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Global Market Watch - 20th January 2020

Last week, UK GDP was reported as falling 0.3% in November, and retail sales fell 0.6% in December. We also had a lot of dovish comments from the Bank of England, which has pushed up the probabilities of a rate cut on January 30th. The weekend saw comments from Chancellor Javid confirming that the UK would look to deviate away from EU laws, and this will be seen as negative for the pound. This Tuesday, the market will look at average earnings and employment data to see if the job market is faltering, whilst the important data point will be the forward-looking Services PMI data due for release on Friday. If both of these data releases are weak, then we can expect a rate cut on January 30th and with it a weaker pound. Interestingly, a survey from Rightmove estate agency showed that house prices jumped 2.3% this year already, and the biggest margin since the survey started in 2002. The move in prices being attributed to pent up demand after 3 1/2 years of indecision.
Last year was very quiet for the euro. This year so far, the prospects for volatility are not good. The ECB is this week announcing the scope of its strategic review that ECB President, Lagarde, wants, so that she can understand precisely the Eurozone’s situation. Therefore, there won’t be any monetary policy changes for a time. As for the Fed, they have also said they will keep interest rates steady through 2020. EUR/USD only gets interesting if 1.1400 resistance or 1.0300 support breaks, and we will need a change of fundamental circumstances for that to happen. As for data, this week we have German ZEW economic sentiment out on Tuesday, and the ECB sets interest rates on Thursday. President Lagarde rounds the week off when she speaks on Friday.
Yet again, the US economy continues to be driven forward by the US consumer. Retail sales grew by 0.7% in December and should be compared with the UK shopper, who spent 0.6% less last month. US equity markets continue to make record highs, and the US and China have agreed a trade truce. So, is it all good news for the US? It probably is, but we have to be aware of the President’s impeachment case, which may get to the Senate this week, and the startling amounts being poured into the overnight repo market. Today is Martin Luther King Day and a holiday for the States, so it is not until Friday that we have economic data released. Manufacturing PMI is expected to be above last month’s 52.4 reading.
The commodity currencies were very well prepared for the cessation of trade hostilities between the US and China and, as such, it was a “buy the rumour sell the fact” move that took place, as the trade deal was signed on Wednesday. The Bank of Japan sets interest rates on Tuesday, and the Bank of Canada does likewise on Wednesday. We expect no change from either central bank. Australian employment data is out on Wednesday and will be important for the Reserve Bank of Australia meeting early next month. Canadian retail sales round the week off.

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