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Key Event Risk in Yellen Testimony, G20 Ministers Meeting, US Credit Review

Key Event Risk in Yellen Testimony, G20 Ministers Meeting, US Credit Review

2017-02-10 04:03:00
John Kicklighter, Chief Strategist
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Talking Points:

The docket carries a range of event risk, but the most potent volatility threats ahead aren't data

• Those items that are broader in scope and can alter the course of global trade policy and relationships is top risk

• Yellen testimony, Moody's US sovereign credit review and the G20 ministers meeting will likely all touch on trade

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

The first step in successfully employing fundamental analysis is to establish what matters the most to the the markets at large. Over the past weeks, it has become increasingly clear that the relative monetary policy engine has backed off while risk trends have yet to establish a solid hold on speculative interests. As those themes have receded, a competitive pressure on trade policy has risen to prominence. Given how significantly this dynamic can alter the course of the financial system and how little clarity there is with the course change is taking, there is a considerable risk the markets will be driven to a serious course alteration.

With an idea of the market's more prominent pressure point, we can develop a better sense of what is more likely to motivate the market to movement. Scheduled data releases like the US CPI, Eurozone investment sentiment, UK and Australian employment figures may spur a strong volatility response with a substantial surprise. Otherwise, they will quickly aborb into the noisy fundamental backdrop until something more profound rouses conviction. In constrast, there are a few events on the calendar that directly threaten a tense trade environment - specifically through US channels.

Chronologically, Federal Reserve Chair Janet Yellen's semi-annual testimony before congress (oftern reverred to as the Hawkins-Humphrey testimony) tests the current Tuesday. Though two days in two different houses, the first day in the Senate will likely cover the gamut of concerns of US growth, fiscal stability, global risks and the implications of trade proposals from the Trump administration. A dim outlook could prove problematic for US assets led by the S&P 500 as well as the Dollar for rate forecasts. Later in the week, the gathering of the G-20 finance ministers will lay important groundwork for the leaders summit in mid-March. Given their influence over trade and the economy, this will present the backbone for what matters most for policy moving forward. Finally, the Friday update by Moody's on the United States' credit rating represents a drammatic but low probability threat. No change in rating is likely, but the guidance will take into consideration growth and trade conditions that have been altered by bellicose policy promises. We discuss why these three events are critical for our market bearings through the week ahead and what kind of trading environment to expect in this weekend Strategy Video.

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