News & analysis

CAD

The loonie remained on the back foot last week, and shows no signs of rallying this morning, as global risk appetite remains poor due to Coronavirus concerns, and crude oil prices remain on the defensive. Friday’s Gross Domestic Product data was generally better than expected, with the economy growing 0.1% in November. Today at 14:30 the manufacturing purchasing managers index will be released, followed by trade balance data and a speech from the Bank of Canada’s Carolyn Wilkins on Wednesday. Labour market data will be released on Friday.

 

USD

The dollar is on firmer ground this morning after a partial sell-off at the end of the month on Friday. Data, politics, and geopolitics will create a rich mix of narratives this week for global markets, with the dollar caught up in the middle as usual. Donald Trump’s impeachment trial in the Senate will fail this week, after Senate Republicans blocked the calling of witnesses. The outcome has little impact for markets, unlike the Presidential elections in November, which are increasingly likely to become a focus. Party members in Iowa will choose their preferred nominees for the presidency today. The choice of Democratic nominee will be important for markets, as candidates like Elizabeth Warren or Bernie Sanders will present a stark choice in terms of both geopolitics and domestic economic and social policies. Lifelong socialist Bernie Sanders has seen a recent surge in polls. Purchasing managers indices will be released by Markit today at 14:45, followed by ISM at 15:00. Later in the week non-manufacturing PMIS will be released on Wednesday, and the Non-Farm payrolls report will be out on Friday.

 

GBP

Sterling has only slightly pared back its gains from last week this morning, amid renewed attention on the tone of UK-EU relations. UK Government sources released statements to UK media over the weekend outlining the basics of their negotiating position, and reiterating earlier statements about being unwilling to accept alignment with EU regulations. Boris Johnson will elaborate on this position in a speech this morning, and, according to yesterday’s reports, will say the UK is willing to accept a barebones “Australia” style deal if negotiations for a more ambitious, “Canada” style deal fail. The EU’s position will be similarly outlined in a draft paper presented by Michel Barnier today. Sterling’s muted sell-off today is a reminder that despite markets being dulled to heated rhetoric about red lined and the risk of disruption, Brexit headlines do retain some potential to move the markets. This week’s data will include updated purchasing managers’ indices for January, beginning with manufacturing this morning at 09:30.

 

EUR

The euro rallied on Friday, possibly benefitting from a negative impulse hitting the US dollar, but has made no further progress this morning. This week’s packed eurozone data calendar comes at a delicate time for the single currency, with two key risks looming in the form of slowing Chinese growth due to coronavirus, and trade tensions with the US. This has seen the release of manufacturing purchasing managers indices, which largely confirmed the findings from flash readings earlier in the month and showed a modest stabilization in the sector, amid signs of serious ongoing weakness in Germany. Bundesbank head Jens Weirdman will speak today at 18:15. Later in the week, ECB President Christine Lagarde will testify to European lawmakers on Thursday, the same day updated European Commission economic forecasts will be released.

 

FX Elsewhere

The Chinese renminbi opened weaker this morning, after onshore markets for the currency were closed for the lunar new year holiday. The People’s Bank Of China set the daily fix rate for USDCNY at 9.9249, representing the mid-rate of the 2% band the currency is allowed to trade within. USCNY duly traded above the important 7.00 level, as fears of coronavirus wracked domestic equity markets, and the Shanghai Composite saw its worst drop since 2015. However, despite the relatively muted 1.5% drop in USDCNY this morning, it does not seem to be the case that the PBOC is intervening heavily to prevent depreciation, as measures of the “countercyclical factor” suggest only modest efforts to support the currency.

 

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