RBC Capital Markets

Week ahead: This week features the FOMC meeting (seeUSD) and the WEF. In terms of the economic data schedule,fourth quarter GDP reports from the US, South Korea,Germany and France are forthcoming, as are Germany CPI, UK labour market data (see GBP), Australia CPI (see AUD)and Canada November GDP (see CAD). Earnings reportsfrom many of the key tech bellwethers like Apple,Facebook, Tesla and Microsoft are also due.

USD: We see little impetus for any material adjustments toFed policy in the FOMC meeting (Wednesday). Certainly itwill mention that the economy is going through a roughpatch, but that reality should be obvious to most observers.Chairman Powell recently emphasised that the Fed is goingto remain accommodative for quite some time. We expectmuch the same at his post-FOMC press conference. ButPowell’s sticking to his script does not change the fact thathis top lieutenant (Clarida) and other members havealready started talking aloud about scaling backaccommodation at some point. That was not by accident, inour view. We think the Fed is trying to plant that seed nowin order to try to buffer any volatility later, even if that treegrows slowly. The US Q4 GDP report (Thursday) is also ontap.

EUR: Germany advanced January CPI inflation (Thursday), and Germany and France Q4 GDP reports are the key datareleases from the Eurozone this week.

GBP: The latest ONS labour market report (Tuesday) willcover the period through November, or through the end ofthe UK’s second lockdown. We expect the latest estimate toshow the unemployment rate increasing to 5.1%. According tothe more up-to-date ONS’ Business Impact of CoronavirusSurvey, the proportion of furloughed employees rose from 9%at the end of October to 16% by the end of November,dwarfing what the official unemployment estimates areshowing. Clearly the BoE is also looking beyond the officialunemployment rate, as indicated by Governor Bailey's recentcomment that he thought that unemployment was “probablycloser to 6.5%”. The true level of unemployment won’t revealitself until the furlough scheme is wound down.

AUD/NZD: After two extremely volatile pandemic-affectedquarters, we expect a more ‘normal’ Australia Q4 CPI report(Wednesday). The substantial deflationary effect of thetemporary childcare subsidy has passed, and volatility in fuelprices has also subsided. Our 0.8% q/q forecast leaves the y/yreading at 0.8% too. We expect core inflation to remain steadyat 0.35% q/q, or 1.2% y/y, well below what the RBA would liketo see, though we note that its trimmed mean forecast for thequarter is only 1.0%, and hence its focus is more likely on thetrajectory of later reports, as it expects a pickup to 1½% by late2022.

CAD: RBC Economics is forecasting a gain of 0.2% m/m inNovember GDP (Friday), half of the 0.4% increase in theearlier StatsCan nowcast. A sharp pullback on the hospitalityside—not specifically mentioned in the nowcast—is behindour lower estimate. We expect StatsCan’s GDP nowcast forDecember to print at -0.4% m/m, with further declinesexpected in the hard-hit hospitality sector. Our currentforecast for Q4 as a whole is +4.5% annualised, just below theBoC’s revised +4.8% from the January 20th MPR. Growthshould slow markedly in Q1 on increased COVID-19 cases andlockdown restrictions (RBC 0.0%, BoC -2.5% annualised).

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.