Market movers for the week ahead - Rabobank

In view of analysts at Rabobank, US Treasuries are likely to continue to set the tone for the markets this week.

Key Quotes

“Asian stocks ended Monday’s session in the red (the Nikkei fell 2.55%) as the yield on the US 10Y increased to an intraday high of 2.8831%. Looking from the perspective of technical analysis, the resistance area of 3.05%-3.10% is crucial to watch. A break higher would confirm that the multi-decade downside trend is being reversed.”

“In terms of major events, various central banks will hold interest rate meetings in the coming days, including the Bank of England on Thursday. With the main rate set to remain unchanged at 0.50%, the market will be looking for fresh clues about the timing of the next move.”

“In her preview Rabobank’s Jane Foley wrote that the uncertainties linked with Brexit present a unique backdrop that complicates the outlook for monetary policy in the UK. We see a strong chance of one rate hike at the end of this year. However, we are watchful for signs that the Bank could be minded to squeeze in two moves during the course of 2018, potentially to coincide with the May and November Inflation Reports. We expect a mildly hawkish tone from the February 8 policy meeting.”

“In terms of the latest developments regarding Brexit negotiations, it is being widely reported in the UK press this morning that Downing St has ruled the UK out from remaining within the EU’s customs’ unions after Brexit.  The statement will have been aimed at putting a lid on the rifts between ‘remainers’ and ‘Brexiteers’ within PM May’s government that blew open last week.  In some quarters May is being blamed for failing to show strong leadership and doing little to prevent various ministers laying out their own visions for Brexit.  Once again talk of a leadership challenge rose to the fore over the weekend, though in truth the Conservative Party is so deeply divided over the issue of Brexit that a new leader would unlikely resolve the split. The EU’s Chief Brexit negotiator Barnier is due to visit Downing St this week in preparation for talks on the transitional arrangement after the UK leaves the EU next March.  Downing St sources have been reported as claiming that a customs union was entirely different from a customs arrangement which would allow the UK the freedom to strike deals with non-EU countries.”

“Staying in Europe, today ECB President Mario Draghi will deliver his annual report to the European Parliament. Various Eurozone countries will publish PMIs this morning, which should confirm that the pace of expansion in services is robust across the region.”

“Moving to Asia, China will release the latest set of data later this week including trade, consumer and producer prices, foreign exchange and credit.”

“It will be a relatively quiet week in the US. Trade data on Tuesday is probably the most important to watch given that narrowing the deficit is one of the main objectives for President Trump. The consensus is for a USD 52bn shortfall in December up from USD 50.5bn. Fed Bullard, Kaplan, Dudley and Harker are scheduled to speak this week.”