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic calendar, though not without influence.

In the recent past, consumers have been spooked by RBA rate cuts, leading to a slide in consumer confidence.

This time around, the RBA can sit behind the G7’s coordinated effort to buffer the impact of the coronavirus on the Australian economy.

Last week, the RBA’s rate cut coupled with the government’s promise of fiscal policy support should be positive for consumer confidence.

The markets will need to wait until Wednesday for the numbers, however, that come after February business confidence figures.

On Tuesday, business confidence figures for February will perhaps be of more interest. The RBA’s monetary policy failed to fully push business investment. We could see a forgiving market, however, for the February numbers… March may be a different story.

The Aussie Dollar ended the week up by 1.86% to $0.6636.

For the Kiwi Dollar:

It’s also a quiet week ahead on the economic data front. Key stats are limited to February’s electronic card retail sales figures on Tuesday and February’s Business PMI on Friday.

We can expect the numbers to have a material influence on the Kiwi Dollar that found support last week.

The RBNZ has yet to step forward but will likely need to when considering NZ’s reliance on China for trade.

There’s also tourism to consider, which leaves the NZ economy in a precarious position.

Fiscal policy support and monetary policy easing are not going to drive people to travel, however, which raises some doubt over what lies ahead.

The Kiwi Dollar ended the week up by 1.67% to $0.6350.

For the Japanese Yen:

It’s a relatively quiet week on the economic calendar. Key stats include finalized 4th quarter GDP numbers on Monday.

1st quarter BSI numbers on conditions for large manufacturers will be in focus on Thursday. We don’t expect the numbers to be impressive, though that’s unlikely to do too much to the Yen.

The direction throughout the week will come from risk sentiment to be driven by coronavirus news updates.

Will the markets really believe that fiscal and monetary policy support will be enough to counter the effects of the coronavirus, which remains unknown for now?

The Japanese Yen ended the week up by 2.32% to ¥105.39 against the U.S Dollar.

Out of China

It’s a relatively quiet week on the economic data front.

Going into the start of the week, February trade data will set the tone. Through February, the Chinese government and PBoC had delivered support to counter the effects of the coronavirus.

Dire numbers off the back of the PMI numbers last week will demand more action. Failure for Beijing and PBoC to deliver more could spell trouble down the track.

On Tuesday, February inflation figures will be a reminder of how bad things are. Expect inflationary pressures to tumble in February…

The Chinese Yuan rose by 0.85% to CNY6.9329 against the U.S Dollar in the week.

Geo-Politics

Trade Wars: On hold as the world battles the spread of the coronavirus… Trump may look to deflect criticism from the handling of the coronavirus, but kicking off a trade war with the EU would be ill-advised.

UK Politics: The EU and Britain began trade negotiations last week and failed to find a solution to giving EU access to UK waters. The Pound remained resilient, with Boris Johnson and David Frost an all-together different proposition for the EU… The number of issues to address at this late stage is astounding. For the markets, it’s all about the trade agreement, however.

U.S Politics: Joe Biden took one step closer to becoming the Democratic front runner. With the coronavirus spreading and the U.S equity markets in corrective territory, the Democrats smell blood. If the U.S administration continues to fumble its way amidst the virus spread, the winner of the Democratic Party race may well end up in the White House. Michael Bloomberg dropped out after Super Tuesday, with Elizabeth Warren also calling it a day…

And finally,

The week ahead could reveal some deep cracks that the EU’s Establishment had managed to conceal since the Greek debt crisis. ECB President Lagarde may look to force Germany’s hand in loosening the purse strings. Which other member states are able to follow suit if any?

Is Italy on the brink of falling back under the scrutiny of Brussels, as the economy buckles and debt to GDP surges? Voters in Germany will not want to be supporting EU member states.

Debates will likely resurface on whether the Euro bloc can continue to exist in its current form. While Macron is eager to become the voice of Europe, other member states may well prefer to go it alone.

This article was originally posted on FX Empire

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