Key points From This Week
FOMC Meeting Minutes – Cautious Optimism
The minutes from the first FOMC meeting of the year saw the Fed striking an optimistic tone. Policymakers agreed that the economic trajectory in the US was in good enough health to keep rates on hold and, with a continued moderate expansion forecast, this is likely to remain the case. However, the Fed did note downside risks from COVID-19 which needs to be monitored.
COVID-19 slowing down?
There were reports from China this week noting a slowing down of new cases of the virus there. These headlines helped underpin risk sentiment. However, many are sceptical over the accuracy of Chinese reporting on the issue and the WHO has said that it is still too early to tell if the outbreak is weakening.
ECB Minutes Point To Risks Ahead
The January ECB minutes were fairly similarly to those of the Fed in that the ECB was seen striking an optimistic note over growth in the Eurozone. However, the minutes themselves reveal that members were cautioning against too much optimism within forecasts, warning of risks ahead. With data since the meeting having moved steadily lower, the March meeting looks likely to be more downbeat.
Key Events Next Week
Preliminary US GDP is due next week and the market will be keen to see if there is any pickup from the prior 2.1% reading. US data has been mostly positive over the year so far, supporting the view of a robust reading. Any downside disappointment will likely knock USD lower in the short term.
Eurozone CPI will also be closely watched. The ECB minutes saw the bank warning of downside risks and given the recent history of subdued inflation, any downside surprise here will likely put ECB easing expectations back into focus, taking EUR lower.
CNY Manufacturing PMI
Chinese manufacturing data next week holds the risk of great volatility. Given the outbreak of coronavirus there is the risk of a severely weakened reading. This will be one f the first readings to account for some of the period affected and could be a strong headwind to risk appetite.
Keep An Eye On
The virus continued to spread this week with new deaths reported outside of China in Japan. However, China itself reported that new cases of the virus are slowing down. The market remains in a state of flux with regard to these headlines and traders should stay aware of any breaking news regarding the situation.
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