Monday: JN BoJ Minutes, EU M3 Money Supply, NZ Trade Balance, ECB's Draghi, BoE's Carney speak, US/China hold preparatory trade talks ahead of high-level tasks on 30th/31st, US Earnings: Caterpillar
Tuesday: AU NAD Business Confidence, SP Unemployment Rate, UK Govt Brexit Vote, US HPI, Consumer Confidence, Weekly API Inventories, US Earnings: Apple, Pfizer, 3M, eBay
Wednesday: JN Retail Sales, Consumer Confidence, AU CPI, FR Flash GDP, Consumer Spending, GE Prelim CPI, GfK Consumer Climate, Import Prices, UK BRC Shop Price Index, M4 Money Supply, Mortgage Approvals, IT & GE 10-yr Govt Bond Auctions, US ADP Employment Change, Pending Homes Sales, Weekly DoE Inventories, Fed Rate Decision + Press Conference, Chinese Vice-Premier He to visit US for trade talks, US Earnings: Boeing, McDonalds, Alibaba, Facebook, Microsoft, Tesla
Thursday: JN Prelim Industrial Production, Housing Starts, BoJ Summary of Opinions, CN Manufacturing/Non-Manufacturing PMI, AU Import Prices, GE Retail Sales, Unemployment Rate, SP/IT Flash GDP, CPI, FR Flash CPI, IT Monthly Unemployment Rate, EU Prelim Flash GDP, UK GfK Consumer Confidence, US Core PCE, Personal Income/Spending, Weekly Jobless Claims, Chicago PMI, Challenger Job Cuts, CA GDP, ECB's Weidmann, BoC's Wilkins speak, Chinese Vice-Premier He to visit US for trade talks, US Earnings: GE, UPS, Amazon
Friday: JN Unemployment Rate, Final Manufacturing PMI, CN Caixin Manufacturing PMI, AU PPI, FR Govt Budget Balance, SP/IT/FR/GE Manufacturing PMI, UK Manufacturing PMI, EU CPI Flash Estimate, US Non-Farm Payrolls, Average Hourly Earnings, Unemployment Rate, ISM Manufacturing PMI, Revised Uni of Michigan Sentiment, Total Vehicle Sales, CA Manufacturing PMI, US Earnings: Exxon, Merck
Trade wars strike back...
On Friday, Trump signed a bill to temporarily end the record long US government shutdown. As discussed in our briefing on YouTube last Friday, the President's ratings in the polls have been dramatically impacted by the situation and as such the compromise comes as little surprise. This means focus returns back to the upcoming trade negotiations between China and the US with just over one month to go before tariffs reset to 25% from 10% on $200bln worth of goods.
To make things clear we are not expecting any type of conclusion to this matter as soon as this week, but there are three scenarios to be aware of in order to understand how the market may react:
1 - Progress is made in discussions between Chinese Vice Premier Liu and US Trade Representative Lighthizer, meaning they can take a deal back their respective Presidents to digest. This will could include China committing to buying more US goods and highlighting a willingness to work towards a solution on the contentious issue of intellectual property. In this case, both sides continue to keep talking and may even commit to another meeting ahead of the March 1st deadline which would lead to the temporary truce being extended. Result: Risk positive (MOST LIKELY)
2 - Complete break-down in talks with neither side willing to budge. This inevitably results in further inflammatory comments from President Trump with new tariff kicking in March 1st. Result: Risk negative, downside in global equities with flight to quality into safe-haven assets. (UNLIKELY)
3 - Under the pressure of a deteriorating economy, China bulk and propose reforms that go beyond present expectations. These include substantial and immediate commitments to change to corporate governance. Result: Big relief rally across assets as one of the major threats to the global economy is significantly reduced. (MOST UNLIKELY)
Round 2 for Theresa May...
Tuesday sees the PM return to parliament for the next potential pivot in the Brexit saga. The first area of contention is proposals from pro-EU members looking to confirm the aversion of a 'no deal' scenario. According to the Sun newspaper this weekend, the PM has privately told the Cabinet that she won't allow the country to leave without a deal. The more sensitive area comes from the Euro-sceptics looking to push the PM into a re-negotiation with Europe with focus on changes to the agreement on the Irish border.
The latter point is important as it will then put pressure on Europe as to their allowance for extra time. This in itself is not a straight forward decision and I would highly recommend reading an excellent article in the FT this morning HERE. The conclusion being that Europe will be reluctant to extend talks indefinitely with the likelihood of specific "conditions" attached if they are to allow Britain more time (no deal preparation/second referendum/general election). Once again, the sticking point remains the backstop agreement with Ireland stating on Sunday that neither the EU or the Republic would accept an escape clause or a set time limit.
At present, all of the above means the probability of an extension to Article 50 remains high and in the content of weaker USD, cable continues to trade around a 1.3200 handle. Confirmation of the removal of a 'no deal' is likely to be a positive for GBP but reaction may be small as markets have largely priced this in. As usual, I'm sure the rumour mill will pick up pace later today ahead of the parliamentary session on Tuesday, so the most prudent course of action could be to keep your powder dry for better moves once we have confirmation of the outcome tomorrow night.
Powell, US earnings and NFP...
A busy week on the US docket from a calendar perspective with Fed Chair Powell set to deliver a press conference after Wednesday night's FOMC meeting. This has now brought about the potential for every meeting to be 'live' but in reality, the latest Fed meet is unlikely to set the world alight.
The main area of focus will be centred on any clarity Powell provides on the balance sheet and his assessment on external headwinds (global growth/trade wars/Brexit/impact of gov shutdown). Given the Fed's recent dovish turn I do not foresee the Fed deviating from its predefined course just yet with March still a key meeting on the time line ahead.
Elsewhere, 114 of the S&P 500 components report this week with tech heavyweights likely to grab the headlines with Apple, Amazon, Facebook and Microsoft all on the docket. Meanwhile, Friday's NFP report maybe heavily impacted by the recent US government shutdown. With that in mind although the data will lead to some short-term volatility any bearish factors may well be quickly glossed over given the economy's history of bouncing back strongly once government re-opens.
Oil edges lower as supply and demand dynamics remain negative for now...
On the demand side, concerns over China's growth were questioned once again as total profits at industrial enterprises remained negative. This comes as output growth in China is at its lowest in a decade alongside factory-gate inflation slowing. Meanwhile on the supply side, Baker Hughes reported on Friday that the number of US rigs looking for new oil rose for the first time this year to 862 (+10 on the week) meaning that US production is unlikely to let up any time soon despite the growing pessimism over global growth.
Moving forward, there will be two events to monitor this week that will likely determine the direction of oil. First, the outcome of the US/China trade talks, and secondly what is said by Fed's Powell Wednesday night and any knock-on effect that may have for the USD.
If you missed the market briefing earlier today you can review the full session HERE.
Have a great week.