Weekly Market Outlook: GDP and inflation to dominate the week

U.S. economy expected to rise at a slower pace in Q4, 2018

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The week ahead will mark the start of a new trading month. The economic calendar will no doubt pick up the pace, with a mix of key economic reports coming out.

GDP figures dominate the week ahead with countries such as the United States,  flash GDP estimates from the eurozone and monthly GDP numbers from Canada keeping investors busy.

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Inflation themes also stand out this week, with Australia due to report on its fourth-quarter inflation data.

With inflation staying weak in most economies due to the lower oil prices, we can expect the Australian fourth-quarter inflation report to signal a slowdown in the pace of consumer prices.

New Zealand will be reporting its trade balance figures which come out ahead of the fourth-quarter GDP release in a week’s time.

The eurozone will be releasing its flash inflation estimates for January.

The week concludes with the U.S. nonfarm payrolls for January. The data comes amid the U.S. partial shutdown which started on December 22 and is currently still an ongoing issue.

Here’s a quick recap of what’s to come in the currency markets this week.

Busy Week for the USD

The U.S. dollar will see a busy week ahead with a major line of economic events.

The economic calendar will kick off with the release of the advance GDP report for the fourth quarter of 2018.

Estimates show that the U.S. economy might have slowed even further from the third quarter. After hitting a peak in the second quarter, the U.S. GDP growth has eased since Q3 of the year. The U.S. GDP grew 4.1% in the second quarter and then slowed to 3.5% in the third quarter.

The Atlanta Fed’s GDP Now tracker currently assigns a 2.8% GDP growth rate for the fourth quarter. Meanwhile, the NY Fed’s Nowcast GDP tracker assigns a growth rate of 2.6% for the fourth quarter.

Both GDP trackers have lowered the growth rates primarily due to the trade headwinds and the U.S. partial shutdown of the government.

As a result, there is a good chance that the U.S. economic growth lost momentum in the final three months of last year. Following the release of the GDP report, the durable goods orders and retail sales data will be coming out.

The day culminates with the FOMC statement. No changes are expected to interest rates at this week’s meeting.

Later, on Friday the January payrolls report will be due. The unemployment rate is expected to fall back to 3.8% after rising to 3.9% in December. The Institute of Supply management will also be releasing its monthly manufacturing PMI report this week.

Eurozone Flash Inflation and GDP

Data from the eurozone this week will focus on the flash inflation estimates for the month of January. Recent data showed that consumer prices in December slowed to a pace of 1.6% which was worse than the initial projections that showed a decline to 1.7%.

With oil prices posting a modest recovery, there is a possibility that inflation could potentially remain stable, given that most of the declines in headline inflation came on account of lower energy prices.

The fourth quarter flash GDP estimates will be another report of interest. The eurozone did not get off to a good start in 2018 following solid GDP growth in 2017.

Economic growth was dragged down by Germany whose automobile sector was the worst hit. While officials initially brushed aside the data, the slowdown has been persistent.

This prompted ECB officials to issue a caution, as speculation of relaunching some stimulus tools such as the LTRO, is starting to gain traction. In the third quarter, the eurozone economy grew at a pace of only 0.2%.

The eurozone’s GDP has been steadily declining since the start of 2018.

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