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Outlook for the week ahead (Jan 20th)

Financial markets started the week on a mixed note. Chinese data was interpreted as coming out better-than-expected after it showed GDP at 7.7% versus the 7.6% forecast, however, this was offset by concerns about one of the world’s largest Banks, Deutsche Bank, which posted an unexpected pre-tax loss of 1.15bn in Q4. In the U.S it was Martin Luther King day, a national holiday.

The various themes for each currency are expected to continue this week: the value of the euro is subject to whether the ECB is likely to increase monetary easing in response to deflation; the pound is a function of speculation of BOE tightening; the dollar of further Fed tapering and the yen of the possibility of more stimulus amidst concerns of a slow-down.

Tuesday – ZEW sentiment data centre stage; BOJ rate meeting

Tuesday is quite a thin day for data. The main release will be ZEW sentiment data for Germany and the Euro-zone. The Euro-zone sentiment data for the ‘Current Situation’ component stood at 68.3 in the previous month of December. The German data is expected to show a rise of a basis point to 63.0. If adversely out of range results may impact on speculation of whether the ECB move to ease policy, although given it is not directly related to inflation is not expected to have a huge impact.

BOJ rate meeting at midnight Tuesday is not expected to hold any surprises, although the spirit of the commentary will probably be analysed for signs of a move towards a looser monetary environment, as has recently been speculated.

Wednesday – U.K data in focus; Australian inflation

The Bank of England’s meeting minutes will be published at 9.30 (GMT) with clarification expected as to whether the BOE will alter their forward guidance to make the triggers for policy reassessment more difficult to achieve, as has been speculated might happen. Such a tweak to guidance would probably take the form of the target for the Unemployment Rate being lowered to 6.5% from the current 7.0%. Recent commentary from BOE official Ben Broadbent, had increased expectations after he said he thought the Unemployment rate had fallen too quickly recently to be a reliable gauge. The Unemployment Rate for December will also be released at the same time and is expected to show a basis point fall to 7.3%.

Australian Consumer Prices in the 4th quarter are out at 00.30 (GMT). Data from the previous year showed they rose 2.2%. If the result is lower than expected it will probably lead to a continuation of the aussie’s recent sell-off, as it will heighten expectations the BOA reducing rates. The World Economic Forum opens in Davos.

Thursday – all eyes on euro-zone PMI

Euro-zone Manufacturing, Composite and Services PMI will be released on Thursday and provide further data for the ECB to use to make decisions about a possible loosening of policy. The data is expected to show a rise of 3 basis points in each of the 3 releases. If it undershoots substantially it could result in a fall in the currency as it will increase the possibility of a rate cut. From the U.S there is Initial and Continuing Job Claims, with much interest still focused on these metrics, due to their influence on tapering expectations.

Friday - quiet end to the week

It’s looking like a rather thin data day on Friday. The release which stands out as significant is mortgage data from the British Banking Association at 9.30 (GMT). The other major release at the end of the week will be Canadian CPI in December which is expected to rise to 1.4% y/y.

Tuesday, 21 Jan, 2014 / 2:07

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