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Inflation figures may be the main focal point this week

USD

The U.S dollar and equities had a good week, recovering more than what was lost the week before. The U.S yields also continued higher with the 10-year bond reaching the highest level since March last year. It is a busy week ahead. On the data front, this week brings the Job openings (JOLTs) data on Tuesday, which will indicate the health of the labor market at the end of 2020. On Wednesday, the Consumer price index (CPI) is expected to edge higher in January as hikes in prices for raw materials reflected supplier shortages and extensive transportation delays. Apart from economic figures, monetary policy may be the main focal point this week. As President Joe Biden makes further progress toward a fiscal stimulus bill, it is becoming more important for markets to hear the implications for Federal Reserve policy. Federal Reserve Chair Powell speaks about the economic outlook on Wednesday and the Fed will publish its Monetary Policy Report on Thursday. Key figures coming up:

  • On Tuesday (02/09): JOLTS job openings (Dec) | EIA Short-Term Energy Outlook       
  • On Wednesday (02/10): Consumer price inflation (Dec) | Wholesale inventories (Dec) | Crude Oil Inventories
  • On Thursday (02/11): Jobless claims | Fed Monetary Policy Report
  • On Friday (02/12): University of Michigan consumer confidence (Jan)

EUR

Last week, the euro was little changed despite the news that Former European Central Bank Mario Draghi could become the next Italian prime minister. Draghi will start the second round of talks with parties on Monday and is expected to meet trade unions and business lobbies over the week. Assuming the talks go well, Italy’s next prime minister will face the challenge of steering the virus-battered country out of its worst recession since the end of World War II. Meanwhile, industry data takes center stage in the eurozone, with various countries reporting December production numbers early in the week before full regional estimates are provided on Friday. Furthermore, the vaccine availability and how the different paces will affect easing of restrictions and thus the speed up the recovery continue to be in focus. Key figures coming up:

  • On Monday (02/08): Germany industrial production (Dec) | ECB President Lagarde Speaks     
  • On Tuesday (02/09): Germany trade balance (Dec)
  • On Thursday (02/11): EU Economic Forecast
  • On Friday (02/12): Eurozone industrial production (Dec)

GBP

The Cable edged up last week after the Bank of England (BoE) made clear that negative rates are not under consideration, keeping its February interest rate at 0.10% and maintaining the Asset Purchase Programme target at £895bn. This week sees a raft of detailed data covering, industry, services, construction, and trade. The U.K. also reports its first estimate of GDP for the fourth quarter of 2020 on Friday. Even though the Covid-19 and post-Brexit headwinds are significant, an inoculation campaign that is progressing faster than in the EU suggests that there is a possibility of lifting restrictions earlier. Key figures coming up:

  • On Tuesday (02/09): BRC retail sales (Jan)
  • On Wednesday (02/10): RICS House price balance (Jan)
  • On Friday (02/12): Trade balance (Dec) | GDP (Q4) | Industrial production (Dec) | Manufacturing production (Dec)

JPY

A key focus will be on the trade balance and current account data, with fresh insights into the extent to which trade flows may be being adversely affected by the pandemic and associated supply constraints. The Producer Price Index on Tuesday could show signs of imported energy inflations increasing pressure on the Japan Government Bond Futures. Elsewhere, the Tokyo Olympics are to go ahead with restrictions, removing a key negative risk factor for the domestic economy. Key figures coming up:

  • On Monday (02/08): Current account & Trade balance (Dec) | Bank lending (Jan)
  • On Tuesday (02/09): Producer prices index (Jan)
  • On Thursday (02/11): National Day - Holiday

CAD

Last week, the CAD enjoyed the recent crude oil rally, with the oil future prices traded to the highest levels in more than a year, printing an almost 8% gain for the week. It is a light week for economic data ahead. Bank of Canada Deputy Governor Timothy Lane speaks on payment modernization and digital currencies, on Wednesday. CAD’s direction depends on the pace of Canadian vaccination, while it remains at a slow pace, it suggests that the Canadian economy may be disadvantaged relative to some of its peers as other G10 economies regain their growth potential quicker. Key figures coming up:

  • On Wednesday (02/10): Timothy Lane (Deputy Gov.) Speaks
  • On Friday (02/12): Wholesale sales (Dec) 

MXN

Recently, Mexico has suffered two heavy setbacks on its energy strategy. First, the Mexican Supreme Court has rescinded key elements of a federal energy policy. This bill would reshape the electricity market to favor the state-owned Federal Electricity Commission and the state oil company (Pemex), hence deals another blow to the renewable energy industry. Second, U.S President Joe Biden’s campaign to rejoin the Paris Agreement has huge implications for Mexico in particular, given the current energy strategy of the government, which focuses on fossil fuels. Crude oil accounts for most U.S. energy imports from Mexico. On the economic data front, Mexico’s consumer confidence, inflation rate, and industrial output will drive interest. Key figures coming up:

  • On Monday (02/08): Consumer Confidence (Feb)
  • On Tuesday (02/09): Consumer price index (Jan)
  • On Thursday (02/11): Industrial production (Dec) | Interest rate decision

CNY

China will enter the annual Spring holiday mode to celebrate the New Year.  Before that, the country will release a raft of economic readings. Trade data on Tuesday will be eyed for evidence of supply chain bottlenecks subduing trade flows. Chinese consumer and producer inflation figures for January will be the most closely watched on Wednesday. The figures are expected to show a renewed decline in consumer prices and a rebound in producer prices for the first time in a year. Key figures coming up:

  • On Tuesday (02/09): Trade balance (Jan)  
  • On Wednesday (02/10): Consumer & Producer price inflation (Jan) | New loans (Jan)
  • On Thursday (02/11): Spring Festival – National Holiday
  • On Friday (02/12): Spring Festival – National Holiday 

BRL

Last week was marked by a significant political victory for President Jair Bolsonaro, which backed the two winning candidates for the leadership of Senate and Congress. This victory suggests the institutional conflict could remain low and important debates such as the federal budget, the emergency bill, and administrative and tax reform will be resumed shortly. This week, the government should unveil its new emergency direct payments program to support low-income people, which will be an extension from the aid program that ended last year. Meanwhile, Brazil will release inflation updates, retail sales, and economic activity figures. Key figures coming up:

  • On Tuesday (02/09): Consumer price inflation (IPCA) (Jan)
  • On Wednesday (02/10): Retail sales (Dec)
  • On Thursday (02/11): Service sector growth (Dec)
  • On Friday (02/12): IBC-Br Economic Activity (Dec)    

Quick Insights

USD: Inflation is expected to edge higher in January

USD: Inflation is expected to edge higher in January

EUR: Draghi will start the second round of talks with parties

EUR: Draghi will start the second round of talks with parties

GBP: Inoculation campaign going faster than in the EU suggests that there is a possibility of lifting restrictions earlier

GBP: Inoculation campaign going faster than in the EU suggests that there is a possibility of lifting restrictions earlier

JPY: A key focus will be on the trade balance and current account data

JPY: A key focus will be on the trade balance and current account data

CAD: It is a light week for economic data ahead

CAD: It is a light week for economic data ahead

MXN: Mexico has suffered two heavy setbacks on its energy strategy

MXN: Mexico has suffered two heavy setbacks on its energy strategy

CNY: China will enter the annual Spring holiday mode to celebrate the New Year

CNY: China will enter the annual Spring holiday mode to celebrate the New Year

BRL: The Brazilian government should unveil its new emergency direct payments program to support low-income people

BRL: The Brazilian government should unveil its new emergency direct payments program to support low-income people

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