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Sunday 08, January 2017 by Jessica Combes

FXTM Analysis - What to watch in the week ahead?

FXTM Chief Market Strategist Hussein Sayed provides market updates as we roll into the second week of 2017.

Major US indices hitting new all-time highs at the end first trading week of 2017, with the dollar touching a 14-year high and Chinese currency erasing two months of losses. In fact, it was a very decent week especially when compared to first trading week of 2016 when worries about China’s growth slammed markets with S&P 500 posting losses of six per cent with China’s Shanghai Composite falling 10 per cent and oil sinking 11 per cent to mark one of the worst ever first week of trading. 

It is likely there will be interesting market moves in the week ahead as US earning season kicks off, US President-elect Donald Trump holds his first news conference on Wednesday, and many Fed officials are scheduled to speak.

Investors who pushed the Dow Jones Industrial Average nine per cent since Trump was elected are very keen to know more details about his foreign policy and trade plans, tax reforms, and infrastructure spending. Although the positive aspect has been almost fully priced in, his speech might still create some noise in financial markets, especially when it comes to the future of US relations with the China, Mexico and Russia.

Investors are going to shift back to fundamentals the week ahead with the financial sector which contributed the most in the latest rally is due to report fourth quarter results. JP Morgan, Wells Fargo and Bank of America all report earnings on Friday, and requires to outperform expectations to keep the rally alive, but given that the bar is already high with earnings expected to be up 15.7 per cent for the financial sector it is going to be tough to beat expectations with high margins.

The financial sector and the US dollar will also be guided by the busy scheduled speeches from Fed officials, including Chair Janet Yellen and four other voting members of the FOMC. It will be interesting to see their reactions on Friday’s jobs report were wage growth accelerated at fastest pace since 2009, and whether this suggests higher inflation in the foreseeable future.  However, we do not expect broad changes from December’s views, especially which Trump’s fiscal plans remain vague for the time being.

On the US data front, we have to wait until Friday for market moving indicators. December’s retail sales will show whether the surprising wage growth increase translated into more consumer spending. Markets expect a 0.7 per cent increase from 0.1 per cent in November. However, it requires a number above one per cent to provide another push higher for the US dollar, but given the disappointing holiday sales from some US department stores, we’re unlikely to see a very positive report. 



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