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FX Week Ahead: Advance GDP numbers, UK Supreme Court ruling

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The week ahead will see a continuation to the Brexit storyline as reports confirm that the UK’s Supreme Court will be giving its verdict on the High Court decision in November. Elsewhere, Australia and New Zealand will be releasing the quarterly inflation figures while the U.S. and the UK will see the preliminary GDP numbers for the fourth quarter. Here’s a quick preview of what to expect from the markets this week.

UK Supreme Court to rule on High Court Decision

On Tuesday, the UK’s Supreme Court will be announcing its verdict on the High Court’s decision made in November, to which the UK government had appealed. The Supreme Court’s decision is expected to be in favor of the High Court ruling, which in November said that the Brexit referendum must be put to a parliamentary vote.

The news is likely to see the British pound spike higher in the near term however it is turning out to be increasingly likely that the parliament will not be opposing the Brexit verdict, especially after last week, the British Prime Minster Theresa May outlined her vision for Brexit and also promising to put the entire Brexit deal to a parliamentary vote.

UK GDP y/y 2.2%, Q3 2016
UK GDP y/y 2.2%, Q3 2016

Besides the Supreme Court’s hearing, the UK’s advance GDP report will be coming out this week which will be another main event risk for the British pound. Expectations are pointing to a 0.5% increase in the fourth quarter, slightly below the 0.6% quarterly GDP growth seen previously in the third quarter.

Germany Ifo business climate expected to rise

The Ifo business climate in Germany is forecast to rise to 111.3, following the previous reading of 111.0 in December. The Ifo business climate data in December already hit a 34-month high and a reading of 111.3 would continue to show strengthening in the index. Germany’s Ifo business climate increased on account of an uptick in the trade and industry sector which showed the strong reading for 2016. Manufacturing confidence had also improved as companies expected output to strengthen in the coming months.

A beat on the estimates will point to a continued recovery in Germany, which saw inflation rising 1.7%. An uptick in the Ifo indicator is likely to see policy makers from Germany continue to put pressure on the ECB to wind down its QE bond purchase program.

Besides the Ifo data, flash PMI’s from the eurozone will be coming out while on Monday, the ECB president Mario Draghi will be speaking.

Busy week for Sweden

It will be a busy week for Sweden which will see key economic releases this week. Starting off on Thursday, the Producer prices will be coming out with economists expecting to see a 0.5% increase, slightly lower than November’s 1.3% increase on a month over month basis. On an annualized basis, producer prices are forecast to rise 3.8%, slightly higher from November’s 3.6%. Long term inflation expectations have risen close to the 2% target rate over the previous months and the optimism on global growth and inflation is likely to spill over.

Sweden will also be releasing the unemployment rate for December and the data is expected to show an increase in the unemployment rate from 6.2% in November to 6.4% in December.

On Friday, focus shifts to retail sales data which is expected to show a 0.4% increase in December, rising at a slower pace of 0.9% from November, while on a year over year basis, retail sales is expected to rise 3.8%.

Inflation data from Australia and New Zealand

The week ahead will see inflation figures on a quarterly basis coming out of Australia and New Zealand. The fourth quarter inflation numbers from Australia is expected to show a 0.7% increase, rising at nearly the same rate as the third quarter while the trimmed mean CPI is expected to edge slightly higher at a pace of 0.5%, up from the previous quarter’s 0.4% increase. The annual inflation rate in Australia during the fourth quarter is expected to rise 1.5$, up from 1.3% previously.

New Zealand inflation rate y/y 0.4%, Q3, 2016
New Zealand inflation rate y/y 0.4%, Q3, 2016

In New Zealand, the fourth quarter CPI is expected to rise 0.3%, up from 0.2% in the third quarter. This is expected to push the year over year inflation rate to 0.8%

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