FOMC statement, Draghi speech and more

25 January,, Lagos – The new year volatility continued last week on the back of more interesting fundamentals from around the world. Interestingly, oil prices rebounded from extreme lows to trade back up around $33 per barrel.

The Euro lost ground after the European Central Bank opted to leave rates unchanged, as expected amid the China led global financial instability. The main refinancing rate was left at 0.05 percent, while the deposit rate at minus 0.3 percent and the marginal rate at 0.3 percent. The ongoing oil crash, alongside a Chinese economic slowdown that’s throwing global markets into turmoil, has raised concerns that record-low rates and the ECB’s 1.5 trillion-euro ($1.6 trillion) quantitative easing program may be insufficient to rebound inflation to the central bank’s target region.

According to the International Monetary Fund, the outlook on the UK is positive, with a projected growth rate of 2.2 % for 2016, same as last year and behind only the US among the G7. Apparently, this is not convincing enough, as the Bank of England Governor Mark Carney clearly stated that the economy remains too weak for him to contemplate a UK rate hike.

The Bank of Canada sent the CAD higher after failing to cut rate as expected. The policy makers opted to keep their benchmark interest rate unchanged at 0.5%. They attributed the decision to stronger U.S. demand, a weaker currency and two rate cuts last year, moves which are seen to be helping the nation out of an oil slump. This sent the Canadian dollar higher, as it bounced off a 13 year low against the USD.

This week, we have some key policy news on the calendar like the FOMC statement, as well as the Reserve bank of New Zealand’s official cash rate and rate statement, alongside many other key economic data releases.

ECB President Draghi Speaks

Last week, the European Central Bank president assured nervous investors that the central bank still boasts of ample tools in its repertoire to combat a global downturn and is ready to act decisively to stave off deflation if necessary. He insisted that Europe’s economic recovery is well on track, despite the recent market frenzy. Mario Draghi is again due to speak today at the Deutsche Borse New Year’s reception, in Frankfurt. The German Ifo Business Climate data is due for release at 9:00 A.M GMT. While the CPI Flash Estimate y/y is due on Friday. The Euro remains week against most of its major counterparts. A rebound is expected if coming data are positive for the bloc currency.

BOE Gov Carney Speaks

The Bank of England governor is due to testify on the Financial Stability Report before the Treasury Select Committee, in London on Tuesday. In his speech last week, the BOE governor clarified that the current economic condition is not encouraging enough for commencement of rate hikes. Therefore putting an indefinite timeline on the commencement of rate hikes. UK’s Prelim GDP q/q is also due on Thursday.

FOMC Statement

The first Federal Reserve rate decision for 2016 is due on Wednesday. Having raised rates from near decade lows in December, the Fed is expected to maintain interest rate at <0.50%. This ensuing statement will however be key as it would reflect the mindset of the Fed amid the recent global market rout. Reactions from the news could also set the trend of the dollar, as it remains mixed against its major pairs. We also have the Core Durable Goods Orders m/m, unemployment Claims, and advance GDP due this week.

New Zealand Official Cash Rate

Last month, the Reserve bank of New Zealand cut its interest rate from 2.75% to 2.5%, marking the fourth interest rate cut in 2015. As the economy softened last year, mainly due to below average economic growth and low inflation. The RBNZ is expected to leave rates unchanged this month.

Other potential market movers for the week include Australia’s CPI data and the Bank of Japan monetary policy outlook.

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