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During the upcoming trading week, the ongoing breakout in the US dollar index and the planned $1.9 trillion stimulus package from the Biden administration are set to take centre stage. The US dollar is gaining momentum in the foreign exchange market and is set to be a be theme for financial markets this month.
US stimulus is also coming back in the markets focus after the proposed $1.9 trillion stimulus package gained support in the House of Representatives this week. Market optimism is likely to remain at elevated levels due to the prospect of massive stimulus hitting the US economy.
In terms of the economic docket next week the release of US CPI inflation is set to be the main event, as market participants look for signs of inflation in the United States economy. UK quarterly and monthly Gross Domestic Product, US earnings season, and US sentiment data are other notable events on the economic calendar next week.
US CPI Inflation
Inflation in the American economy is a hot potato for financial markets at the moment. The Federal Reserve talked down the inflationary prospects for the US economy during the January policy meeting, however, the real economy is showing signs of ongoing price pressures.
This week’s Consumer Price Index could be a big market mover if the headline CPI number comes in hot. A better-than-expected CPI number also has the ability to accelerate the ongoing breakout in the greenback and create a perfect storm in the foreign exchange market and bond market.
Monthly CPI inflation is expected to come in around +0.3 percent, meaning a slight down tick from the previous month, while Core CPI year-on-year is tipped to increase in-line with previous months, at around +1.6 percent. I would suggest that risks are skewed to the upside, especially if we consider the ongoing rise food and energy price.
UK Q4 GDP
The growth prospects for UK economy look pretty bleak during the fourth fiscal quarter considering that the UK remained entrenched within a third COVID-19 lockdown, and various nationwide tiered lockdowns during Q4.
Expectations are for a +15.8% increase during Q4, and a -9.4% year-on-year contraction. The market is likely to pay attention to the latter figure and remain in a sombre mood. Financial markets are forward looking, so these numbers may be brushed aside.
Monthly GDP figures from the UK economy are also being released next week. This is likely to capture more of the markets attention, especially if the monthly figures come in weak. Recent PMI services figures painted a bleak picture of the UK economy, and this may show-up in the monthly GDP number.
US Weekly Jobs
The January jobs report from the US economy came in at +49,000, which means that most economists got it right as they were predicting the US economy created +50,000 jobs last month.
This makes it more likely that this week’s existing and continuing jobless claims will capture more of the markets attention. This week we once again saw better-than-expected weekly jobs figures, Markets will now be looking for a potential trend shift as momentum is shifting lower.
Traders should look for the reaction in the greenback and stocks if weekly US jobs numbers drift down once again next week, as it may help perpetuate the notion that the employment situation in the US economy is getting better.
US Earnings Season
In the midst of US earnings seasons investors will get another snapshot of how tech, leisure, and retail are doing next week as Cisco, Coca Cola, MGM Resorts, UBER, and Walt Disney release earnings reports.
The recent hype around Wall Street versus Main Street has taken a lot of focus away from earnings seasons over recent weeks. Markets may get a healthy dose of reality when they see the results of Walt Disney and MGM Resorts from the previous quarter.
Investors will also be closely looking at Coca Cola’s results, as the beverage company is often seen as a key bellwether of US consumption.
