Most Important Economic Events of the Week 01.18.2021 – 01.24.2021
The statements of the head of the FRS Jerome Powell on maintaining low interest rates for a long period of time, made by him last Thursday, put pressure on the dollar, but only short-term. Powell said it was too early to talk about a revision of the central bank's soft policies, including a $ 120 billion a month bond buyback program. "The economy is far from our goals", Powell explained.
Last Friday, the dollar resumed its growth, and the DXY dollar index rose by about 0.5% by the end of the week, to the level of 90.70.
The dollar, in particular, is receiving support from the growing yields on US government bonds and from the sell-off on the US stock market. Gold and oil quotes also declined last week, and gold continued to fall, which began the previous week.
Investors continue to withdraw from defensive assets. But where do they invest the freed up funds, because the market for risky assets is also showing a decline? Really in the dollar? If so, then perhaps a turning point in the negative dynamics of the dollar is coming right now.
Powell tried to reassure investors, but how long will that last?
It is also possible that renewed fears about the continuing expansion of the coronavirus pandemic contribute to the strengthening of the dollar. So, in China, the growth in the number of new infections has reached a 10-month high, not to mention the difficult situation in the UK and Europe, introducing new lockdowns.
Next week, financial market participants will pay attention to the publication of important macro statistics on Australia, China, USA, Germany, Eurozone, Great Britain, Canada, New Zealand, as well as the results of meetings of the central banks of Japan, Eurozone, Canada, China, dedicated to monetary policy.
Of the most significant macroeconomic data, the publication of which is expected next week, it is worth noting the following:
*) new events can be added to the calendar and/or some scheduled events canceled during the coming week
**) specified time – GMT
Monday, January 18
In the United States, banks and exchanges are closed for the Martin Luther King Day national holiday. Trading volumes during the American trading session will be low.
02:00 CNY China's GDP for the 4th quarter
National Bureau of Statistics of China will present data on GDP growth in the 4th quarter.
In the second quarter, China's GDP grew by +11.5% (+3.2% in annual terms), in the third quarter - by +2.7% (+4.9%, respectively), after a decrease of -6.8% (-9.8% YoY) in the 1st quarter.
China's GDP is expected to grow by +3.2% (+6.1% on an annualized basis) in the 4th quarter of 2020.
China is the largest buyer of raw materials and a supplier of a wide range of finished products to the world commodity market. China's economy is already the first in the world, according to some reports, pushing the American economy to second place. Therefore, the publication of important macroeconomic indicators from China can have a strong impact on the entire financial market.
The relative decline in GDP may negatively affect the yuan quotes, as well as the quotes of commodity currencies and currencies of the Asia-Pacific region, since may indicate a slowdown in the growth rate of the Chinese economy.
The growth of the indicator will have a positive effect on the Chinese yuan, as well as on the world, primarily Asian stock indices, as well as on the quotes of commodity currencies such as the New Zealand and Australian dollars. China is the largest trade and economic partner of Australia and New Zealand and a buyer of commodities from these countries.
Therefore, positive macro statistics from China may also have a positive effect on the quotes of these commodity currencies.
02:00 CNY Retail Sales Index
This index is published monthly by the National Bureau of Statistics of China and measures total retail sales and cash receipts. The index is often considered an indicator of consumer confidence and economic well-being and reflects the health of the retail sector in the near term. A rise in the index is usually positive for the CNY; a decrease in the indicator will negatively affect CNY. The previous value of the index (in annual terms) was +5.0% (after an increase of +8% in the last months of 2019 and a fall of -20.5% in February 2020).
Forecast: In December, retail sales rose in China by +5.5% (yoy), which speaks of an intensifying recovery after a strong fall in February-March this year. If the data turns out to be even better, then CNY will strengthen even more.
Tuesday, January 19
07:00 EUR Harmonized Consumer Price Index (HICP) in Germany (final release)
This index is published by the EU Statistics Office and is calculated on the basis of a statistical methodology agreed between all EU countries. It is an indicator for assessing inflation and is used by the Governing Council of the ECB to assess the level of price stability. A positive result strengthens the EUR, a negative one weakens it.
