WEEK AHEAD: Plenty Of Event Risk To Consider


  • Central bank decisions take centre-stage
  • UK PMIs hold the key to BoE in January 
  • RBA risks heighten on Aussie jobs
  • Libya disruptions a problem for Crude



BoJ meeting

BoJ rate decisions usually fall on the quiet side for markets. And this likely won't pan out to be any different, with Kuroda - happy about where USDJPY is at - set to keep any dovish or hawkish surprises to himself. USDJPY, strongly reflective of improved global risk sentiment right now as oppose to anything else, should sustain above 110 in line with the current low level of macro risks. An upwards revision of the BoJ's growth forecast is interesting, but still expect no rate change. 
 

BoC meeting

No change is expected with a negligible 5% chance of a rate cut priced in and the recent positive BoC Business Outlook survey reaffirming BoC neutrality. BoC's press conference, Dec. inflation and core retail sales will be ones to watch that could accelerate USDCAD shorts. An air of optimism surrounds Canada's domestic circumstances and I think it likely continues. 
 

ECB meeting

The ECB's Strategic Review, similar to the Fed review, is the main drawcard here given expectations for a rate cut are slim. Pay close attention to the definition of its price stability objective and perspective on efficacy of negative interest rates, as this impacts forward expectations and in turn EURUSD. With Lagarde new at the helm, EURUSD near-term downside risks weighed on by a dovish ECB are removed.
 

UK Flash PMIs

Dovish-leanings from multiple MPC members, weak retail sales (-0.6%) and soft CPI (1.3% vs 1.5% exp.) puts BoE on red alert come Jan. 30. Rates have already repriced to suggest a 25bps rate cut is more than likely. As MPC members repeatedly note the significance of soft data, GBPUSD volatility stands to benefit from UK Service Flash PMI (Est. 51.1). Only a solid print here potentially sees MPC on hold.
 

German PMIs

A batch of data that garners plenty of attention, especially since Europe's 2019 manufacturing malaise was a massive price catalyst for European currencies and equities. It seems the situation has stabilised in previous months, but I think the jury is still out. Signing of Phase One, a general improvement in growth indicators and unabated equity risk sentiment supports the print. 
 

Aussie jobs

With an RBA cut likely in February but only priced in at ~43%, the Aussie employment report should tilt rate pricing and provide a nice lift to volatility in AUDUSD, which has held in a range of 50pips over the past fortnight. November's surprise increase likely won't be repeated with December also tending to be on the low side. Reuters consensus sits at 15k. Contribution of full-time employment is key to watch, as always. 
 

Libyan oil

The eastern ports in Libya, key infrastructure in the transport of Libyan oil across the Mediterranean, has been choked by the Libyan National Army. This might disrupt Libya's 1.2mln bpd output by as much as 800k bpd, a sizable hit to global oil supplies. The prospect of prolonged disruption to oil supply sees crude bounce off US$64.5 support. It's not yet clear how long it will take to broker a deal so that Libya's NOC can regain control, therefore I expect geopolitical risk premiums to inflate in crude as per my longer-term view.
 

Davos forum 

Risk or ignore? Difficult to say. But we think this has muted market effect despite a string of addresses from global leaders on the way forward for "a Cohesive and Sustainable World". It's worth chiming into Trump's Special Address (Tue8.30pm AEDT), while US Treasury Secretary Mnuchin speaks on the future of financial markets (Wed, 7.30pm AEDT). 
 

What to look out for in the week ahead?

Date AEDT Release Ccy Exp. Prev.
21/1   US MLK Holiday USD    
21/1   BoJ Policy Statement JPY    
21/1 8.30pm Donald Trump Davos Address USD    
21/1 9pm German ZEW Economic Sentiment EUR 15.2 10.7
22/1 10.30am Westpac Consumer Sentiment AUD   -1.9%
22/1 7.30pm Steve Mnuchin Davos Address USD    
23/1 12.30am December inflation m/m CAD   -0.1%
23/1 2am BoC Rate Statement CAD    
23/1 3.15am BoC Press Conference CAD    
23/1 11.30am Aussie December Jobs Report AUD 11.2k 39.9k
23/1 11.45pm ECB Policy Statement EUR    
24/1 12.30am ECB Press Conference EUR    
24/1 8.45am NZ Q4 CPI q/q NZD 0.4% 0.7%
24/1 7.30pm German Flash Mfg & Services PMI EUR 44.6, 53.2 43.7, 52.9
24/1 8.30pm UK Flash Mfg & Services PMI GBP 48.8, 51.1 47.5, 50.0
25/1 12.30am Core Retail Sales m/m CAD   -0.5%



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