Weekly reviews

Review of the key events of the upcoming week 18.01 - 24.01


Major events of the upcoming week

Last week, the situation on financial markets stabilized due to a decrease in political uncertainty in the United States. In the coming years, the country will be ruled by Democrats, who have announced large-scale measures to support the economy in the context of the coronavirus pandemic. Joe Biden on Thursday unveiled a new $ 1.9 trillion economic stimulus program. Investors hope that, thanks to huge fiscal stimulus and the Fed's soft policy, the US economy will be able to withstand the blow of the pandemic and quickly set out on a recovery path. Can the dollar calmly weather the unprecedented generosity of the Fed and the White House? So far, that is the big question. Many investors are still betting on the decline of the American currency.

The market is increasingly concerned about news from Asia, where an increasing number of new cases of COVID-19 infection are recorded every day. Malaysia, South Korea and other countries have tightened quarantine measures. The Chinese authorities have decided to completely isolate certain provinces with a sharp increase in the number of cases. Further deterioration of the epidemiological situation in Asia may significantly worsen the prospects for the development of the world economy in 2021.


China - data on GDP for the 4th quarter

China remains the main engine for the recovery of the entire global economy. The country was able to take control of the situation with the pandemic and for half a year demonstrated high rates of recovery and production. Data on exports and imports released last week significantly exceeded market forecasts, indicating that positive momentum remains. Therefore, economists maintain positive forecasts for the GDP growth rate of the Chinese economy in the 4th quarter of 2020. Annual growth is projected to be 6.1%, after + 4.9% in the third quarter. Most likely, even the 6.0% level will be perceived positively by the market, but one should not expect a strong growth in stock indices. Investor optimism has so far been limited by concerns about the further development of the situation with the coronavirus pandemic in Asia.



Canada - Bank of Canada meeting

A difficult epidemiological situation remains unchanged in Canada. It is obvious that in such an environment, the economy continues to experience pressure, so investors do not expect big surprises from the upcoming meeting of the Bank of Canada. The regulator is very likely to keep the main parameters of monetary policy unchanged. The USD / CAD pair's reaction is likely to be subdued.



Japan - Bank of Japan meeting

In recent comments, representatives of the Bank of Japan noted some reduction in downside risks for the economy, but the overall situation remains difficult. The economy needs support, especially in the face of a worsening epidemiological situation in Asia. Therefore, at the upcoming meeting, with a very high probability, the regulator will leave the main parameters of monetary policy unchanged. We expect a very restrained reaction from the USD / JPY pair.

EU - ECB meeting

The European Central Bank, like other leading world central banks, adheres to a soft monetary policy. The ECB's toolbox for response remains limited due to the imposition of negative interest rates. The main question that now worries investors is whether the regulator will expand the asset repurchase program in the context of the extension of strict quarantine measures in most EU countries?

Most likely, the regulator will leave the main parameters of the monetary policy unchanged for now. The key influence on the trading will be provided by the comments of Christine Lagarde on the further implementation of the asset repurchase program and the possibility of lowering the interest rate in the event of a worsening economic situation.



USA and EU - preliminary data on PMI of the manufacturing and services sectors

In recent months, the market has reacted very strongly to the publication of PMI data, as they allow a quicker assessment of the impact of new restrictive measures on the economy. To the surprise of many, the EU manufacturing sector has maintained upward momentum even after the imposition of stringent quarantine measures in the vast majority of EU countries. But it is clear that the bullish momentum will gradually slow down, especially due to the negative news about the spread of the pandemic in Asia.

Most likely, the interim data on the PMI of the manufacturing and service sectors in the EU will come out worse than the market expectations, which may exert quite strong pressure on the European currency.

In the US, on the contrary, the actual data may be higher than market expectations. Experts predict a sharp decline in the manufacturing sector PMI from 57.1 to 55.7 points. If the actual values are higher, the dollar may receive strong local support.