By Phil Lynch
Today we kick off our week ahead on a Tuesday, following the Auckland Anniversary weekend. We return to a sea of red emerging on our daily rates table, with the kiwi down across the board.
Global financial markets are in retreat to the safety of the U.S. dollar, Japanese Yen and gold as the coronavirus spreads rapidly. There have been indications that symptoms of the virus take up to two weeks to appear, and that it is contagious well before these symptoms appear. This morning has also seen reports of a potential case of the virus in Queenstown.
Commodity linked currencies like the New Zealand and Australian dollars always perform poorly in times of uncertainty with both currencies losing 1.0% against the greenback. Equity markets are also in retreat, with the Dow Jones shedding 1.2% pulling back to 2020 lows. It is likely this uncertainty will continue for several weeks yet.
The Week Ahead – Scheduled Events
This week brings a range of tier one economic and central bank announcements that will fuel the already volatile conditions in markets.
Close to Home
The main event is Australian inflation numbers due out on Wednesday afternoon, with markets expecting inflation to come in at 1.7%. This would be below the RBA’s preferred range of 2-3%. Inflation in Australia has been behind their target for 18-months, and this week’s release will be watched closely by the RBA who are meeting in just 7 days to determine their Cash Rate. Markets have shifted expectations over the past two weeks and are now pricing in a 50% chance of rate cut to 0.50%.
Speaking of Rate Decisions
This week also brings rate decisions from the U.S. Federal Reserve and the Bank of England. The Fed is widely expected to keep rates on hold, though markets are now expecting a cut could be on the cards by September.
The Bank of England is in a tricky spot with Brexit and markets are pricing in a 60% chance of a rate cut to 0.50%.
On Thursday evening, the Eurozone Unemployment Rate is published, and is expected to stay high at 7.5%. Late on Friday, Eurozone GDP and Inflation numbers are expected to both come through at 1.4% – meaning any growth in the economy is offset by higher prices. ECB board member Yves Mersch has said yesterday that the European Central Bank’s ultra-easy monetary policy may be fuelling asset bubbles, which may in turn trigger future crises. It is fair to say that the Eurozone is not in a comfortable position.
Other Releases and Events to Watch
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