WEEKLY OUTLOOK 09-13 January 2017

A QUICK LOOK AT GLOBAL FINANCIAL MARKETS

MAJOR MARKETS

Global financial markets’ main focus last week has been US non-farm payrolls data which surprised markets with weak realization in December, having registered 156K increase against expectations of around 178K. More important was that average earnings posted 2.9% rise, higher than market consensus of 2.8%, and the previous month’s 2.5%. Market reaction to the data has been positive in US but pressure over EM currencies has heightened. US 10y benchmark bond yield, having surged over 2.55% at the final week of the year have ended the week at 2.42%. Dollar index (DXY) in the meantime showed some recovery after the data but posted no change at 102.2 in Dec 6 close from a week ago.

Main data release this week in US will be retail sales to be announced on Friday. Advance retail sales growth in December excluding auto and gas are expected to post 0.4% m/m growth, higher than 0.2% registered in the previous month. Any number above consensus will be considered positive in US but negative in EMs.

In Eurozone, unemployment rate and industrial production will be closely followed. Unemployment rate which breached psychological level 10.0% on the downside is expected to remain flat at 9.8% in November compared to a month ago. Besides, industrial production to be announced on Thursday is expected to accelerate to 1.5% on y/y basis in November from 0.6% a month ago. Better than expected realizations would support EURUSD parity which closed at 1.053 at the end of last week. This is 0.5% higher than that of Dec 30 close.

Despite strengthening in both PMI manufacturing in Japan from 51.3 in November to 52.4 in December and service PMI from 51.8 to 52.3, dollar bounced back to 117.0 in Tokyo trading on Friday, following US jobs data. The latter is 0.2% higher than USDJPY’s Dec 30 close of 116.8.

US non-farm payroll also hit Sterling which fell sharply against the dollar, to 1.2283 on a 1.08% loss. November industrial production on Wednesday will be the main release in UK this week. Y/Y industrial production growth is expected to accelerate to 0.6% from -1.1% a month ago. Despite subsequent releases that confirmed British economy has not negatively affected from Brexit yet, PM May’s statements hinting that it will hurt, leads us to think that exit process may revert the course. Hence, no solid recovery is expected in GBPUSD soon.

EMERGING MARKETS

People’s Bank of China adviser Sheng Songcheng told this week in an interview that “interest rates in China are already on an upward trend as the economy improves, so interest rates and prices will move in a positive direction, under the right circumstances, if conditions allow, we can consider a rate hike.” Sheng added that “China won’t let the Yuan depreciate too much, and that there was a strong possibility it would appreciate in the second half of the year.” Yet, officials’ statements may alter according to rapidly changing international arena.

Beijing this week has also cooled down its attempts to internationalize the Chinese currency Yuan, by stating that there were no active plans to sell further renminbi-denominated sovereign bonds in London, having sold Rmb3bn ($430m) by Chinese finance ministry. Even though Chinese will engage in a new issue it will take place probably in Hong Kong, in an attempt to diversify Chinese issuances locations for government bonds. Another development that might endanger liberalization of Chinese markets is that the possibility of tariffs expected to be imposed by Trump administration. China warns US that Beijing might retaliate if new tariffs were imposed on Chinese goods, signaling a possible trade war that could have several negative reverberations for world economy.

India’s ministry of statistics in the meantime announced first estimates for national income which registered 7.1% in the new financial year, down from 7.6% in 2015-16 financial year. Yet, the figure was higher than consensus estimate of 6.8%. Industrial production in India to be announced on Thursday will be important this week. There is no consensus for November realization but previous month registered 2.4% y/y drop and a stronger production growth will be considered positive for Indian economy. Inflation will also be announced at the same day and again there is no consensus for December release. Yet, consumer price inflation was 3.6% in November and markets will follow whether December and hence annual inflation will remain below that level.

Main releases of this week in Brazil will be inflation and policy rate decision which will be announced Tuesday and Wednesday respectively. Y/Y consumer inflation in December is expected to decline to 6.38% from 6.99% a month ago which may be followed by an ease in policy rate to 13.25% from its previous level of 13.75%. Note that a higher than expected rate is positive/bullish for the USDBRL, while a lower than expected rate is negative/bearish for the USDBRL.

In Turkey this week, November industrial production to be announced on Monday and November balance of payments to be released on Wednesday will closely be followed. Market consensus is 3.6% y-o-y growth for calendar adjusted industrial production whereas it was 2.0% a month ago. Data will be important to see how production performance evolved in the final quarter of the year. As for November current account balance, market consensus is $2.7 bln deficit and it stands for a 12 month rolling deficit of $34.6 bln. Market impact of the data would be positive on exchange rate if it remains below market consensus.

03 Jul 18 (Tue)

02:30 pm


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