06 Jan 2017

The week ahead: Monday 9 January 2017

Philip Shaw

Chief Economist

Markets have enjoyed a relatively positive start to 2017, with the S&P 500 gaining 1.4% and the FTSE 100 up 0.8% (at the time of writing).

  • That performance is a far cry from the first volatile few trading days of 2016, which saw the S&P 500 fall 4.9%, as Chinese market volatility hit sentiment. Chinese equity markets themselves have seen gains this year, although the major attention will remain on the Yuan amid reports of capital controls and the significant rise in Yuan borrowing costs in Hong Kong which contributed to a sharp rise in the off shore and in turn the onshore Yuan.

  • Domestically there are a number of releases which should provide some insight into the level of economic activity in Q4, with November industrial production and construction output data due. Trade and BRC retail sales figures will also be out, whilst Michael Saunders from the MPC will be speaking on Friday.

  • Across the pond Donald Trump will continue to dominate the headlines ahead of his inauguration on 20 January. The key question for the US outlook will be how much of his fiscal measures will be passable in Congress and implemented. However, amid the political headlines there are still a number of important data releases to provide a steer on the state of the US economy, with next week mainly focusing on the consumer with retail sales and Michigan consumer sentiment both due.

  • China will likely be a major focus next week, with the currency remaining in the spotlight. Indeed the week will kick off with the official reserves data, which in November saw FX reserves fall $69.1bn on the month. Over the course of Q4 2016, the CNY weakened 4% against the USD, hitting its lowest level since 2008. And whilst the last two days have witnessed a sharp appreciation in the Yuan, it remains to be seen whether tightening Yuan liquidity conditions in Hong Kong and reports of capital controls being introduced will be sufficient to halt the slide. Additionally data will also be released in the form of CPI and PPI inflation, as well as credit figures for December.

  • The Euro area macro calendar is relatively light next week, after this week’s news on inflation and the PMIs. Whilst industrial production figures from Germany and the Eurozone will be due, attention may focus on Greece. The Euro Working Group is set to meet on Thursday to discuss the progress of Greece’s delayed second review and short term debt relief measures. Hopes will be that some common ground can be found between Greece and its creditors in order to reach an agreement at the full Eurogroup meeting later this month.

  • Finally note the week will start with Japanese markets on holiday for Coming of Age Day. RD

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The week ahead: Monday 9 January 2017