The Forex Week Ahead

The Forex Week Ahead: January 9th – 13th

USD The surge in December auto sales and firming gasoline prices should support headline retail sales and markets look for a sizeable 0.8% sequential increase (Friday). Given the significant boost in consumer confidence in the wake of the US election, control retail sales (ex. autos, gasoline, and building materials) should also put in a good performance and an anticipated 0.4% gain on the heels of a relatively soft outcome last month.

EUR Euro area Industrial Production (Thursday): Although the industrial production series is volatile month-to-month, the 0.1% fall in October was softer than might have been expected given the noticeable strengthening of the euro area manufacturing PMI in the same month (manufacturing output accounts for the bulk of the index) That failure of the early quarter harder data to reflect strengthening survey data is a primary reason for Q4 GDP expectations at 0.3% q/q despite PMI data pointing to an outturn closer to 0.5% q/q.  ECB meeting accounts (Thursday): In his post-meeting press conference, President Draghi was quite adamant that the changes to the EBC’s QE programme announced in December (extending purchases by nine months from March but at a reduced monthly rate) did not represent ‘tapering’ and that the subject was not even discussed by the Governing Council. The meeting accounts will therefore be scrutinised for any indication that December’s package represents the beginning of a gradual reduction of the asset purchase scheme rather than the extension that Draghi emphasised. Also of interest will be any light that the accounts may shed on how the decision to allow the purchase of assets yielding less than the deposit rate ‘to the extent necessary’ will work in practice given that further details have yet to be released.

GBP UK industrial production (Wednesday): After a sharp fall in IP in October, with fairly broad-based weakness, the November data should help to give more of a feel for where the risks lie on Q4 GDP forecasts. Alongside the construction output data released at the same time, these are the last inputs into the calculation we learn about from the ONS before it releases its initial estimate of GDP growth on 26 January. With the particularly volatile oil and gas extraction sector, forecasts for IP should be taken with a pinch of salt and true expectations will be hard to gauge. Nevertheless, given the extent of the decline in October, an unusually large rebound would be required in November to think that IP would not to be a drag on Q4 GDP overall. Markets will, however, watch closely to see whether a partial rebound warrants lifting our Q4 GDP forecast from 0.3% q/q to 0.4% q/q, in light of strong December PMI data reintroducing some upside risks.

AUD November retail sales (Tuesday): Growth slowed around midyear, with a variety of indicators including retail sales corroborating the negative print recorded for overall output in Q3. However, household spending in nominal terms has picked up into Q4. Whilst some of this appears to be price/food-related, the 0.5%m/m outturn we expect for November retail sales does presume better growth in volumes as well. Early reports from Christmas/New Year sales have been unambiguously positive, too

CAD Business Outlook Survey (Monday): This release will provide an updated look at CA business conditions ahead of the January 18th MPR. The previous release saw some improvement in the balance of opinion on future sales, employment and investment intentions, highlighting that the impact of energy price declines seemed to have bottomed out. On the other hand, inflation expectations remained muted. With the BoC emphasizing “significant” remaining slack in the economy in recent communication, the scope for further improvement this time around seems limited. With the survey period likely to be entirely after the US election result, it will be interesting to note whether policy uncertainty or changing views on US growth prospects have a strong influence (especially on exporters).

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