Will the dollar continue to weaken? What will be the market's response as the new year fully gets underway!? ~ Highlights and schedule for the week of January 7 ~
◎ This Week's Highlights
1) Dollar Weakness and Stock Prices
Last week's U.S. indicators, including ADP employment data and NFP payrolls, came in stronger than expected. However, the ISM Manufacturing Index was weaker than forecast. As this followed a flash crash, reactions to strong employment were limited, while weak ISM readings attracted more敏感 (sensitivity). In speeches by former and current Fed chairs, Powell's cautious remarks helped lift stock prices.
This week, attention will again be on the U.S. economy and the Fed's trajectory.
Despite strong employment suggesting a healthy economy, leading indicators like ISM are gradually weakening. With U.S. yields in an inverted curve, recession concerns have emerged. Factors cited for last week's flash crash, such as Apple's downward revisions, highlight worries about a U.S. slowdown. Markets will focus on ISM Non-Manufacturing today and the three major stock indices.
As for December rate hikes, the FOMC meeting drew attention to the end of tightening. Not only the end of rate hikes, but futures markets are beginning to price in potential rate cuts. In this context, the stance of Fed governors and regional presidents is crucial. We will watch what they say about the pace of hikes, neutral rate, timing of the end of hikes, and U.S. economic conditions. The December FOMC minutes, to be released soon, are also of interest to see what discussions took place.
2) China Economy and Risk-Off
The indicators released around year-end and start of the new year show continued weakness, raising concerns about the impact of the U.S.–China trade war. Last week, the People's Bank of China cut the reserve requirement ratio by 1 percentage point. Chinese stocks (Shanghai Composite) rebounded and closed higher. This week, focus remains on China’s economy and equities.
Additionally, with one of the recent risk-off drivers being China, there is interest in whether a risk-off reversal could begin here.
3) Partial Government Shutdown and U.S. Budget
President Trump is digressing from compromising on border-wall funding with Mexico and is in confrontation with the Democrats. As a result, parts of the U.S. budget are not approved, and some government agencies have shut down. Trump has stated that the shutdown could become prolonged.
Congress has resumed from January 3, with new members elected in last year's midterms. As a result, Democrats have a stronger voice in Congress. Going forward, attention will be on whether the President and Democrats can reach a compromise to pass the budget bill.
4) France Protests and European Economy
Protests against President Macron's policies continue in France. The protests have weighed on the French economy, and deficits are coming into focus. Macron's approval ratings have continued to fall, and administration officials are distancing themselves from Macron. In contrast, far-right candidate Marine Le Pen is gaining steady popularity. There are concerns that France's political instability could spill over into Europe.
Moreover, with Europe’s economy slowing since last year's second half, the ECB ended its easing policy in January. The extent of the impact remains to be seen. Are the economies of Europe—especially Italy, France, Greece, and Spain—okay? Watch European economic indicators closely.
5) Canada Policy Rate
Canada’s policy rate is expected to hold, with oil price weakness a key factor. Last year’s rate hikes were largely due to oil price stability. Recent data also do not point to strong growth.
However, the Bank of Canada is known for surprises. While unlikely, a rate hike cannot be ruled out. With the U.S. possibly ending its hikes, market watchers will be looking at how the Bank of Canada views the future in its statement and press conference.
◎ This Week's Economic Calendar
Monday, January 7
06:30 AUD Manufacturing PMI
19:00 EUR Euro-area Retail Sales
21:45 EUREconomy Comments by ECB Vice President De Guindos
Tuesday, January 8
00:00 USDISM Non-Manufacturing Composite
00:00 CAD Ivey PMI
02:40 USD Federal Reserve Bank of Atlanta President Bostic speaks
09:30 AUD Trade Balance
17:30 GBP Halifax House Price Index
19:00 EUR Euro-area Consumer Confidence
22:30 USD Goods Trade Balance
22:30 CAD Trade Balance
Wednesday, January 9
03:00 USD 3-year Treasury Auction
09:30 AUD Building Permits
16:00 EUR Germany Trade Balance
16:30 CHF CPI
19:00 EUR Euro-area Unemployment
22:20 USD Bostic speaks
23:00 MXN CPI
Thursday, January 10
00:00 CADPolicy Rate Decision and Statement
00:15 CAD Bank of Canada Press Conference
00:30 GBPBoE Governor Carney speaks
00:30 USD Crude Oil Inventories
01:30 USDRosengren - Boston Fed President speaks
03:00 USD 10-year Treasury Auction
04:00 USDFOMC Minutes
10:30 CNY CPI
16:00 NOK CPI
17:30 SEK Industrial Production
21:30 EURECB Governing Council Minutes
22:35 USD Barkin and Richmond Fed President speaks
Friday, January 11
02:00 USDPowell, Fed Chair, speaks
02:40 USDBullard, St. Louis Fed President speaks
03:00 USDEvans, Chicago Fed President speaks
03:00 USD 30-year Treasury Auction
07:30 USDClarida, Fed Vice Chair speaks
09:30 AUD Retail Sales
17:20 EUR Mersch, ECB Executive Board member speaks
18:30 GBPGDP・ Trade Balance
22:30 USDCPI (Consumer Price Index)
Saturday, January 12
03:00 USD Baker Hughes Rig Count
04:00 USD Monthly Budget Statement
