Markets rangebound due to current uncertainty...

Week Commencing Monday 20th February 2017

 

GREECE: Basket case once more?

The Greek economy unexpectedly shrank in the three months to December, according to latest figures from the government.

Gross domestic product fell 0.4 percent in the final three months of 2016 after growing a revised 0.9 percent in the previous quarter, the Hellenic Statistical Authority stated in a market communication on Tuesday. The market had expected an increase of 0.4 percent in nominal GDP figures. Given the above, the economy grew 0.3 percent over the whole year.

The disappointing Greek figures come as fears grow that the debt crisis could resurface. Greece remains locked in a dispute with creditors as PM Alexis Tsipras’s government refuses to legislating further budget cuts. According to Bank of Greece Governor Yannis Stournaras, the country risks another recession and even greater austerity measures if it doesn’t immediately strike a deal for the release of bailout funds.

UK: Retail sales figures disappoint as Inflation starts to bite!

UK retail sales fell by 0.3 percent in January compared with the previous month, which was well below market expectations of sales growth of 0.9 percent, according to official figures released on Friday.

The Office of National Statistics also reported that retail sales grew by 1.5 percent percent compared with the same period a year ago, but said this was the lowest growth since November 2013.

Consumer spending has been the main driving force behind the UK’s unexpectedly strong growth since the EU referendum last June. Household consumption added 0.5 percent to GDP growth in the third quarter. Statistically however, there is a strong inverse correlation between moves in inflation and retail sales one month later.

With this in mind, Economists have warned that this was the strongest sign to date that the country's economy is set to slow.

FOMC: Janet Yellen not a fan of the Donald's economic plan!

Janet Yellen stuck the knife into Donald Trump last week as she claimed that monetary policy is not on a preset course, indicating rate rises could come sooner rather than later.

Testifying before Congress, the Federal Reserve chairwoman stated that accelerating growth, higher inflation and a robust labour market has generated an additional 16 million jobs since its post-crisis lull in early 2010.

This, she claims, justified her decision to increase rates by 25 basis points in December, and would continue to justify further rate hikes in the months to come. Responding to questions, she declined to comment on the timing of the next hike, which is widely expected to be in March or June.

Her speech contained a note of caution about the new administration and its thirst for tax cuts and infrastructure spending. She dismissed the claim that these plans would lead to looser fiscal policy and more rapid growth. Yellen also faced questions about the administration’s plans to repeal the Dodd-Frank reforms introduced after the 2008 crisis.

Either way, the crash course has been set between Janet Yellen and Donald Trump, who will come out on top?

 

FX Forecast

EUR/USD dipped to 1.0520 last week but has subsequently recovered. Initial bias remains neutral for the week, especially with the 1.0713 minor resistance level intact. CPI might put a spanner in the works should we see a circa 2 percent print, as will further geo-political developments surrounding Brexit and Pence’s visit to Europe.

GBP/USD remains range bound above the 1.2346 level and out outlook remains generally unchanged for the week. Initial bias remains reasonably neutral within the context of Brexit, however GDP and the FOMC will likely test key support and resistance levels. Expect Sterling to trade the range between 1.2346 and 1.2620.

GBP/EUR continues to test the 1.18 level with no luck, with the pair range bound between 1.1650 and 1.18. This is unlikely to change given the lack of data from both sides this week, however watch for GDP or CPI surprises as these could push the rate to these ranges. Geo-politics remains key within the Eurozone, so further developments will be played out by market forces.

 

Economic Calander for the Week

UK Data:

This week we concentrate on UK GDP, which is expected to uptick by 0.1 percent to 0.7 percent for the fourth quarter. Normally, this would be a Sterling positive event, however given Brexit and inflation woes we remain neutral to bearish on the pair. Apart from this, Mark Carney is speaking on Tuesday and any hint of monetary policy or forecast shifts will impact markets.

US Data:

Monday is Presidents day, so expect thin afternoon markets during the New York session. Moving to Wednesday, the FOMC should continue to hint on further rate hikes throughout the year, while talk of Janet Yellen’s position within the FOMC may well dominate.

Both existing and new home sales should post positive results, at 5.55 million and 575 thousand respectively. Finally, crude oil inventories should post around the 9.5 million mark.

EU Data:

We await inflation on Wednesday for the Eurozone, with no shift expected in the rate. The current rate sits at a solid 1.8 percent, so expect any increase in this figure to hit Euro markets hard as rate forecasters adjust their expectations.

 

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