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This week ahead: Interest Rate Decisions, GDP

We have a relatively fair number of economic events this week ahead. However, they are relatively significant in their effect on the financial markets and further fundamental guidance.

We've seen risk-on in currency markets recently, with many pairs against the U.S Dollar rallying on confidence that the economy will fare better in 2021. GBP/USD. Broke 1.40, while NZD/USD and AUD/USD both broke 0.78 and 0.73, respectively. Oil has been rallying on supply restriction due to middle east tensions and the snowstorm currently taking over Texas. Here is your week ahead.

Monday, 22nd February – People's Republic of China's Interest Rate Decision

PBoC's 1-Year Interest Rate Decision

With China stomping the virus faster than any country, their road to recovery has been patchy. With a couple of flare-ups in community transmission similar to that of New Zealand, China acted swiftly to secure the cases, ready emergency and hospital units, and shut the Coronavirus. With their economic recovery fully underway, Yi Gang has stated that China's central will not "prematurely" exit from its supportive monetary policies. "Looking forward, I think our monetary policy will continue" and that "we will keep a delicate balance between supporting the economic recovery, at the same time, preventing risk."

With the strength and the interest in the Chinese Yuan skyrocketing in 2020, the PBOC will introduce some measures to bring down the Yuan's strength as it is fundamental to their exports. With that said, analysts predict the PBOC to lower the headline 1-year rate from 3.85%.

Monday, 22nd February and Wednesday, 24th February – NZ Retail Sales & Reserve Bank of New Zealand

RBNZ's Interest Rate Decisions

With strict lockdowns imposed earlier in 2020, New Zealand has stomped the virus, China has, and life for its citizens has returned to a relative normal. With a flare-up in Auckland's community cases last week, Auckland was put in a snap lockdown for three days for the government to assess the situation. They had come out of that lockdown after the three days but still face social distancing and capacity constraints in level 2.

However, with the domestic economy has been in full swing before the snap lockdown, analysts predict retail sales to stay healthy at 26.7% growth, slightly lower from the 28% growth the previous quarter.

REINZ Housing Report January 2021

Regarding the RBNZ's interest rate decision, the mandate for the central bank of New Zealand is like many other central banks: Employment and Price Stability. A mandate they do not have is the control of house prices. However, with house prices skyrocketing almost 20% the past year, there has been pressure from politicians and analysts for the RBNZ to implement pricing controls.

The bank has reinstated loan-to-value ratios from first home buyers and investors, requiring investors to front up 40% of the house price as a deposit when purchasing a house, stating that the initial removal of LVR's has done its job.

The initial optimism on negative rates has subsided on the New Zealand economy's incredible bounce bank. Many banks are now rescinding their calls on negative rates, with banks such as ANZ calling a 15-basis point cut from 0.25% to 0.1%. ANZ's economists stated that "If the housing market and domestic economy maintains momentum well into autumn, the RBNZ will not cut again at all." However, they further stated that "If Covid-19 returns to our shores in a significant way, a negative OCR will once more be game on."

Tuesday, 23rd February – U.K's Unemployment Rate

United Kingdom's vaccination program is leading the charge for their recovery. With their seven-day average way down from all-time highs, the start of the recovery is near for the United Kingdom. Nearly 18 million people in the United Kingdom had received at least one Coronavirus Vaccine dose, around 27 doses per 100 people. These were aimed at citizens aged 70 and higher, alongside healthcare workers, who have accounted for 88% of the United Kingdom's Coronavirus deaths. Analysts predict
the 3-month rolling unemployment rate to rise slightly from 5% to 5.1% this week ahead.

Thursday, 25th February – U.S' GDP 4th Quarter

Like that of the United Kingdom, the vaccine has led the charge for the recovery in the United States. Seven-day averages are nearly three months now, with over 61 million doses of the vaccine, or around 18.6 doses per 100 people. With Jerome Powell continuing to pledge his unwavering support for the American economy, alongside an optimistic 1.9 trillion-dollar stimulus, the potential for a rebound in the U.S economy may be on its way. Analysts predict a slight nudge higher in GDP growth at the end of the 4th quarter, up 0.1% to 4.1%, compared to 4% in the previous quarter.

A light week ahead events-wise. However, the events are heavy. Stay say, and trade safe.

PBoC, Inflation and Jobless Claims - Week ahead

The markets continue to grapple with the immediate effects of the Coronavirus. The second wave in pockets of the world has forced cities to take active measures to control the virus. Melbourne, Australia has gone into a secondary lockdown while Florida and Los Angeles see cases surge, with the Mayor of Los Angeles stating that the city is “on the brink” and a Democratic representative from Florida reports the outbreak is “totally out of control.” Here is your week ahead

Monday, 20 July – Peoples Bank of China Interest Rate decision

PBoC's Interest Rate

China’s Central Bank, the Peoples Bank of China has been wary of cutting interest rates, even during the peak of the pandemic. Ma Jun, a PBOC adviser, stated in early April, “The PBOC doesn’t use its bullets all at once. China has plenty of room in monetary policy.” The PBOC has kept interest rates at 3.85%, after dropping it 30 basis points from 4.05% in April. However, forecasts and estimates expect the PBoC to keep rates as is at 3.85% this week ahead.

