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Final Trading Week: GDP Data and Bank of Japan Meeting

The markets will be looking to a final trading week of the year in the week leading to Christmas. After last week’s events saw the Fed pushing the short term fed funds rates higher, the focus turns to GDP reports from New Zealand, U.S., UK, and Canada. A particularly slow week from the eurozone while among the central bank meetings next week, the Bank of Japan and the Swedish Riksbank will be on the agenda. Here’s a preview of next week in the currency markets.
U.S. GDP expected to see another upward revision

After being revised higher from 2.9% from 3.2% in the second GDP revision, the third quarter U.S. GDP is expected to show another upgrade albeit it a modest revision to 3.3%. The market reaction to the data is unlikely to see much of volatility as traders are likely to take a break, winding down for the end of the year holidays.

U.S. Q3 GDP: 3.2% (Second estimate)

Besides the GDP report, the durable goods orders will be coming out with expectations of a modest increase in both the headline and core durable goods orders. On Monday, Janet Yellen is scheduled to speak as well, but it is unlikely that the Fed chair will offer comments that will move the markets much. Her speech is called “State of the Labour market.”

Quiet week from the eurozone

Data from the eurozone is relatively quiet next week with only Monday’s German Ifo business climate. In November, the Ifo business climate was unchanged at 110.4 which suggested that businesses in Germany brushed aside concerns of a Trump victory but the assessment of the current business conditions was seen to be slightly improved. Expectations are for the December Ifo business climate to rise modestly to 110.7.

The ECB’s economic bulletin will also be released this week. Amid a quiet week from the eurozone, the focus remains on the Italian banking sector. Monte Dei Paschi is likely to remain on the radar with some media reports suggesting that the ECB will be looking for the bank to solve its issues on capital adequacy and the non-performing loans by the end of the year. Monte Dei Paschi is still looking for private sector investors to plug the 5 billion euro capital requirements by the end of the year. Failure to resolve the capital requirements and NPA could see the ECB flag the failing bank which could trigger another bailout.

BoJ expected to hold its firepower

The Bank of Japan’s meeting next week on Tuesday is expected to see the central bank stay muted. In November, the BoJ kept policy unchanged and postponed its inflation target deadlines while maintaining that it will keep policy unchanged unless there was a significant requirement to do so. The BoJ is expected to maintain the interest rates at -0.10% while keeping its asset purchases also steady. While the central bank expects inflation to reach its target by 2018, the recent rise in oil prices is expected to push inflation closer to the target earlier than expected.

Bank of Japan Interest Rates: -0.10%

The markets are expecting to see no fireworks from the BoJ at this week’s meeting which could put the near 6-consecutive weekly gains in USDJPY at risk of a correction.

New Zealand Q3 GDP

The third quarter estimates on GDP is forecast to show a 0.8% increase for New Zealand. This is down from the 0.9% GDP growth in the second quarter. The GDP report is delayed on account of the earthquakes last month. As far as the impact on interest rates are concerned, the markets are expecting to see no more rate cuts from the RBNZ after Governor Wheeler said in a recent speech that interest rates were low enough to support inflation to rise back to the 2% target rate including a robust economic expansion.

New Zealand GDP q/q: 0.9%, Q2 2016

On a year over year basis, New Zealand GDP is expected to rise 3.6%, same as the previous quarter. Besides the GDP, import/export data and trade balance figures are also expected to be released over the week.

Monday, 19 Dec, 2016 / 8:36

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