FX Markets Turn to Trump ’SOTU,’ Aussie GDP, EZ CPI, Japanese CPI
- US President Donald Trump’s State of the Union address on Tuesday offers a chance to add details to plans for fiscal policy reforms, which have thus far been on a slower timeline than markets hoped for.
- Q4’16 Australian GDP of particular interest after the surprising quarterly contraction in Q3.
- Inflation readings from the Euro-Zone and Japan have a chance to move the needle on two of the lowest yielding major currencies.
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03/01 Wednesday | 00:30 GMT | AUD Gross Domestic Product (4Q)
Australian growth unexpectedly declined by -0.5% q/q in Q3’16, the sharpest decline in growth in eight years. Attention is naturally tuned into the Q4’16 reading, although anyone looking for the start of a recession – what would be the first in over twenty years – looks to be disappointed. Recent trade, housing, consumption, and business investment figures all suggest that growth should have finished the year on stronger footing. Current estimates are calling for the quarterly GDP rate to have increased to +0.7%, while the annualized growth rate to have increased from +1.8% in Q3 to +2.1% in Q4. The ongoing rebound in commodity prices should continue to help the Australian economy stabilize in the near-term.
Pairs to Watch: AUD/JPY, AUD/NZD, AUD/USD
03/01 Wednesday | 01:00 GMT | CNY Manufacturing PMI (FEB)
The official Chinese Manufacturing PMI is expected to tick a fraction lower in February to 51.2 from a prior month’s 51.3. A reading above 50 indicates expansion while a number below 50 signals contraction.
According to Bloomberg News, January’s figures confirm that the China’s recent recovery is on-track despite the recent housing market slowdown and a reduction in fiscal support. Official figures showed Chinese GDP grew +6.8% on the year in the fourth quarter while the economy grew by +6.7% in the full year. The GDP figures also highlighted that China is continuing to move away from export and investment-led growth and is relying more on domestic consumption to grow its economy.
Pairs to Watch: AUD/JPY, USD/CNH
03/01 Wednesday | 02:00 GMT | US President Trump’s SOTU* Address
US President Donald Trump will address a joint session of Congress on Tuesday evening in Washington D.C., in his first State of the Union Address.* While the speech will coverage a wide range of issues, there are only a few that markets care about – tax reform, infrastructure spending, and plans to repeal/replace/rename/repair the Affordable Care Act/Obamacare. The large promises made before the November 8 election and lack of specific policy details since the January 20 inauguration have been working against the US Dollar, in effect due to the prospect of any fiscal policy goals not being accomplished immediately. Under the IS-LM-BOP model, an increase in deficit spending should precipitate tighter monetary policy. With only two priced-in at present time (June and December), and a coin-flip for one in March, should US President Trump put some ‘meat’ on the ‘bones’ of taxes and infrastructure, and outlining a specific timeline in particular, then there is a strong chance that markets reassess their current expected timeline of Fed rate hikes this year.
Pairs to Watch: EUR/USD, USD/JPY, DXY
*Technically, while this is usually the "State of the Union," because it is his first speech as president, Trump doesn't have the time under his belt to reflect on the year that was. You'll hear it referred as an "address to a joint session of Congress."
03/02 Thursday | 10:00 GMT | EUR Euro-Zone Consumer Price Index (FEB P)
Inflation remains stubbornly low in the Euro-Zone, despite near-term advances on the headline CPI figures. European Central Bank Mario Draghi, in the central bank’s meeting in January, made clear that any near-term advances in inflation were being looked through, or in other words, dismissed as a short-term aberration. The divergence between core (+0.9% y/y) and headline (+1.9% y/y) figures is largely due to base effects stemming from oil prices over the past year, not necessarily a sign that aggregate demand is picking up in the Euro-Zone.
Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD
03/02 Thursday | 23:30 GMT | JPY National Consumer Price Index (JAN)
January CPI is expected to grow by +0.4%, continuing the recent three-month uptick after the prior six-months of deflation. Japanese consumer prices rose by +0.3% year-on-year in December of 2016, easing from a +0.5% rise in November but nudging above market expectations of +0.2% rise. Food prices continued to fall along with housing, utilities and transport costs. In an effort to keep boosting inflation, the Bank of Japan left the interest rate unchanged at -0.10% at its January 2017 monetary policy meeting, as expected, and decided to maintain its 10-year JGB yield target around zero percent, in order to get money flowing through the economy.
Pairs to Watch: EUR/JPY, USD/JPY
Read more: Webinar: FX Week Ahead w/ Sr. Currency Strategist Christopher Vecchio
--- Written by Christopher Vecchio, Senior Currency Strategist, Nick Cawley, Analyst
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