Time for Calm and Hard Data

ADS Securities Chief Strategist Noureldeen Hammoury predicts a calm week of trading ahead.

BY NourEldeen Al Hammoury

Global equity, commodity and foreign exchange, markets have experienced exceptional volatility since the beginning of 2016, driven by two main factors: concerns over growth in China and the drop in oil prices. Both factors have led to uncertainty and very nervous trading, which has wiped billions of dollars from the main markets.

As the markets experienced volatility, the European Central Bank (ECB) stepped in on January 22, to reassure investors, stating that it is ready to support the markets with further easing when needed. The ECB’s step helped recover some losses and stabilize trading, and was seen by investors as a divergent approach to the actions of the U.S. Federal Reserve (Fed).

In the coming week, it is necessary to keep an eye on a number of statements and economic releases that should impact the markets.

U.S. Data
One key economic release would be the Fed’s decision, expected to be made public on January 27.
It will be the first release by the Fed following its decision on December 16, when it approved a rate hike for the first time in almost a decade. It is expected, however, that the Fed Fund Rate will remain unchanged.

Since December’s meeting to date, released U.S. economic data has been mixed, suggesting the Fed will wait for some time and collect more information before taking any further action.

Other U.S. economic data that investors should be watching include the Consumer Confidence Index, which is set to slightly edge up to 96.6 from 96.5. In addition to that, the following economic releases are also expected out: Durable Goods Orders, Jobless Claims and Pending Home Sales data.

The U.S. will also issue the Gross Domestic Product’s (GDP) results for the fourth quarter of 2015 by end of January. The Q4 GDP is expected to grow by 0.8 percent, along with the Chicago Purchasing Managers Index, (PMI).

New Zealand
Meanwhile, the Reserve Bank of New Zealand is set to keep its current policy unchanged during its announcement on January 28, including keeping the Official Cash Rate on hold.

However, a dovish tone is more likely, given the fact that the year-on-year Consumers Price Index, (CPI), eased back to the lowest level since Q3 of 1999 at 0.1 percent, while the quarter-on-quarter CPI posted its biggest quarterly decline since Q4 of 1998.

Investors should also keep an eye on releases from the Far East. The Bank of Japan’s (BoJ) Monetary Policy Statement will be issued on January 29. A statement by one of BoJ members hinting the bank is ready to increase the stimulus package if needed, pushed the Yen down to 116.98 to the dollar last week.

The dollar has since recovered taking the pair back to the 118.80’s. However, a series of encouraging economic releases may lead the bank to keep the current policy unchanged. ADS Securities expects that BoJ will try to keep the pressure on the Japanese Yen by adopting a dovish tone.

Local markets are still depressed following the continued oil prices’ slump, but the 10 percent gains posted by West Texas Intermediate and Brent Crude on January 22, helped bring buyers back to the market. As we move to the end of the month, and with the start of the quarterly reporting season in the U.S., we will be looking for the markets to calm down and react to hard data rather than speculation.


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