Political risk in the US spilled over into this week as the US Senate were unable to agree on a spending bill. A rare Sunday session from the Senate wasn’t enough to solve the differences between Democrats and Republicans, with immigration being one of the main sticking points. With US government shutdown confirmed on Friday, there might have been a case for stocks to be adversely affected. However this was not the case as US markets still managed to close at new record highs last week. The dollar though continued to remain frail against its major peers, something which has been a common theme since the beginning of 2018, with politics the major influencer here. EUR/USD continued to trade above the resistant level at 1.2160/70, while GBP/USD looks to test 1.39 this morning with last week’s low at 1.3725 providing support.
The World Economic Forum starts tomorrow, where it has been a bit of a non-event for markets. The presence of President Trump however always leaves the door open for interesting headlines which means that markets will certainly be keeping at least one eye on the event.
Sterling was largely flat throughout the day on Friday as it had a successful week against other major currencies. On Friday, retail sales came out slightly worse than last year at 1.4%, compared to 1.6% last year. Retail sales will be an important figure to watch if the economy begins to show further signs of slowing down but any minor change will not be seen as a concern.
The week ended quietly for the euro, with data releases on Thursday and Friday light on the ground. Germany, the Eurozone’s largest economy, released its monthly Producer Price Index (PPI) figures which showed slight improvements based on last month’s release. As a leading indicator of consumer inflation this will be a key dataset to watch as the ECB continues to mull over its position on interest rates in the coming months. The ECB also released its Current Account figures which indicate demand for the euro across the continent. This dataset saw some solid growth, possibly owing to consumer spending in the region over the Festive period.
The week begins with Eurogroup meetings where a number of high profile issues such as economic policy for the area this year; the ongoing troubles in Greece and results from an economic health check of Portugal’s ability to repay loans. As always, decisions and initiatives arising from this meeting can, and will, have a widespread effect on the Eurozone economic health. Shortly after, the German Bundesbank releases its monthly report. Generally, sharp swings are only seen when the Bundesbank’s rhetoric differs from that of the ECB.
Focusing on the week ahead now and unemployment data is out on Wednesday morning which is expected to stay unchanged at 4.3% – still close to record lows for the UK. The main event of the week will be Friday where the fourth quarter GDP which is forecast to remain at 0.4%.