US government shutdown and Brexit developments in focus

The week ahead is set to be dominated by the potential for political upheaval on both sides of the Atlantic. Thursday sees the next round of Brexit activity with the potential threat of ministerial resignations as MPs may attempt to avert a no-deal scenario. Meanwhile, Friday could bring about another government shutdown in the US. By all accounts, it’s the big geopolitical factors that will hold more sway than macroeconomics in the near-term.

Monday

The latest UK Gross Domestic Product (GDP) stat has kick-started the week’s major macroeconomic events, with the preliminary Q4 print coming in at only 0.2%. This is significantly lower than the 0.6% posted in the previous quarter, but still in positive territory. A technical recession occurs when there are two consecutive quarters of contraction. On an annualised basis, the ecostat achieved growth of 1.3%. The month of December alone contracted by -0.4%, adding fuel to fears that the UK economy is suffering on account of Brexit uncertainty and geopolitical tensions.

UK Trade Balance data for December has also been published, printing at -£3.229B in December, after the previous month’s -£3.615B.

Tuesday

High profile macroeconomic data is thin on the ground today, but one exception is the US JOLTs Job Openings for December. Having peaked in August at 7.29 million, this ecostat has been squeezed a little in recent months and is expected to come in below the 7 million figure again. A minor deviation is unlikely to cause any price action for the Dollar, but a sharp overshoot could fuel inflation fears.

The Federal Reserve Bank of Cleveland President speaks on the economic outlook and monetary policy in Cincinnati.

Wednesday

The UK Consumer Price Index (CPI) for January will be published today and is forecast to show a modest decline. The Bank of England (BoE) has a 2.0% inflation target, and expectations suggest this will be delivered, down from 3.0% a year ago. Given the uncertainty over Brexit, this figure is unlikely to carry its usual weighting, and it could be difficult to see how it might impact monetary policy in the short-term. However, wages are rising, so any undershoot could be an indication that consumers are holding back from some spending decisions.

Eurozone Industrial Production data will be released today and after last month’s upset which saw the year-on-year number print at -3.3%—dropping into negative territory for the first time in almost two years—hopes are that a modest improvement can be seen. The reading is still expected to be negative, with forecasts of around -2.9%, in line with other lacklustre data releases which have been seen from the Eurozone of late. The uptick is likely to be important, and failure to see this come to light could give cause for fresh Euro selling.

The US Consumer Price Index for January is also expected, and after last month’s print of 1.9%, forecasts are that the reading will hold steady at best. The lengthy US government shutdown could add some downside pressure, but the peaks of inflation over the last two years are again showing themselves to be the result of unsustainable tax breaks. The Federal Reserve has already sent a dovish signal to the market over the interest rate outlook, but if inflation does fall further and it can’t be explained away by the government shutdown, then further stimulus may be required.

Thursday

Eurozone Q4 employment statistics are scheduled for publication. Some modest expansion is forecast, with the labour market expected to have grown around 1.5% on a year-on-year basis. This could have the potential to provide some meaningful support for the Euro which is otherwise struggling at present. Today’s revised GDP print may not show any further deterioration, but it will act as a stark reminder as to how close the currency bloc sits to a recession.

Assuming Theresa May hasn’t been offered compromises from Brussels, the UK Parliament will today debate Brexit. This could include renewed moves to push back the March 29th deadline. The debate has also been signalled as one which could see ministerial resignations and pro-remain MPs from both sides of the house join together to force the softest possible Brexit.

Friday

UK Retail Sales for January are forecast to show a reversal of last month’s decline, helped by rising fuel and food spending. The annualised figure is expected to climb towards 3.4% from 3.0% in December, although this reading could also reflect Brexit uncertainty. A shortfall may be sufficient to spook the Pound in the short-term.

The US Michigan Sentiment reading for February has the potential to show a slightly more upbeat outlook, especially among any data subjects impacted by the government shutdown. Expectations are for a reading of 94.5, up from the 91.2 seen a month ago, but still well below the figures printed over the previous two years. It’s worth adding that the funding reprieve is still only temporary, so federal departments could close again from today, and government employees are already reportedly getting nervous over what might happen if new funding can’t be agreed. Again, developments here could overshadow the reading.