Themes for the week and potential opportunities
Impact of G20: modestly positive most likely. The draft published on Bloomberg hints at four action areas for policymakers:
1. Greater focus on downside risks to the global economy, (and yes, Brexit is one of them)
2. Greater stress on the use of fiscal policy to combat the slowdown and market volatility. The new language states, ‘We will use all policy tools – monetary, fiscal and structural – individually and collectively to achieve these goals…Our fiscal strategies aim to support the economy and we will use fiscal policy flexibly to strengthen growth, job creation and confidence…’.
3. There are hints of potential cooperation/coordination on markets.
4. There is increased emphasis on creating a framework for monitoring and implementing structural reforms to boost growth.
Main risk events for the week:
- Risk sentiment will be driven by China PMI survey (Tue) and US NFP (Fri). The manuf. pmi is expected unchanged vs prior at 49.4 (still below 50) whereas the services component should also be steady vs last month’s fall to 53.5.
- Aud will aslo be in play with RBA (Tue) expected to leave rates unchanged at 2%, with Q4 GDP (Wed) expected to print 0.5% q/q.
- US employment growth expected to have rebounded in February after the dismal January report. Average hourly earnings are also key and most likely ticked up. The US ISM reports (Tue/Thu) will also show if the economy is slowing or holding up.
- EU CPI is looking gloomy and risks dropping below zero for the first time in nearly a year. Market participants are pricing in further action at the ECB’s meeting: 10bps cut in the deposit rate to -0.4%, and a further expansion of QE, including a possible increase in the current €60bn a month pace of asset purchases.
- UK PMI surveys (Tue/Thu) will also be on the radar, and the market is expecting weakness. This should also keep the lid on Gbp along with the ongoing Brexit narrative.
I’ve got Gbp and Euro weakness on my radar vs. Cad and Usd Strength going into the week. I’ll also take a look at AudCad to see if any (short) tickets appear ahead of the RBA.
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