The eagerly anticipated US jobs report last Friday was actually better than many expected
with payrolls rising considerably above consensus even allowing for revisions. However, the
wages component of that report was rather inconclusive as it came in bang on expectations,
rising at an annualized rate of 3.2%.
Consequently, there was no major reaction for the dollar or risk, but the US currency did
edge slightly higher as the week came to a close. There isn’t much in the way of important
US economic releases due this week and in any case the markets have already taken the
view that monetary policy across the pond is now on hold for the foreseeable future. Hence
the focus now is shifting back onto Europe this week with attention zooming in on Italy and
their specific problems; focus that helped push Italian bond yields higher at the end of last week as seen on the simple chart below.
So, it looks likely that Italy and Italian BTP yields are the immediate markets to keep a close
eye on this week. Furthermore, data due out at 10am tomorrow from the Eurozone is also
expected to confirm the wider slowdown taking place on the continent with the latest pan
European retail sales numbers expected to replicate that which we have already seen from
Germany last week. Naturally, Brexit won’t be off the radar either, but that’s as much as I
can bear to mention on that subject today apart from to repeat that 1.3225 on the GBPUSD
looks like a bridge too far still.
So, with the US off the radar for now, the key events this week are the central bank
monetary policy decisions from the Reserve Bank of Australia- due out in the small hours’
tomorrow morning and then from the ‘Old Lady’ on Thursday- but having said that; there
will be no changes from either of those two, so it’s a case of what, if any accompanying
statements might have an impact.
Meantime, global equity markets are continuing to edge their way higher after posting solid
gains in January. The burning question is still whether or not the current rally is merely
corrective of the heavy December falls or if 2019 is going to see a resumption of the longer
term trend that has been in place since the financial crisis.
My view is somewhat ambivalent right now and I do want to see just how the markets react
to the next piece of significant negative/positive news, if and when that comes along. Apart
from anything else, and as I have mentioned before, I do still think we have reached the end
of the cycle, so I am sceptical that the current rally has any lasting legs. At this precise
moment I have no fear of missing out, more rather a fear of messing up!
As far as the FX space is concerned this week; it looks like a case of watching and waiting it
seems. Once again the problem for the major currencies is not which one to hold, but more
so, which ones to avoid I think. That tenet is certainly continuing to help the dollar fend off
all those who would see it fall further in Q1, but if it is to weaken over the coming two
months then it will likely require significant capital flow. Purely speculative flow alone will not do the trick and right now I don’t yet see money rushing back into Europe irrespective of
the relative valuation levels.
Important Economic releases due this week
05/02- 3.30am- Reserve Bank of Australian monetary policy decision
(benchmark rate expected unchanged at 1.50%)
05/02- 9.30am UK January Services PMI
05/02- 10.00am Eurozone December retail sales
07/02- 12pm Bank of England Monetary Policy decision and quarterly inflation report
(Benchmark base rate expected unchanged at 0.75%)
08/02- 1.30pm Canadian January unemployment report