In May, the HICP index (in annual terms) increased by +0.5%, in June by +0.8%, in July - by 0%, and in September it decreased by -0.5%.
Forecast for December: -0.7%. Since this is the second, final estimate, which coincides with the first estimate (-0.7%), the euro is unlikely to react strongly to the publication of this indicator. If the data turn out to be better than the forecast, then the euro may strengthen in the short term. The growth of the indicator is a positive factor for the euro. The data suggests that inflationary pressures are still low in Germany. The data is worse than the forecast and the previous value will negatively affect the euro.
09:00 EUR Study of Bank Lending in the Eurozone
Research conducted by EU financial experts on the state of the bank lending system is carried out 4 times a year. The main goal of the study is to obtain expanded information on the conditions of bank lending in the Eurozone.
The obtained data are used by the ECB management when making decisions on the bank's monetary policy. This report may cause increased volatility in the euro quotes and on the European stock market at the time of its publication, if it contains unexpected conclusions regarding the terms of lending to businesses and households in the Eurozone.
Wednesday, January 20
01:30 CNY The People's Bank of China Interest Rate Decision
Since May 2012, the People's Bank of China has been steadily cutting interest rates in support of Chinese manufacturers. The last time in 2020 the bank cut the rate in April (by 0.20% to 3.85% at the moment).
In 2020, amid international trade conflicts and a slowdown in the global economy, the world's largest central banks took the path of easing their monetary policies in order to support national economies and increase the competitiveness of goods exported from these countries.
The People's Bank of China is also in line with this process. The depreciation of the yuan became especially relevant in the last 2 years, when the confrontation between the two most powerful economies in the world began. One of the measures to neutralize the negative consequences of the increased duties on the import of Chinese goods into the United States was the depreciation of the national currency of China. This measure was intended, among other things, to maintain the same volumes of imports of Chinese products to the United States, which would cost American buyers cheaper due to the difference in the rates of the national currencies of the United States and China. Now, another strong negative factor has been added to this - the coronavirus.
Probably, at this meeting, the People's Bank of China will keep the interest rate at the same level of 3.85%, although a rate cut is also possible.
However, if the People's Bank of China makes unexpected statements or decisions, then volatility may increase throughout the financial market. Investors will also be interested in the bank's assessment of the consequences of the coronavirus for the Chinese economy and its policy in the near future in this regard.
07:00 GBP Consumer Price Index. Core consumer price index
The consumer price index (CPI) reflects the dynamics of retail prices for a group of goods and services that make up the British consumer basket. The CPI is a key indicator of inflation. Around its publication, the main movement of the pound in the foreign exchange market will take place, as well as the FTSE100 index of the London stock exchange.
In the previous reporting month (November), the growth of consumer inflation (in annual terms) amounted to +0.3%.
Forecast for December: +0.5% (annualized). This value is unlikely to provide significant support to the pound. Indicator reading below the forecast could provoke a weakening of the pound, as low inflation will force the Bank of England to adhere to a soft monetary policy.
The Core CPI of Consumer Prices is published by the Office for National Statistics and determines the price change of a selected basket of goods and services (excluding food and energy) for a given period. It is a key indicator for assessing inflation and changes in purchasing preferences. A positive result strengthens the GBP, a negative one weakens it.
In September, the Core CPI (in annual terms) increased by +1.3%, in October - by +1.5%, in November - by +1.1%. The publication of the indicator is likely to have a positive effect on the pound if its value is higher than the forecast and the previous value.
Forecast for December: +1.3% (annualized). The indicator reading below the forecast and previous values may provoke a weakening of the pound.
13:30 CAD Consumer Price Indexes in Canada
The Bank of Canada Core Consumer Price Index (Core CPI) reflects the dynamics of the retail prices of the corresponding basket of goods and services (excluding fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation and tobacco products). The target inflation rate for the Bank of Canada is in the range of 1% -3%. The rise in CPI is a harbinger of a rate hike and a positive factor for CAD. The Core CPI rose in November by + 1.5%, in October and September by +1.0% (in annual terms).
