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Despite positive developments on the vaccine front, last week was dominated by the increasing probability of a no-deal Brexit scenario, as well as the lack of a new US fiscal package. As a reminder, without a new fiscal package, millions of Americans will lose their extra unemployment check; independent contract workers will lose access to the Pandemic Unemployment Assistance Program; the federal moratorium on evictions would expire. And the UK would face equally difficult consequences in the event of a no-deal Brexit.
Evidently, risk assets will be swayed primarily by these dynamics in the week ahead. Brexit headlines at the time of writing are not positive, and the coming week will continue to focus on the most likely outcome. At the same time, the Bank of England may be compelled to step up it’s monetary easing if a hard Brexit becomes reality.
The FOMC decision will also be in focus, with new communication tools and forward guidance regarding the asset purchase program.
Themes for the Week
- Brexit: No Deal is becoming more of a possibility and GBP pricing is starting to discount BOE rate cuts by Q2 2021.
- US Fiscal Talks: markets will also watch for any progress on a deal in Washington.
- FOMC: while some analysts expect changes to the weighted average maturity of the Treasury holdings, consensus is only for changes in communication and forward guidance will appear, which will inform participants on the kind of tapering to expect.
- EU PMIs: flash PMIs will inform market participants of the forward expectations for growth in Europe.
Data in the Week Ahead:
- RBA Minutes (Tue)
- CNY Retail Sales and Industrial Production (Tue)
- UK Employment Change (Tue) à PMI employment components were weaker recently.
- BOC’s Macklem Speech (Tue)
- UK CPI (Wed)à PMIs suggest rising price pressures
- EU Flash PMIs (Wed)
- OPEC & EU Summit (Wed)
- CAD CPI (Wed) à IVEY Prices component rose recently
- US Retail Sales (Wed) à Wages and online sales were strong.
- FOMC Decision & Press Conference (Wed)
- NZD GDP (Thur)
- AU Employment Change (Thur) à PMI employment components showed improvement in employment conditions.
- BOE Rates Decision (Thur)
- BOJ Reates Decision (Fri)
- GER IFO (Fri) à ZEW and Factory Orders were higher recently.
- CAD Retail Sales (Fri)
Correlation Report:
Comment: Correlation tables are still highlighting high correlation amongst equity markets, bonds and USD. This is typical when the markets are focusing on risk on/off themes and USD dynamics.
On the Radar:
As of Friday’s close, GBP weakness was the strongest signal, while AUD, NZD and CHF continue to outperform in FX. Risk appetite was weaker, with DAX showing decisive weakness.