Markets: What is most important in the week ahead? – Nordea Markets

Analysts at Nordea Markets point out that in the US, Jay Powell will testify twice in Congress next week (Tuesday and Wednesday), with focus centred on the reasoning behind the U-turn taken by the Fed in January. 

Key Quotes                                               

“The words “financial conditions” will likely be repeated over and over again, but essentially the underlying driver of those financial conditions and the Fed’s U-turn was the equity market turmoil. Powell will likely try not to directly link the policy U-turn to the equity market, as he then risks promising a put option for markets. Rather Jerome Powell will point to financial conditions and their usual effect on eg the ISM index. We don’t think you should expect Powell to feed the current equity rally.”

“Also, Lighthizer (the US trade representative) testifies this week, in a week that culminates with the debt ceiling deadline on 1 March. We expect the debt ceiling-related liquidity addition to result in a weaker USD.”

“We see risks on the downside for the ISM figure released on Friday as Chinese imports have faded rapidly and financial conditions still speak in favour of lower ISM readings.”

“The Brexit soap opera enters a crucial week as a deal must to be reached next week. Otherwise, the UK will not have time enough to ratify it before the end of March. It is still very difficult to see a breakthrough around the corner, especially given the past tumultous week with three MPs leaving the Conservatives and eight MPs leaving Labour.”

“On Tuesday Theresa May will address the House of Commons giving a Brexit statement.”

“We still think that the market is too complacent about the risk of a no-deal.”

“In the Euro area, the inflation figure will be the most important key figure on Friday (early indications via the German numbers on Thursday). We still expect the Euro-area core inflation rate to trend sideways at 1.1%, that is, no major inflation news on the cards.”