If the data for December turns out to be worse than the previous values, it will negatively affect the CAD. The data better than the previous values will strengthen the Canadian dollar.
15:00 CAD Decision of the Bank of Canada on the interest rate. Bank of Canada accompanying statement. Bank of Canada Monetary Policy Committee Report
The Bank of Canada will decide on the interest rate. In March, the bank lowered the rate 3 times, bringing it to the level of 0.25%, to mitigate the economic damage from the novel coronavirus pandemic.
In an accompanying statement, the central bank of Canada said that the decision "aims to support the financial system, which plays a central role in lending to the economy, as well as to create a foundation that will allow the economy to return to normal". The central bank also said in a press release that the spread of the coronavirus and the plummeting global oil prices combined are weighing heavily on Canadians and the Canadian economy.
In fact, quantitative easing and a significant cut in the interest rate should help weaken the national currency.
The impact of the coronavirus on the Canadian economy and the country's labor market (in March, unemployment rose to 7.8% from 5.6% in February, and the number of employed, as reported by Statistics Canada, fell by 1.01 million), as well as weakness housing market put pressure on the Bank of Canada towards further easing of monetary policy.
However, the Bank of Canada is expected to keep its interest rate at 0.25% at its meeting on Wednesday.
The harsh tone of the accompanying statement by the Bank of Canada on rising inflation and the prospects for further tightening of monetary policy will cause the Canadian dollar to strengthen. If the Bank of Canada signals the need for a soft monetary policy, the Canadian currency will decline.
16:15 CAD Bank of Canada Press Conference
During the press conference, the head of the Bank of Canada, Tiff Macklem, will explain the bank's position and assess the current economic situation in the country. If the tone of his speech is tough on the monetary policy of the Bank of Canada, the Canadian dollar will strengthen in the foreign exchange market. If Tiff Macklem speaks out for maintaining a soft monetary policy, the Canadian currency will decline. In any case, during his speech, high volatility in CAD quotes is expected.
Thursday, January 21
00:30 AUD Employment rate. Unemployment rate
The employment rate reflects the monthly change in the number of Australian citizens employed. The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth. A high reading is positive for the AUD, while a low reading is negative. Forecast: in December, the number of employed Australian citizens increased by another 50,000 (after falling by 607,400 in April, by 264,100 in May, and by 90,000 in November).
Also, at the same time, the Australian Bureau of Statistics will publish a report on the unemployment rate - an indicator that estimates the ratio of the proportion of the unemployed population to the total number of able-bodied citizens. The growth of the indicator indicates the weakness of the labor market, which leads to a weakening of the national economy. The decline in the indicator is a positive factor for the AUD. Forecast: unemployment in Australia in December was at 6.7% (against 6.8% in November, 7.0% in October, 6.9% in September, 6.8% in August, 7.5% in July, 7.4% in June, 5.2% in March, 5.1% in February). In general, the indicators are still not positive. However, in other large economies, the labor market has deteriorated on an even larger scale due to the coronavirus.
The leaders of the RBA have repeatedly stated that, in addition to the situation in international trade, the Australian economy and the central bank's monetary policy plans are influenced by the indicators of the level of household debt and expenditures, the growth of workers' salaries, as well as the state of the country's labor market.
In November 2020, the RB of Australia cut its key interest rate by another 0.15%, to a new all-time low of 0.1%, due to the coronavirus. In the opinion of the RBA management, an unemployment rate of 4.5% or lower is required to raise wages and accelerate inflation to the target range. Unemployment in the country is not declining, and a return of inflation to the middle of the target range of 2% - 3% is not visible even in the distant horizon.
AUD is unlikely to react positively to the publication of data from the country's labor market. If the values of the indicators turn out to be worse than forecast, then the Australian dollar may significantly decline in the short term. Better-than-expected data will strengthen AUD in the short term.
03:00 JPY Bank of Japan decision on interest rate. Bank of Japan press conference and commentary on monetary policy
The Bank of Japan will decide on the interest rate. At the moment, the main rate in Japan is in negative territory, amounting to -0.1%. Most likely, the rate will remain the same. If it is reduced and deepens into negative territory, then such a decision will cause a sharp decline in the yen in the foreign exchange market and an increase in the Japanese stock market. In any case, during this period of time, a jump in volatility is expected in trading in the yen and in the Asian financial market.
