- Next week is typically among the quieter of the month which means news around the coronavirus will continue to dominate.
- Minutes from the Federal Reserve, ECB, RBA and RBI will be in focus. On the economic data front, flash PMI surveys for the US, UK, Eurozone, Japan and Australia could provide an insight into the early impact of the coronavirus outbreak on the global economy.
- The initial panic regarding coronavirus spread was that it could be as bad as SARS and yet, it’s been worse, and it turns out investors aren’t that worried after all. The stock market can be a very strange place at times.
UK
it's a particularly busy week ahead on the UK economic calendar as the markets will be looking to see if a January post-election rebound in the PMIs has enough juice to keep the Bank of England from cutting rates.
First out of the gates will be jobs and wages in December on Tuesday; wage growth is expected to drop a touch along with employment growth. Second will be UK CPI for January on Wednesday; headline inflation could face some temporary sources of upward pressure but the greater focus will be upon core inflation that is expected to accelerate by a tick or two from the 1.4% reading in December that was the lowest reading since late 2016.
Next up will be Thursday’s retail sales figures for January that are expected to rebound from the prior month’s weakness. on Friday, it could be the most important release of the week as when purchasing managers’ indices will be updated. Recall that the large gains in January were a major factor in driving the central bank’s decision to keep the policy rate unchanged
US
The US economy will likely remain in a good place, but we could start to see markets become nervous on a few fronts. On Friday, February 21st, the flash manufacturing PMI releases will show how much of a slowdown is hitting the US economy in February. Other notable publications are housing starts building permits, existing home sales and producer prices
The second concern to the outlook is Fed tightening as investor focus turns to the FOMC minutes due Wednesday on hopes it might clarify policymakers' views on the monetary policy path. The Federal Reserve held the target range for its federal funds rate during its January meeting, and signaled there would be no changes in interest rates until the end of the year
Moreover, The Fed has started announcing overnight repo operations size and as its balance sheet growth grinds to a halt, sentiment for risky assets may take a blow. Another front will be the the US-China trade war as it seemed to be destined for a sudden turn for the worse, but so far, all signs are pointing that may not be the case.
Another concern will be the risk of a nominating a democratic president on wall street. Bernie Sanders and Pete Buttigieg are in the very early stages of the primary season and right now they are both gaining momentum. Financial markets may start to get nervous if Democrats start favoring Bernie, but if Buttigieg or Bloomberg got nominated, we may see optimism for a much higher stock market remain roughly in place.
On the other side the White House is considering tax incentive for more Americans to buy stocks in a move comes as part of President Donald Trump reelection plans this fall. He has sought to distinguish himself from his potential Democratic rivals by accusing of them of pursuing “socialist” policies while he has touted tax cuts and deregulation under his administration.
China
The Coronavirus and its global spread is still the hot topic while China's latest loan prime rate publication will be highly anticipated, as the country's authorities are likely to unveil more stimulus measures amid virus impact fears. A lack of good news on the spread and death toll from the Wuhan virus this week and next would take the edge off risk appetite, capping the equity rally and forcing flows into the usual safe havens of gold, the yen, Swiss franc, the US dollar and US Treasuries. It would again be negative for oil and industrial metals.
The People’s Bank of China is expected to cut its one- and five-year Loan Prime Rates again on Wednesday evening. The fiver is expected to be cut by 5–10bps and the one-year rate by 10 in a mild steepening of policy rates. Investors will also be waiting for house price index and monetary indicators.
Australia
Tuesday’s release of RBA minutes is unlikely to be a headline-grabber, while Thursday’s employment report for January will be the main event. Headline numbers have been bullish of late, but most jobs added are only in the part-time category.
The meeting minutes are unlikely to shed new information after Governor Lowe has stated that the balance of risks to further easing is more til ted to the downside than the upside at this point. Another strong number and markets will consider a hawkish shift from the RBA. Mean reversion to a lower jobs number would hurt the Aussie. Other key data for Australia include, fourth-quarter wage growth and flash CommBank PMIs.
New Zealand
A hawkish feel to the RBNZ’s unchanged rate announcement sent the kiwi soaring this week. An extended virus period (Chinese are currently barred from entering NZ) would hurt the tourism sector and pressure the kiwi.
Japan
The week kicks off with Q4 GDP data, which is seen weaker overall, according to the latest surveys. The cruise ship quarantined off Japan is getting more headlines than the economy, BOJ or government. A bigger-than-expected drop in GDP would hurt equities but could benefit the yen on safe haven flows.
Oil
The oil recovery is gathering momentum as the week ended. Naturally, any bounce was likely to be decent given the scale of the declines that preceded it but we’re now on the fourth day of gains as optimism grows among traders that the fight against coronavirus has turned a corner, despite the setback of the midweek spike. The next test for Brent comes around $58, with WTI facing a similar test in the $53.50-54.50 region.
Gold
Undeterred by its other failures already this year, gold is edging higher and approaching the heavily guarded $1,600 barrier. The yellow metal is back at $1,580 now, with the next test around $1,590. Any strong fallow through momentum, then perhaps the bullish case will grow.
