The Forex Week Ahead

The Forex Week Ahead 20-24th November

North America Thanksgiving will be celebrated next Thursday which often marks a week more focused upon the unofficial start of the Christmas holiday shopping season commencing with the lead up to Black Friday followed by Cyber Monday sales. So named for the period around when retailers typically started to turn a profit on the year, Black Friday and Cyber Monday are often taken as harbingers of what the overall holiday shopping period will look like.

Fed communications and limited data risk will also factor into setting the week’s market tone alongside ongoing tax reform negotiations. It shouldn’t take more than seconds to digest the minutes to the November 1st FOMC meeting. Recall that the Fed really didn’t do much. It’s not impossible that something more exciting was left to the minutes to divulge, but It would seem improbable. Among the contenders for the surprise factor at next Wednesday would be a more direct nod to hiking in December, but with fed fund futures still pricing about 90% odds of a hike on December 13th it seems unlikely. On Tuesday evening, Fed Chair Yellen will address a business school audience. NYU’s Stern school will host Yellen in its “In Conversation with Mervyn King” series. One issue markets will be attuned to hearing is whether Yellen commits to exercising her right but not her obligation to remain a voting Board member until January 31st 2024 or at least for some time during the transition to incoming Fed Chair Powell. Data risk will be confined to existing home sales during October (Tuesday) and durable goods orders during the same month (Wednesday). A three month downward trend in pending home sales that have been inked but have outstanding paperwork may spell further softness in completed resale figures following a modest decline from seasonally adjusted sales levels in the spring.

Europe Eurozone growth signals and a UK fiscal update will dominate most of the ink spent on European issues over the coming week. Eurozone purchasing managers’ indices kick off another batch of global readings to be followed by China’s PMIs and the US ISM readings at the end of the month and beginning of December. Mark Thursday on your calendars for manufacturing and service sector PMIs covering the aggregate Eurozone economy and the main anchor economies. Whether manufacturing momentum can be kept up will be among the key considerations as many countries are apparently succeeding in bringing home manufacturing at least judged by the sentiment of purchasing managers.

UK Chancellor of the Exchequer Hammond releases his government’s 2017 Autumn Budget on Wednesday. It fits into a plan to simplify and reduce the number of fiscal policy announcements and changes over the year. Starting next year, there will be an Autumn Budget and then a more modest update in Spring. As Hammond put it: “No other major economy makes hundreds of tax changes twice a year, and neither should we. If unexpected changes in the economy require it, then I will, of course, announce actions at the Spring Statement, but I won’t make significant changes twice a year just for the sake of it.” An emphasis upon tax avoidance measures is anticipated.

Asia market developments should have no bearing upon the broad global market tone over the coming week but there could be developments of significance to local markets. Japan (Monday) and New Zealand (Thursday) update export and import figures for the month of October. Exports out of both nations have been on a tear over 2017 compared to weakness in 2016 but growth is likely to moderate off of higher base effects into 2018. In case you are tempted to cite Abenomics at work in the case of Japan’s meteoric export rise, consider chart 3 that contextualises the rise within the broader Asian pick-up. New Zealand also releases Q3 retail sales on Wednesday. Incremental information concerning the Reserve Bank of Australia’s policy bias may be derived from a speech on Monday by Governor Philip Lowe. Right after the RBA decision earlier this month, Lowe remarked that “One continuing source of uncertainty is the outlook for household consumption…inflation is likely to remain low for some time, reflecting the slow growth in labour costs and increased competitive pressures, especially in retailing.”

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