2020 has already got off to a noteworthy start following the death Iran's most powerful military commander, General Qasem Soleimani, during a US sanctioned air strike. The market will monitor this situation to see if it increases geopolitical tensions enough to see currencies move.
As we have entered a new decade, we thought it would be important to take stock of where we left off in 2019:
Sterling gave up some of its General Election gains as no-deal Brexit uncertainty re-emerged following comments from cabinet members. Following the General Election, the House of Commons voted to leave the EU on PM Johnson’s deal at the end of January. This still needs to ratified by the House of Lords, but it appears to be a given that it will pass. The UK will enter a period, known as the transition until 31 December 2020. The tone of the discussions between the EU and UK in Q1 could be important for Sterling sentiment, especially if the potential for “no deal” remains on the cards. Understandably, traders continue to be unwilling to take the Pound higher without further clarity surrounding Brexit and the prospect of a UK/EU trade deal.
This morning, December’s Markit Services PMI figure was released at 50 vs a consensus of 49.2 (any reading above 50 signals expansion), offering support to the GBP.
In Europe, it was announced that former Managing Director of the International Monetary fund would take over as European Central Bank (ECB) President; her first central bank meeting was in December. At that meeting, Lagarde promised not to be a hawk, nor a dove in terms of interest rates but instead an owl, “associated with a little bit of wisdom”.
In the US much of the focus was on the House of Representatives impeachment of President Trump. However, given the Republicans control the Senate, it is unlikely Trump will be removed from office. In the meantime, the Federal Open Market Committee (FOMC) signposted in September that they would be pausing their interest rate cutting cycle, so it was no surprise that this was the result in October and December meetings.
US Congress will return from its Christmas break to resume ongoing talks on how President Trump’s impeachment trial will proceed. In addition, parliament reconvenes on Tuesday with the final passage of the EU Withdrawal Act first on the agenda. However, given the recent geopolitical developments, the focus will be whether tension continue to heighten and whether another Gulf War become a realistic prospect. In terms of economic data, the US labour data on Friday takes centre stage.
- Eurozone consumer price index
- US ISM non-manufacturing
Eurozone inflation has been trending well below the targeted rate of 2%. Tuesday we have the “Flash” reading (2 versions of report – two weeks apart). The market will be keen to see if there has been any improvement to the picture.
- US ADP employment report
The ADP report will provide the market with an early indication of how the all-important labour data could post on Friday. The market pays attention to the reading but doesn’t often move on the back of the figure due to the inconsistency seen compared to the government numbers.
- ECB monetary policy meeting accounts
- FOMC Member Clarida speaks
Following new ECB President Lagarde’s inaugural meeting in December, the minutes (accounts) will be deciphered for further clues on how she will govern the ECB. In the meantime, FOMC Member Clarida is speaking in New York. Fed members are being monitored for clues on future monetary policy action as the FOMC remains split on its interest rate outlook.
- US non-farm payrolls
- US average earnings
- US unemployment rate
The market always focus on the monthly labour data; typically release on the first Friday of the month (pending bank holidays). The labour data is broken down into 3 parts, job creation, earnings inflation and the headline rate. The FOMC use it as a key barometer of the economy and can impact their view on monetary policy.