News & Analysis

Week Ahead – Central Banks and Earnings

February 4, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Market Overview

It was an interesting week on the geopolitical and economic front. Investors were busy with the earnings season, trade talks, Brexit and the Fed. It ended on a big beat on the Nonfarm payrolls.

Week Ahead – Central Banks and Earnings

Central Banks

 The Reserve Bank of Australia (RBA) and Bank of England (BoE) will be in the limelight this week. Alongside the RBA’s interest rate decision and monetary policy statement, we will also see a slew of economic data releases across the week for Australia which will help to provide more insights on the inflationary outlook of the country:

  • Monday: Building Permits
  • Tuesday: Retail Sales, Exports, Imports, Trade balance, RBA’s rate statement and interest rate decision.
  • Wednesday: RBA’s Governor Philip Lowe Speech
  • Thursday: AiG Performance of Governance Index
  • Friday: RBA Monetary Policy Statement

Markets participants are expecting the interest rate to remain unchanged at 1.5%. However, it will be interesting to see how the RBA will play out the recent events: a weakening Chinese economy, an increase in mortgage rates and a wobbly housing market. There has been a slight improvement on the key inflationary pressures of Australia and the markets will try to gauge whether the possibilities of any future rate change will be more tilted towards a “hike” or a “cut”.

Downward revisions of inflation and growth will increase the odds of the next move being a rate cut. Recently, a US dollar sell-off coupled with a better-than-expected CPI figures helped the local currency to climb higher. The Aussie Dollar will take centre stage this week as China’s key trading partner will be shut for the Lunar New Year celebrations. We expect to see some volatility for the Aussie amid a busy calendar.

Similarly, the BoE is expected to remain on hold amid the Brexit chaos and the looming exit deadline. With less than two months to go, we will likely see policymakers staying on the cautious side. Ahead of the meeting, PMI Construction, Services PMI and Retail Sales will be released on Monday and Tuesday.

Given the recent volatility swings we have seen in Sterling pairs, any weakness in the data and more dovishness from the BoE can fuel the pressure on the local currency.

Corporate Earnings

European and US earnings are in full swings and are among the primary driver of risk sentiment. Many companies are now preparing for the headwinds ahead which explain the downgrades of revenue by some companies for the upcoming quarters. However, we saw better fourth-quarter earnings than initially expected which intermittently brought more optimism in the stocks markets.

One of the most important earnings reports will kick off on Monday with Google.

US data

After a dearth of economic data, we will see some mid-tier releases and few Fed speeches across the week:

  • Monday: Factory Orders
  • Tuesday: FOMC Member Mester Speech, Markit Services and Composite PMI, ISM Non-Manufacturing PMI
  • Wednesday: Trade Balance, Nonfarm Productivity and Unit Labor Costs
  • Thursday: Jobless Claims and Consumer Credit Change

The President Trump State of Union Address will be the highlight on Wednesday whereby he will conduct his annual speech to a joint session of the Congress. It involves a budget message and an economic report of the nations which will allow the President to propose a legislative agenda and national priorities.

Commodities Markets

Oil prices received a last-minute boost on Friday on the back of US sanctions on Venezuelan exports. WTI reached a high of $55 while Brent Crude climbed above $62 mark. Oil reports had also been supporting the upward momentum of oil prices last week. We expect the price action in the near future to be driven by weekly reports.

Gold bolstered firmly higher on the back of a dovish Fed but retreated slightly after upbeat Nonfarm payrolls.  The US economy created twice as many jobs as consensus estimates and the pulled back on the yellow metal could be more profound if the US data continues to beat estimates in the upcoming week. Attention will, therefore, be on the economic data releases this week for fresh trading opportunities.

 

Tuesday, 05 Feb 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0.023 0.031 0.125 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0.278