Weekly Outlook: Jan 11 - 15

The first week of 2016 ended with more volatility than usual on Chinese stock market turmoil. After Monday’s strong stock sell-off, Shanghai Composite Index dropped 6.9%, the People’s Bank of China intervened by injecting 130 billion yuan ($19.9 billion) in short-term funds to boost the country’s financial system. However, the stock market suspended for the second time in the week on Thursday, 30 minutes after its opening time, as the Chinese main index tumbled over 7%.

This hit the U.S. indices that plunged more than 6% during the week, a fall we have to see since August when fears of China’s economic slowdown expanded. The strong U.S. employment report came out on Friday, failed to have a sustainable effect in the market. The USD crosses benefited but only temporarily. The U.S. economy created 292,000 jobs in December by far above market expectations of 200,000. The unemployment rate managed to hold at the record low of 5% while the average hourly earnings rose by 2.5% year-over-year, helping the U.S. equities and the dollar to ease most of their losses. The EUR/USD had low volatility and managed to close the week with gains of 0.80%. The GBP/USD tumbled by 1.26%, USD/JPY plunged by 1.81% while the AUD/USD dived by 3.10%. The NZD/USD has similar performance to the Australian dollar, fell by 3.32%.

The FOMC minutes of the historical meeting on December 15-16 where it set the end of the seven-year era of near-zero borrowing costs reveals the committee’s concerns about low inflation. The inflation rate was hovering around zero throughout 2016 and managed to not give negative figures in the second half of the year. However, it is below the central bank’s 2% target.

[B]THE WEEK AHEAD: 11 Jan – 15 Jan[/B]
The week ahead seems to be quiet in terms of the scheduled economic data. The monetary committee of the Bank of England will vote for their monetary policy on Thursday – no changes are expected – while the U.S. retail sales on Friday will attract some attention among the traders.

Limited scheduled fundamental news on [B]Monday[/B]. During the morning, the Sentix investor confidence for January will be released. On the second half of the trading session, the U.S. labour market conditions index for December is scheduled to be out. The Bank of Canada will publish its Business Outlook Survey.

On [B]Tuesday[/B], the UK manufacturing and industrial production for November will have an impact on the GBP cross pairs, as well as the NIESR GDP estimate for the three months to November that will be published later in the day. The industrial and the manufacturing sectors started to pick up in August, after weakness the sectors faced the first half of 2015 that increased in August. On a yearly basis, the industrial production is expected to grow on the same pace as before, at 1.7% in November while the manufacturing production is predicted to reveal a bigger contraction than before, of 0.8% from 0.1% in October.

Later in the day, the BoE Governor Mark Carney will speak in Paris at a Farewell Symposium, but he is not expected to comment on economic issues. Going to U.S., the JOLTS Job Opening in November are expected to increase slightly. The domestic economic optimism for January will be also out. During the night, China will release its detailed trade balance data.

On [B]Wednesday[/B], the European Central Bank will have a non-monetary policy meeting which is unlikely to stoke much interest among the investors. November’s industrial production for Eurozone is expected to deliver softer figured than the previous month. The month-over-month indicator to show a contraction of 0.3% versus expansion of 0.5% before and the year-over-year to grow by just 1.3% versus 1.9% before.

A while later, the U.S. government will release the monthly budget statement for December and the Fed’s Beige book. Later in the day, the Japanese Machinery orders are expected to show a weakness in November. Overnight, the Australia employment report for November will be released. The unemployment rate is expected to rise slightly to 5.9% from 5.8% before while the forecasts suggest the employment change to be -12.5k from 71.4k the month before.

On [B]Thursday [/B]morning, Germany will release its real GDP growth. A Eurogroup meeting is scheduled to start. During the European noon, the Bank of England will have its monetary policy meeting and will release its monetary policy summary alongside with the BoE interest rate decision and the asset purchase facility. No changes are expected to the monetary policy and the voting pattern.

A while later, the European Central Bank will publish its meeting accounts. In U.S., the weekly jobless claims will be out as usual.

On [B]Friday[/B], the EcoFin meeting will take place. After Eurozone’s trade balance release, the traders will turn their attention to U.S. retail sales for December. The retail sales are predicted to slow down its growth slightly, to 0.1% from 0.2% before, month-over-month.

The Capacity Utilization, the Industrial production and the business inventories will be released as well. The preliminary Michigan consumer sentiment for January will be out.