Some important US and European data is scheduled for release this week. On Monday, February 22, 2016 market participant will focus attention on business activity index in manufacturing and service sectors of Eurozone. Despite high volatility in the markets, it is expected that the indices will be at the level of January, thus, indicating stability of European economy in February.
According to WSJ forecast and medium-term prospects by economists, economies of Germany and France will show positive performance in February.
On Thursday (12:00 GMT 2) European consumer price index for January will become known. High level of domestic consumption will add stability to European economy amid turbulent global financial markets.
US news this week will include: composite business activity index in the service and manufacturing sectors on Wednesday at 16:45 (GMT 2) as per Markit Economics and business activity index in the service sector. On Thursday at 15:30 (GMT 2) we will know the data on durable goods orders (with the provision of large investments). It is expected that the index will rise by 3% in January versus the decline of 5.1% in December). On Friday, the index of expenses on personal consumption will be released and we also expect the data on price index of internal acquisitions in Q4 and annual GDP data for Q4.
In case of the positive news, the USD will strengthen, which will give a chance that US Fed management consider the increase in the interest rate and it can happen if not in March but at least earlier than second half of the year.
This week the discussion of the referendum on UK membership in EU continues. The referendum is scheduled for July. Concerns about the outcome of the referendum have a negative impact on the price of the Pound.
Despite the efforts of the prime minister, David Cameron to make the country stay the EU and desire of the EU leaders to keep UK’s membership in EU, British people’s attitude to staying in the EU is getting more negative. Note that on Sunday, the mayor of London Boris Johnson, a well-known and influential British politician said that he will vote for the exit of the country from EU.
On Thursday, (11:30 GMT 2) British GDP for Q4 will become known. According to the forecast the index will grow by 0.5% in Q4 and by 1.9% on annual basis and remain unchanged versus the value a month ago.
In the last quarterly inflation report the Bank of England lowered economic growth forecast for 2016 and 2017 (to 2.2% and 2.4% respectively). Earlier, the head of the Bank of England Mark Carney has said that there are no conditions for raising interest rates in the UK. However, the decline in the interest rate is prevented by the growing housing prices.
The news can have effect on the GBP and in case preliminary GDP for Q4 is below the forecast, the pair GBP/USD under long-term pressure.
Despite efforts of the Bank of Japan to stimulate the economy, the pair USD/JPY is under constant pressure amid instability of the global financial markets. Japanese economic growth pace is slowing down. The latest data showed that business activity index in the service sector fell in December (-0.6% versus the decline of 0.9% in November), industrial production fell by 1.7% in December and 1.9% on annual basis, capacity utilization also dropped (-1.0% in December). GDP in Q 4 fell by 1.4% on annual basis.
The data shows that poor state of Japanese economy and consequently, inefficiency of the measures taken by the Bank of Japan. The Bank of Japan can be forced to introduce additional measures to easy monetary policy at the meeting on 24-15 March.
In advance of the B20 Summit in Shanghai, which will be held later this week, the pair USD/JPY is likely to trade in the range of 111.50 – 114.50. Uncertainty of the investors about stability of the financial markets will increase demand for the Yen and prevent the rise in the pair USD/JPY.
Weekly review on 22.02.2016