Keep your eyes on the US
2017 has begun with the dollar slipping lower but with limited gains for emerging markets, as idiosyncratic risks affect markets. Oil has been taken higher by Kuwait delivering its pre-agreed OPEC supply cut whilst the Turkish lira is lower following the attack on New Year’s Day and this morning’s higher than expected inflation numbers.
The week ahead however is dominated by newsflow from the US. A lot of the market sentiment is likely to emerge from across the Atlantic with a little over a fortnight until the inauguration of President Trump and his rhetoric can start to become policy. In the meantime we have the manufacturing ISM number today, the minutes of the December Fed meeting tomorrow, the ISM from the services sector on Thursday and the latest payrolls on Friday.
Manufacturing and outflows
As it is the first working day of the month, we will be poring over manufacturing data for the majority of the session with the news from China boosting regional currencies as growth was shown to be robust and inflation trends also seem to be returning.
News on the yuan however is somewhat more nuanced and new regulations by the State Administration of Foreign Exchange were levied on New Year’s Eve in a bid to stymie outflows from the Chinese economy.
The new regulations include a need to give a more detailed account of what the funds are to be used for and to make sure that those sending money are not allowing others to use their $50,000 annual quota. The overall quota amount has not been changed but with the clock being reset on Jan 1, we have to think that the CNY will remain under pressure by funds exiting the country.
The selling has already seen USDCNH hit 6.99 yesterday.
Political risk eager to get started
With China’s number hitting a fresh 2 year high the scenes is set for Europe and the US. Italy’s number is due at 08.45, France at 08.50, Germany at 08.55, and the Eurozone wide measure at 09.00 with the UK number due at 09.30.
News from the May government has been quiet over the festive period although the PM’s message of change and unity will likely be seized upon by pro-remain and human rights focused MPs as soon as Parliament is back in session. The House returns on Monday; good thing there is nothing important that needs debating or thought in the coming months.