Since February 2016, the Bank of Japan has kept the deposit rate at -0.1%. The target yield for 10-year bonds is currently around 0%. In 2020, the Bank of Japan set an annual target for ETF purchases of 12 trillion yen and expanded its virus-affected business aid program to 110 trillion yen from 75 trillion yen. Under this program, companies can obtain loans without collateral and at zero interest rates. The goal of the program is to support commercial companies whose bankruptcy rates have skyrocketed in Japan in recent months, including due to the coronavirus pandemic. In a recent accompanying statement from the Bank of Japan, it said that the bank's management will continue to "increase the monetary base until inflation stays above 2%". “We will not hesitate to take additional mitigation measures if necessary”, the bank also traditionally said in a statement.
During the press conference, the head of the Bank of Japan Kuroda will comment on the bank's monetary policy. The Bank of Japan continues to adhere to its super-soft monetary policy. As Kuroda has stated on several occasions, "it is appropriate for Japan to patiently continue with its current loose monetary policy". Markets usually react noticeably to Kuroda's performances. Surely, he will again touch upon the topic of monetary policy during his speech, which will cause an increase in volatility not only in the yen trade, but also throughout the Asian and global financial markets.
If the bank's executives decide that the Japanese economy is stable and the momentum of inflation towards the 2% target is not diminishing, they will refrain from changing policy.
06:00 JPY Bank of Japan Press Conference
During the press conference, the head of the Bank of Japan Kuroda will comment on the bank's monetary policy. Despite the bank's earlier measures to stimulate the Japanese economy, inflation remains low, production and consumption are falling, which negatively affects export-oriented Japanese manufacturers. Markets usually react noticeably to Kuroda's performances. If he touches on the topic of monetary policy during his speech, volatility will increase not only in trading in the yen, but throughout the Asian and global financial markets.
12:45 EUR ECB decision on rates
The ECB will publish its decision on the key rate and on the deposit rate. The ECB's tough stance on inflation and key interest rates contributes to the strengthening of the euro, while the soft stance and rate cuts weaken the euro. In September 2019, the European Central Bank lowered its key interest rate on deposits by 0.1%, to -0.5%, for the first time since March 2016, and began buying bonds worth 20 billion euros a month, renewing the so-called quantitative easing program. According to the ECB leadership, the balance of risks for the economic prospects of the Eurozone "is still shifted to the negative side", and "until inflation is in line" with the target level, which is just below 2%, the rate will remain low. Now inflation in the Eurozone is stubbornly holding around 1%, and the new forecasts of the ECB on rates and the QE program can be seen as a signal of the inclination to further soften policy.
After Brexit, trade conflicts, factors of political instability in Europe, as well as the growing coronavirus pandemic, due to which European countries are forced to impose new quarantine restrictions that negatively affect economic activity, are the main threats to the European economy. Back in March 2020, the ECB signaled the possibility of policy easing, and the bank's representative admitted that the bank's management could lower the already negative interest rates even lower.
Probably, following the results of this ECB meeting, the key interest rate will remain at the same level of 0%. The ECB's rate on deposits for commercial banks is also likely to remain at -0.5%. At the same time, there is a possibility that at this meeting the ECB will announce a new economic stimulus program, which will put pressure on the euro.
13:30 EUR ECB press conference
During the press conference, a surge in volatility is possible not only in the euro quotes, but also in the entire financial market, if the ECB leaders make an unexpected statement. Similar previous decisions by the ECB on interest rates and subsequent press conferences have moved the euro rate by 3%-5% in a short time. ECB leaders will assess the current economic situation in the Eurozone and comment on the ECB's rate decision.
The soft tone of the statements will have a negative impact on the euro. Conversely, the tough tone of the ECB leadership on the central bank's monetary policy will strengthen the euro.
