The economic calendar looks a tad quieter next week, but there are a few macro indicators to look forward to, says Fawad Razaqzada, Market Analyst, Forex.com.

European markets recovered after a weak start and Wall Street rallied sharply after index futures made good their overnight losses. Sentiment turned positive apparently on renewed hopes over a US-China trade deal, as the third round of talks between the two parties since President Trump and Xi agreed on a truce in December 2018, concluded. Asian markets had fallen sharply overnight amid concerns over global growth and reports that the Unites States and China were still some way apart on trade negotiations.

However, U.S. Secretary of Treasury Steven Mnuchin tweeted a picture of officials, suggesting there was "productive meetings with China's Vice Premier Liu He," something which President Trump confirmed in remarks he made at the White House. The details of the behind-door meetings have not been released. But as the saying goes, pictures speak louder than words: the snaps of the US and Chinese officials that circulated online appeared to be friendly vibes this time. The two sides will continue talks next week in Washington.

The U.S. government had warned that tariffs on $200 billion worth of Chinese goods could be increased from the current 10% to 25% on March 2, if the sides could not find an agreement by then. But Trump has since indicated that the deadline could be extended if the talks are progressing well, as apparently, they are now.

It is not all about trade talks

Of course, nothing has been agreed on and, in any case, it is not all about the US-China trade talks. While there apparently will not be another U.S. government shutdown, however, the alternative could be worse. President Trump has declare a national emergency in order to bypass Congress and secure funds needed to build that US-Mexico border wall. This is likely to push Democrats to take legal action against Trump.

But perhaps the bigger issue is concerns over the health of the global economy. We have seen very poor economic data this week from around the world, although there was some positive lending data out of China overnight showing bank loans hit an all-time high in January. This is a clear sign that the various government stimulus measures since the summer are resulting in increased credit flow to the real economy. Might this be too little, too late? If the health of the global economy deteriorates further, then external demand for Chinese goods may be hit, resulting in further slowdown of growth in the world’s second largest economy. That, in turn, could have a trickle-down affect elsewhere.

Look ahead

The economic calendar looks a tad quieter next week in comparison to this week. There are a few macro indicators to look forward to from Australia and Eurozone, as well as plenty of central bank speeches.

Monday Feb. 18

The first day of the week looks set to be rather quiet session, with US investors out in observance of Presidents' Day. There is no other major scheduled news event expected elsewhere, with Japan’s Core Machinery Orders being the sole exception.

Tuesday Feb. 19

  • RBA monetary policy meeting minutes
  •  U.K. average earnings index and employment data
  • German ZEW Economic Sentiment
  • US Home Builders Index

We have already heard from Reserve Bank of Australia Governor Phillip Lowe that the probability of a rate cut has increased and that the next move could either be up or down for rates. So, we don’t expect to see any major surprises in the minutes of the RBA’s last meeting.

UK macro data has been mixed over the past few months and the focus will be on wages figures on Tuesday after the latest decline in inflation boosted real earnings. However, as far as the pound is concerned, the UK data will probably not have too much of an impact as the focus remains firmly fixated on Brexit.

Although Germany narrowly avoided falling into a technical recession, the latest Purchasing Managers Index and other leading economic indicators haven’t been great. The ZEW survey will reveal how the 300 or so surveyed German investors and analysts – who are likely to be more informed about the Eurozone’s largest economy – feel about the 6-month economic outlook.

Wednesday Feb. 20

  • House Starts
  • Building Permits
  • FOMC Minutes
  • Australia Wage Price Index and FOMC meeting minutes

Australia’s Wage Price Index measures the quarterly change in the price businesses and the government pay for labor, excluding bonuses. It is a leading indicator of economic health and consumer inflation. The last two quarters saw consecutive readings of 0.6% respectively. Did wages accelerate or decelerate in Q4? We think the latter might be the case, owing to the recent weakness in Aussie (and Chinese) data.

The FOMC meeting minutes could potentially move the dollar. However, with the Fed Chair Jay Powell, already indicating that U.S. interest rates are likely to remain unchanged for a while, and that the next move is dependent on incoming data, this means that the dovishness may already be priced in. However, if the minutes reveal the FOMC was significantly more dovish than what Powell has portrayed, then we could see a more pronounced drop in the dollar.

Thursday Feb. 21

  • Durable Goods
  • Philly Fed
  • Markit Manufacturing & Services  PMI
  • Existing Home Sales
  • Leading Economic Indicators
  •  Australian employment; Eurozone PMIs; ECB meeting minutes and US data dump

Australian employment has beaten expectations over the past three months, but did the trend continue in January?

Meanwhile, Thursday will also see the release of some second-tier Us data. U.S. data has started to deteriorate again. Last week saw the ISM services PMI disappoint expectations, while earlier this week the CPI inflation numbers were not too hot either. In mid-week retail sales came in well below expectations with a headline and core prints of -1.2% and -1.8%, respectively. Headline PPI also missed, as too did the weekly jobless claims data. On Friday we found out that industrial output unexpectedly fell by 0.6%, the first drop in eight months. Import prices, capacity utilization rate and Michigan inflation expectations all showed weaker prints, too. But there were a couple of better numbers here and there, including Michigan’s consumer sentiment and Empire State Manufacturing Index.

Friday Feb. 22

The last day of the week will be dominated by handful of Eurozone data first thing in the day, followed by Canadian retail sales and speeches from several central bank officials.

Among the Eurozone data, will be the final German GDP estimate. Will we see a revision to the flat performance in Q4 as was reported earlier this week? If the data shows a negative revision, then this would tip the German economy into a technical recession. We will also have the closely-followed German Ifo Business Climate index, and the final Eurozone CPI estimate – the latter is unlikely to cause too much volatility, unless there is a surprise revision.

Canadian retail sales will be watched closely after a very disappointing manufacturing sales number this week caused the Loonie to drop. Retail sales have been very disappointing over the past four reporting months, with the latest figure for November showing a 0.9% drop. The December retail sales data is expected to show a flat performance while another drop of 0.5% is expected for core sales.
The week will end with speeches from various central bank officials including ECB’s Draghi as well as Fed’s Williams, Clarida, Bullard and Quarles, all on Friday. A day earlier, BOC’s Poloz and RBA’s Lowe will have delivered their speeches on Thursday.