Weekly Market Outlook: Brexit heads to the wire

Brexit heads for a cliffhanger. U.S. trade balance figures in focus

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The economic calendar for the week ahead will see Brexit taking the center stage as the March 29th deadline looms. With negotiations still on and the current narrative turning to the extension of the Brexit deadline, the EU has put the ball back into the UK’s court.

PM May is expected to hold another parliamentary vote sometime this week. The EU in the meantime has offered the possibility to extend Brexit until May 22nd. The UK Prime minister initially sought a three month extension until June.

We anticipate continued volatility for the pound sterling as a result.

Elsewhere, economic data this week will see the U.S. releasing the final GDP numbers for the fourth quarter of 2018. The data, which was delayed due to the December partial shut down is expected to show that the economy grew at a much slower pace than initially estimated.

The Reserve Bank of New Zealand will be holding its monetary policy meeting this week. No changes are expected from the central bank as the overnight cash rate is expected to remain unchanged at 1.75%. Later in the week, RBNZ Governor Orr will also be giving a speech.

Following last week’s dovish Fed meeting, a number of FOMC officials will be taking the stage this week. The line-up of Fed speakers this week includes Rosengren, Evans, Quarles, Clarida, George, Bullard and Bowman.

The economic docket from the Eurozone remains somewhat quiet this week. ECB President Mario Draghi is due to speak at an ECB event in Frankfurt, early Wednesday morning.

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

Fed members likely to urge patience in rate hikes

As Fed members take the stage this week, investors do not expect any surprises. The outlook from the Fed members will be one that is cautious. However, there are some hawkish members in the line-up this week such as Esther George.

For the most part, a number of Fed members have remained unanimous to echoing that interest rates will remain steady for the remainder of this year.

Against this backdrop, the final revised GDP figures for the fourth quarter will be an interesting release to watch. Economists polled forecast that the fourth quarter GDP slowed to 2.4% as compared to the initial estimates which showed a 2.6% increase during the period.

The data will not impact the markets much as investors will be looking to the trade balance figures that will be coming out this week. The U.S. trade balance data covers the month of January and could potentially shed light into how the U.S. economy fared during the first month of the year.

Trade balance deteriorated sharply towards the end of December last year. This was partly because of U.S. firms ramping up manufacturing in anticipation of the intended increase in tariffs on China. As a result, imports are likely to show a decline during the month.

RBNZ to maintain the status quo

The Reserve Bank of New Zealand will be holding its monetary policy meeting this Wednesday during the overnight trading session. The official cash rate (OCR) will remain at 1.75%.

The central bank is very likely to reiterate its statement that the OCR would remain unchanged for 2019 and 2020. It will also maintain that the next policy move could be in any direction. Recent economic developments in New Zealand have been broadly in line with the RBNZ’s previous expectations. This gives no room for the RBNZ to change its forward guidance.

Another important factor is the impending change in the structure to move to a monetary policy committee. This will mean that the RBNZ Governor Orr will have to build a consensus on the course of monetary policy going forward.

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