Will Draghi follow Yellens dovish tone?...
Week Commencing Monday 15th February 2016
Overriding Market Themes
Global equities fell on Thursday as investors once again fled to the safety of the Japanese Yen and Gold. The FTSE 100 closed down over 2% whilst the Nikkei 225 and S&P 500 followed suit with falls of 4.8% and 1.25% respectively. Global growth concerns are fuelling the move away from riskier assets and recession fears plunged European banks to a two-and-a-half year low, losing 6.8% on the day. The Yen rallied against most currencies, gaining as much as 1.5% against the US Dollar during European trading hours. Continued Yen strength could prompt intervention from the BoJ. The Yen has appreciated over 8 percent against the Dollar in the month of February. Japan’s exporting economy would suffer from continued Yen strength and UK importers targeting rates of 170+ are feeling the effects of the global risk-off sentiment.
GBP fell against the majors on Thursday as markets looked for safety in the JPY. Going into Friday ahead of key European growth data, the Pound posted yet another weekly loss against the Euro, continuing the rapid decline of over 10-cents in under 90-days.
USD continues weekly decline as Yellen comments that negative rates haven’t been taken off the table. The US Dollar Index continued to fall, marking a 1.8% drop in the last seven days. Ordinarily a safe haven currency, the Dollar has been sold this week with flows into the Yen and Euro increasing. Today’s retail sales release due at 13:30 GMT may not impact markets too greatly as risk-off themes dominate.
German Q4 year-on-year GDP figures slightly disappointed at 2.1% versus a forecast of 2.3%, although the QoQ figure of 0.3% met expectations. All eyes will be on the ECB President today covering two topics two topics: "implications for the euro area of divergent monetary policy stances for the Fed and the ECB"; and "limits in terms of eligible collateral and policy risks of an extension of the ECB's quantitative easing programme".
GBP This Week
This week will be significant for Sterling as January’s inflation reading is released on Tuesday followed by unemployment and retail sales on Wednesday and Friday. Markets are expecting the year-on-year inflation figure to equal December’s 0.2% gain, whilst unemployment is projected to remain unchanged at 5.1%. Retail sales plummeted in December to 2.6% year-on-year which shook the Pound in January: a reading below the forecast of 2.6% could have similar effects next week.
USD This Week
US Federal Reserve chair Janet Yellen has poured cold water on the prospect of a second rise in interest rates any time soon. She warned financial conditions in the US had become "less supportive" of growth. The FOMC Meeting Minutes are release on Wednesday (7pm GMT), expected to support no immediate change to any rate hike.
From the US, also one’s to watch are the unemployment numbers on Thursday and CPI on Friday. Potential for a wide trading range in US pairs is expected.
EUR This Week
ECB President Draghi will present the ECB's perspective on economic and monetary developments on Monday.
Expectations of further monetary easing from the ECB in March have done little to weaken the Euro against Sterling and the US dollar so far in 2016. Fading expectations of US and UK rate hikes in 2016 are increasing demand for the Euro. The Euro is set for a third straight week of gains against the Dollar and Pound as ‘risk-off’ positions, funded by the EUR (due to low effective interest rates) are unwound.