After a very busy week of central banks meetings, economic data outcomes, and earnings across the globe, investors’ attention will shift again to politics – A move that is likely to remain the major market moving factor for months to come.
While the dollar has been struggling for the past six weeks, Friday’s Non-Farm Payrolls reported a rise of 227,000 jobs. Even though the rise has been the largest in the last four months, this has done did very little to buck the trend because the average hourly earnings rose by only 0.1% and unemployment ticked up slightly suggesting that slack in the labor market still exists. As a result traders lowered their bets for a March rate hike to 13%.
For the new U.S. administration solely analyzing economic data won’t be enough in what seems to be declaring a currency war. In a non-traditional fashion, the officials in the U.S. including the president himself have been repeatedly saying the dollar is over-valued and accusing countries like China, Germany, and Japan for manipulating their currencies,
This will become more interesting as Japan’s Prime Minister visits Washington on Friday. Shinzo Abe told parliament that suggestions of Japan devaluing the yen were off the mark, emphasizing that his country is abiding by G20 agreements to refrain from competitive currency devaluation, and that monetary policy easing is a tool to accelerate growth, not manipulate the currency. Well, he can also remind Mr. Trump of who started QE1, QE2, and QE3 programs.
On the U.S. data front, there’s only Tier 2 economic data to be released next week including trade balance, and University of Michigan consumer sentiment. However, the trade deficit in the U.S. will become an important figure to monitor as Trump’s trade policies are taking center stage.
Similarly, in the Eurozone, the calendar is light with only German trade balance and couple of industrial production numbers from the rest of area, which makes again politics, especially in France of more importance to the Euro. Marine Le Pen kicked off her presidential campaign on Saturday with a promise to shield voters from globalization and make France free again. The chances of the far-right leader to win the elections is very slim according to opinion polls, but I think markets have learnt the lessons from the UK and the US.
China also returns from a long holiday with lot of data to digest. Foreign exchange reserves, services PMI, Foreign Direct Investments and Trade Balance figures are all due to release.