In the markets: What to watch this week

The week ahead is off to a rather slow start as no major news from the economic calendar stands out. But as the week progresses, local investors zoom in on inflation while global markets focus on the European Central Bank’s (ECB’s) interest rate decision.

The US market remains closed for a long weekend today in observance of Martin Luther King Day. With the closure of US banks, liquidity dries up and speculative capital flows become more dominant in the markets that remain open. This can lead to unusually high or low volatility. 

From the local side we get an update on the production of mining, moved in a positive direction in August and September, 0.3% and 4.7% respectively, but slipped into negative growth for all the remaining months of 2016. A pick-up in mining production result in a jump in miners’ share prices as many of them have been traded cheaply.

With the South African Reserve Bank’s (SARB’s) interest rate decision coming up next week, local investors will look to the inflation data to be released on Wednesday for a better understanding of whether the outlook for lower inflation remains intact. 

The consensus outlook for interest rates is that they will increase as the Fed hiked its rates in December by 0.25% to 0.75%, continuing with its interest rate hike cycle which began in December 2015.

Sticking to the central banks theme, the ECB announces its monetary policy stance for the first time in 2017, with pressure building from Germany’s finance minister Wolfgang Schäuble to unwind its ultra-loose monetary policy this year.

The final bit of data being released on Friday at 1PM is the figure for consumer confidence, which declined during 2016. However, forecasts indicate that it may have bottomed out. 

Other important economic announcements due this week:

Tuesday

• Great Britain CPI
• Germany ZEW Economic Sentiment

Wednesday

• Great Britain Unemployment
• US CPI

Thursday

• US Building Permits and Unemployment Claims

Friday

• China Industrial Production
• Great Britain Retail Sales

Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.