Global markets will look to balance events on the horizon against familiar reigns of uncertainty in what is a compelling week that dictates price action for the rest of the year.
Central banks on hold
The FOMC meet for the final time in 2019 but are widely expected to remain on hold after last Friday’s outstanding US payrolls report. The strong employment print highlighted the resilience of US growth versus the rest of the world and underpinned market views that USD support and outperformance is here to stay for a little while longer.
The ECB also come together, however, are still in transition phase and won’t be expected to make any drastic changes or have an immediate impact on EURUSD. In what is Lagarde’s first meeting as ECB President, trying to rebuild consensus among split members as well as figure out the optimal policy mix going forward will be her main priority.
Furthermore, the UK election gets underway on Thursday with exit polls and marginal polling changes likely to have an increasing effect on volatility in GBPUSD in the lead-up. A landslide victory should see a winner announced as early as the next morning at 3am GMT.
US-China tariff deadline looms
Fast approaching, traders will be mindful that Sunday Dec. 15 serves as the deadline for the next jump up in US-China tariffs. A failure to delay tariffs here, a very real possibility, would represent a material negative impact for equity markets and could significantly pare back any Santa rally optimism.
The fact that US payrolls and S&P 500 performance has also well exceeded expectations might have cooled the pressure in Trump’s mind to push through any Phase-1 deal that doesn’t tilt in the US’ favour.
A bellwether for US-China trade relations, careful attention should be placed on USDCNH trading slightly above 7.03 levels. Volatility is elevated in the offshore Yuan, and so, markets continue to apply a trade-risk premium until a resolution emerges.
Don’t forget about tier-1 data
On the data front, there are a number of releases that have the potential to provide further evidence that global growth may be bottoming still. China credit or new loans data is set to be released sometime through the week and will be closely monitored.
US Retail Sales data comes out on Friday 1.30pm GMT and will be another opportunity for the US to flex the resilience of the US consumer. Forecast at 0.4% m/m, there’s upside to the release given last Friday’s underlying job growth and a record-breaking Cyber Monday sales total of US$9.4bn.
German ZEW Economic Sentiment sees light of day on Tuesday 10am GMT, forecast to print 1.1. While still benign, it would mark a clear turning point for Germany as a positive sentiment print hasn’t been seen since April 2019.