Global equities and currencies are off to a slow start following a very uneventful Super Bowl. The focus this week will fall on several central bank rate decision, Fed speak, State of the Union address and corporate earnings. The clock is also counting down for Congress to come up with an agreement on border security or we will see another government shutdown. The February 15th deadline is nearing and the President may finally play his hand of invoking emergency powers, a move that would become a legal nightmare.
USD
US dollar strength may continue to be limited as the Fed’s dovish signal will continue outweigh improving economic data. While the labor situation remains robust, it will take marked improvement in sentiment over the next few months to move the needle on rate hike expectations for the Fed.
TRADE TALKS
The next round critical talks between the US and China may occur on February 27-28th in Vietnam. Last week’s two days of trade talks between the China’s Vice Premier Lei He and American negotiators yielded nothing concrete but positive banter.
AUD
Liquidity will be lighter this week as the Chinese Lunar New Year break begins. Tonight, the RBA is expected to keep rates on hold and possibly signal a shift away from its tightening stance to fight off the deterioration in the recent data. We could see the RBA emphasize concerns on soft inflation, falling house prices and weakening business conditions. Current expectations are for the RBA to remain on hold for the rest of the year with the next move most likely being a cut.
GBP
The British pound is off to a slow start ahead of critical week where PM May is expected to return to Brussels to eke out concessions on her Brexit deal. May is expected to bring back a new plan to vote on by February 13th, if she fails Parliament will vote on February 14th on what to do next.
OIL
Oil continues to remain bid as the political crisis in Venezuela remains in place and the number of active oil rigs in the US fell to the lowest level in nine months. Venezuela remains the key story for oil and some analysts expect around 1 million barrels of output to removed due to the US sanctions. While the US has been adamant in saying military force is an option, it should be an unlikely scenario as the opposition leader Guaido would not to have the US involved in helping him secure the Presidency. Guaido also seeks to win over China’s support over from Maduro.
GOLD
Gold remains under pressure following the wrath of solid US economic data on Friday. After hitting a nine-month high, the precious metal was overbought and could see a consolidation back towards the $1,300/oz level.
Alphabet is set to report after the close and the bar is set high for further gains. The search giant is expected to see fourth quarter revenue rise by 21%, shrugging off privacy concerns. The focus will fall on the revenue guidance which is expected from 23% to decrease to 19%.
