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- What to expect next week: 05.02 – 09.02.2018
What to expect next week: 05.02 - 09.02.2018
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Loading...In the new week, investors will be keen to see whether the US indices will recover after the losses. On Friday, the Dow Jones Industrial Average collapsed by 650 points, after better-than-expected data on new jobs in the United States. This was the worst week for US stocks for the past two years. For the first time since June 2016, the Dow fell by more than 500 points. The cause of this sale were the interest rates. NFP data increased yields on 10-year bonds to 2.85% - a 4-year high. This is a panic in investors, as yields climb at an extremely fast pace. The yield on 30-year bonds is at levels most recently seen in March - when Dow lost a total of 800 points. But things are not as bad as they look. Still, we are in the midst of the corporate season. Positive company reports are the main driver of the indexes this year. In the last 4 weeks, EPS has risen by 4.5% - about 9 times the average on a monthly basis over the last 5 years - thanks to much of the country's tax reform and strong corporate season. While only a slowdown in company profits would reverse the S & P 500 trend, more than half of the companies in the index have not yet published reports. This gives optimism to investors that positive attitudes on the market will dominate the new week.
A persistently weak dollar is confounding currency traders and roiling global financial markets. Investors across asset classes are feeling the effects of the buck’s rocky start to the year, with the ICE U.S. Dollar Index DXY, a measure of the currency against six major rivals, dropping 3.5% in the year to date, adding on from its 10% loss last year. Last week alone, the buck dropped 1.7%. So what’s been driving the dollar? Here are the two main culprits: Central bank policy is thought to be one of the biggest drivers of currencies, so the Fed’s hawkishness and expectations for three rate increases in 2018 seem to contradict the buck’s soft performance. But it might be a case of the grass being greener on the other side. of the pond. The ECB is lagging behind the Fed in ending its quantitative easing program and raising interest rates, but hawkish expectations paired with strong economic data have made the shared currency more attractive, allowing it to strengthen versus its U.S. rival. “Fed chairs are different than Treasury secretaries where you know what their stances on policies are,” Englander said. Powell hasn’t been very outspoken, so the dollar is trading cautiously in response. The question is also whether the Fed will be more open to political pressure. Caution was also getting the better of traders, with the dollar index retreating as market participants looked hoped for more clues about the administration’s trade policies in President Donald Trump’s State of the Union address on Tuesday night, but were disappointed. The forces that are now driving the dollar to weaken are structural and political rather than cyclical as the U.S. administration focuses on trying to reign in its external imbalances. Last week, comments from Treasury Secretary Steven Mnuchin and President Trump caused volatility in the buck, as Mnuchin said a weaker dollar would be good for trade. As the greenback was already on its back foot, this brought on the question whether the government was abandoning the strong-dollar policy that’s been in place since the mid-1990s. The Trump administration has been vocal in criticizing bilateral U.S. trade deficits and President Trump commented on the strong dollar during his campaign. So all in all, “it may be more palatable to policy makers globally to accept some modest dollar weakness in the near term if that curbs some of the more active protectionist policy leanings of the current U.S. administration,” the HSBC analysts wrote. The bottom line, however, is that currency analysts have a hard time judging which way the administration will swing. In the renegotiation of the North American Free Trade Agreement between the U.S., Canada and Mexico, for example, progress seems to have been made, just weeks after Canadian officials spoke of an increased possibility of the U.S. withdrawing from the trade pact altogether.
This week, traders will focus on the BoE Interest Rate Decision - Thursday at 14:00 local time. The expectations are, that the central bank will not indicate a shift in its monetary position, however investors are betting that the Bank of England is on course for a faster path of rate increases after January saw better-than-forecast U.K. growth and jobs data as well as a global bond selloff. The overnight index swap curve, used by the BOE to condition its forecasts, shifted dramatically in the past month, and now shows expectations for three full 25-basis-point hikes over the next three years, up from two previously. Officials, who have previously commented on their own outlook for rates relative to the curve, will have a chance to endorse or dispute the market’s view when the central bank presents its Inflation Report on Feb. 8. The outlook is brighter. Bloomberg Economics now sees the U.K. economy growing faster in 2018 and the labor market maintaining its air of invincibility. The Bank of England’s Monetary Policy Committee is likely to respond by lifting interest rates in August. The latest batch of GDP data surprised most economists. The economy grew by 0.5% in the final quarter of 2017, 0.1 percentage point higher than BE forecast and the consensus. A couple of factors probably contributed to this unexpected vibrancy. First, the buoyancy of the global economy is lifting the U.K. with it. Second, consumers are feeling a little more chipper because, on a quarterly basis, their wages are no longer falling in real terms. Both those themes will continue to support the economy this year, which should mean quarterly growth is a little faster than BE had expected previously. The forecast for annual growth in 2018 has been raised to 1.7% from 1.4%. What’s more, with the employment surveys continuing to point to solid hiring and demand growth likely to be a little stronger going forward, the unemployment rate looks set to reassert its downward trend in 2018. By the end of the year, the remaining spare capacity in the economy is likely to have been completely absorbed. That should help pay growth maintain the momentum it has gathered recently. Against the backdrop of faster economic growth and a labor market on the cusp of full employment, the MPC now looks likely to lift rates again this year. BE expects policy makers to vote in favor of a rate hike in August, though a move in May can’t be ruled out. BE forecasts just one 25 bps rise this year with the MPC stepping out of the limelight in the final six months of Brexit talks from October to March 2019. The next hike is then assumed to come in May 2019, nine months after the August hike and 18 months after the interest rate cycle turned in November 2017.
Economic calendar for the week 05.02 - 09.02.2018
Monday
10:55 Germany - Services PMI
11:00 Europe - Markit PMI
11:30 UK - Services PMI
12:00 Europe - Retail Sales
16:45 USA - Markit PMI
Tuesday
09:00 Germany - Factory Orders
15:30 Canada - Trade Balance
15:50 USA - FOMC Member Bullard Speaks
17:00 Canada - Ivey PMI
17:00 USA - JOLT's New Job Openings
23:35 USA - API Weekly Crude Oil Stock
23:45 New Zealand - Employment Change
Wednesday
09:00 Germany - Industrial Production
10:30 UK - Halifax House Price Index
15:30 Canada - Building Permits
17:30 USA - Crude Oil Inventories
Thursday
11:00 Europe - ECB Economic Bulletin
14:00 UK - BoE Inflation Report
14:00 UK - BoE Interest Rate Decision
15:30 USA - Initial Jobless Claims
15:30 USA - New Housing Price Index
Friday
03:30 China - CPI
15:30 Canada - Unemployment Rate
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