Another exciting week for markets last week saw the yield on the 10-year US Treasury spike to ten-month highs ahead of the government shutdown. Meanwhile, the dollar suffered another relentless fall, which helped the renminbi’s continued appreciation against the greenback over the week. Stronger than expected growth in China, at 6.9% in 2017, and robust activity data in December supported RMB sentiment. As did comments from the Bank of Spain that it is considering RMB inclusion and the National Banks of Belgium and Slovakia’s recent RMB additions (albeit small amounts initially). Datawise this week, we will get the China IP reading for December, on Friday.
The euro’s rally appeared to cause somewhat of a stir at the ECB last week; with members highlighting their concerns of the unhelpful sudden movements which are defying fundamentals. It should be an interesting meeting on Thursday, where Draghi may change the language to forward guidance. Meanwhile, closer to home, the BoE’s message appeared more hawkish following strong and stable inflation numbers, and Sanders said he is looking for a drop in the unemployment rate to below 4% this year, hence further rate hikes. Sterling had a stellar week too, as Brexit negotiations appeared to be progressing; there is still a very long way to go, especially in terms of trade deals and financial services deals.
The relatively quiet, holiday shortened week in the US saw misses on the Empire Manufacturing and Philly Fed readings, and month-on-month buildings permit and housing start prints. Later today we will get the Chicago Fed National Activity release followed by PMI prints on Wednesday, and new home sales number for December could be of interest, with markets expecting a fall on a m-o-m basis on Thursday.
A relatively quiet day today will see the IMF’s World Economic Outlook update and a stream of corporate earnings through the week, kick-started with Netflix. The Bank of Japan’s policy decision on Tuesday will be watched closely; there could be further colour on its stimulus unwind and economic forecasts. Further NAFTA talks continue on Tuesday, it could be interesting to see if Mr. Trump re-enforces his threats to drop out. Aside from the German ZEW reading, there is little key data to watch out for. As mentioned the ECB’s rate decision will be watched very closely on Thursday and the EC’s EU27 seminar on future relationships with the UK, could grab market focus. Friday will see the US’s Q4’17 GDP reading and durable goods orders. Mr. Trump will speak at the week-long World Economic Forum in Davos on Friday; we could hear the words “America First” echo through the speech. The forum will be closed by the BoJ’s Kuroda, BoE’s Carney and Christine Lagarde, MD at the IMF. The UK’s GDP read will grab market focus on Friday, as will Japan’s inflation numbers.