Tuesday, 21 July – Inflation rate YoY Bank of Japan

With 660 new cases of the Coronavirus yesterday, Japan has struggled to keep ahead of the virus after the world praised it for its lighter approach to restrictions. However, that approach, as seen similarly from Australia, has not bode well for the country. Japan has seen triple-digit daily increases for the whole month of July. This has caused consumption and spending to decrease dramatically. Analysts predict an inflation rate of 0.1%; however, there is a high chance that this may be pushed to the downside, which may put downward pressure on the JPY.

 Tuesday, 21 July – Reserve Bank of Australia minutes

Australia is continuing to grapple with the effects of the Coronavirus, with Melbourne being put back into lockdown and the state of Victoria imposing mandatory mask restrictions. With RBA minutes earlier in the year having a tone of optimism, likely, that tone will not continue here. The second lockdown is a massive blow to the country, socially and economically. The Trans-Tasman bubble between New Zealand and Australia has been delayed, with economic activity in the state of Victoria plummeting. We may see Aussie weakness against its New Zealand counterpart as Australia reels back their reopening.

 Thursday 21st July – Canada Consumer Price Index (CPI)

Canada continues to post double-digit daily Coronavirus cases as they, too, implemented a looser lockdown restriction like Japan and Australia.  We saw a drop in the CPI from March to April as citizens decreased their spending. We saw a slight increase in the Month of May, however, analysts expect to stabilize around 137 for the month of June.

Thursday 23 July, US Initial Jobless Claims

US Initial Jobless claims. Source: Bloomberg

With Initial Jobless Claims posting the smallest decline since March last week, the US jobs market is showing a slight rebound. However, we are all aware of the current situation with the Coronavirus cases in the US. Florida and Los Angeles are posting daily record numbers every week, while President Donald Trump focuses on reopening the economy and the US-China trade deals. I expect this number to slowly creep up as the full effects the second wave of the Coronavirus becomes evident. Analysts predict Jobless Claims to drop to 1.29m from 1.3m previously.

We have seen this mindset in the market, which discounts negative news and rallies on positive news. This is partially due to liquidity propping up many markets. Investors and traders must take this into account when placing trades.

Trade safe!

This week ahead: US and Eurozone GDP

On January 11th, China announced its first death related to the Coronavirus. 120 Days later, the pandemic has wreaked havoc in the lives of all. This week ahead marks many important indicators that, in regular times, would be an indicator of the prosperity of the global economy. We now look to the same indicators and quantify the damage Coronavirus has done to our lives and the global economy. Note: Dates are in NZST. 

Coronavirus Cases across the world - ABC News

China’s Inflation rate – Tuesday, May 12th

The People’s Bank of China has been wary of cutting their lending rates in favor of direct approaches, such as bond issues and direct lending – a stark contrast to how many central banks tackled the issue Coronavirus. However, due to implementing one of the strictest lockdown measures at the epicenter of the virus, consumer demand has been shattered. The PBOC in a statement stated that “ there was no foundation for persistent inflation or deflation in the country” Analysts predict a 3.7% inflation rate, down from 4.3%.

Inflation rates US – Wednesday, May 13th

In contrast, the US government has favored bolstering financial stability of households – providing them with stimulus checks to keep the economy afloat. This is on the back of the Federal Reserve announcing an unlimited quantitative easing program. These measures are textbook ways in which the rate of inflation increases in the long run. However, the consensus has been that it is more important to keep the economy afloat and worry about inflation later. Analysts forecast a 1.7% inflation rate, down from a previous 2.1%.

Interest Rate Decision RBNZ – Wednesday, May 13th

With one of the lowest coronavirus fatalities in the world, New Zealand has been praised for its swift and immediate response to the threat of the Coronavirus. However, this has not shielded them from the economic shortfalls a retraction of demand has caused. With the RBNZ expecting to double their quantitative easing measures, it remains to be seen whether their aim of keeping inflation between 1% and 3% is feasible. Analysts predict the RBNZ to keep interest rates at 0.25%.

UK GDP – Wednesday, May 13th

With having the worst fatality rate concerning the Coronavirus of around 16%, analysts forecast the UK to revise their GDP rate down from 0.1% to -2.9%. This is on the back of their Prime Minister, Boris Johnson contracting the Novel Coronavirus. The UK is set to slowly come out of their 7-week lockdown as their infection rates slowly decline.

Eurozone GDP – Friday, May 11th

With the Eurozone thriving over the free travel between Europe’s borders, lockdowns across the continent have severed this fundamental backbone of the European nations. Alongside devastating Coronavirus figures from the UK and Italy, analysts are forecasting a 3.3% drop in GDP year over year, in contrast to last year’s 1% growth.

US Retail sales – Saturday, May 16th

With lockdown measures across the United States and all across the world, in person, retail sales have suffered gravely. Retail sales fell 8.4% in March, with clothing and accessories suffering the worst plunging 50.5% in March. This is on the back of JCPenney and Neiman Marcus filing for Chapter 11 bankruptcy. Analysts forecast a further 12% drop in retail sales.