21:45 NZD CPI (consumer price index) for the 4th quarter
The Consumer Price Index (CPI) is a key indicator for assessing inflation and reflects the dynamics of retail prices for a group of goods and services that make up the consumer basket. A positive result strengthens the NZD, a negative one weakens. Previous CPI values (YoY): +1.4% in Q3, +1.5% in Q2, +2.5% in Q1 2020. A relative decrease in the indicator may negatively affect the NZD quotes.
Friday, January 22
00:30 AUD Retail Sales Index
The Retail Sales Index is published monthly by the Australian Bureau of Statistics and measures total retail sales. The index is often considered an indicator of consumer confidence and reflects the health of the retail sector in the near term. Index growth is usually positive for the AUD; a decrease in the indicator will negatively affect the AUD. The previous value of the index (in November) was +7.1% after falling by -17.7% in April.
If the data for December turns out to be weaker than the previous value, then the AUD may sharply decline in the short term. If the data turns out to be higher than the previous values, then the AUD is likely to strengthen.
08:30 EUR Index (PMI) of business activity in the manufacturing sector of the German economy according to Markit Economics (preliminary release). Markit Economics Composite PMI (Pre-Release)
The German Manufacturing PMI is an important indicator of the business environment and the overall health of the German economy. This sector of the economy forms a significant part of Germany's GDP. A result above 50 is seen as positive and strengthens the EUR, below 50 as negative for the euro. Forecast for January (preliminary release): 58.0.
Previous values of 58.3 in December, 57.8 in November, 58.2 in October against 34.5 in April, 45.4 in March, 48 in February, 45.3 in January indicate an acceleration of business activity in this sector of the German economy after slowing down in early 2020. The growth of the indicator above 50 and the previous value is likely to support the euro (in the short term). The data is worse than the forecast and especially the value of 50 will have a negative impact on the euro.
The composite PMI for the German economy is an important indicator of the business environment and the overall health of the German economy. A result above 50 is considered positive and strengthens the EUR, below 50 - as negative for the euro. Forecast for January (preliminary release): 50.4 versus 52.0 in December, 51.2 in November, 55 in October versus 17.4 in April, 35 in March, 50.7 in February, indicating continued recovery the German economy after its fall in early 2020, albeit at a slower pace. The publication of this indicator with the specified expected value is likely to support the euro. The data is worse than the forecast and below the value of 50.0, as a rule, have a negative impact on the euro.
09:00 EUR Composite index (PMI) of business activity in the manufacturing sector of the Eurozone economy according to Markit Economics (preliminary release)
The Eurozone Manufacturing PMI is an important indicator of the health of the entire European economy. A result above 50 is considered positive and strengthens the EUR, below 50 - as negative for the euro.
Forecast for January (preliminary release): 47.8 vs. 49.1 in December, 45.3 in November, 50.0 in October vs. 13.6 in April, 29.7 in March, 51.6 in February, 51.3 in January, which is unlikely to have a positive effect on the euro, even despite the relative growth of the indicator. If the data turns out to be worse than forecast, then the euro may fall sharply in the short term.
09:30 GBP Markit Economics PMI UK Services (Pre-Release)
The UK Services PMI is an important indicator of the health of the UK economy. The service sector employs most of the UK's working-age population and accounts for approximately 78% of GDP. Financial services are still the most important part of the service industry. If the data turn out to be worse than the forecast and the previous value, then the pound is likely to drop sharply in the short term. The data is better than the forecast and the previous value will have a positive impact on the pound. At the same time, a result above 50 is considered positive and strengthens the GBP, below 50 - as negative for the GBP.
Previous values of the indicator: 49.4 in December, 47.6 in November, 51.4 in October, after falling to levels of 29.0 in May, 13.4 in April, 34.5 in March. Preliminary forecast for January: 45.3.
13:30 CAD Retail Sales Index
The Retail Sales Index is published monthly by Statistics Canada and estimates total retail sales. The index is often considered an indicator of consumer confidence and reflects the health of the retail sector in the near term. A rise in the index is usually positive for the CAD; a decrease in the indicator will negatively affect the CAD. The previous value of the index (in October) was +0.4% after falling in March by -9.9%, in April - by -25% and growth in May by +18.7%.
If the data for November turns out to be weaker than the forecast +0.2%, CAD may decrease in the short term.