Weekly wrap: Busy week for macro news: eurogroup & BoJ meetings, Obama’s State of the Union address

This week global markets endured a choppy ride as the winds of political uncertainty in Italy and Spain, and the recent strength of the euro took much of the gusto out of the markets. While stocks tried to steady themselves mid-week, the European Central Bank (ECB) president’s dovish comments on Thursday helped the euro to plunge to a two-week low and the risk-off mood set back in. Although stocks rallied on Friday on solid trade data from China and the US, reinforcing optimism for global growth, which sent oil prices to a nine-month high, most stock markets ended the week recording losses.
 

In the US, December’s trade deficit, the narrowest since 2010, helped the S&P 500 rally on Friday. Fourth quarter gross domestic product (GDP) growth is now expected to be revised up into positive territory from 0.1% annualised estimated earlier. In Europe a historic deal was struck on the European Union budget that cuts spending for the first time. The seven-year 2014-2020 budget was agreed at €960bn, radically short of the proposed €1,033bn, but still requires the approval of the European Parliament. While government bond yields rose in Italy and Spain on political uncertainty (prices fell), those of the Irish government’s fell (prices rose) to levels not seen since the financial crisis in 2007 as the country, in effect, received the go-ahead to restructure €28bn of debt used to bailout the banking sector.
 

Over in Asia, the surprise news that the Bank of Japan’s governor and his two deputies will step down from office three weeks before the end of their five-year term, helped the Nikkei 225 climb to its highest level since October 2008 as the news was perceived as positive for potential aggressive monetary easing.

European finance ministers (eurogroup) are to be joined by International Monetary Fund (IMF) president Christine Lagarde on Monday ahead of the two-day G20 ministerial meetings that begin in Moscow on Friday. Subjects for discussion will likely include the euro, a possible bailout for Cyprus, Latvian euro adoption, Greece, and direct bank recapitalisations. On Tuesday, President Barack Obama gives his annual State of the Union address to Congress, which could shed some light on the progress of the talks regarding the automatic spending cuts due in March. The Bank of Japan (BoJ) begins its two-day meeting on Wednesday — no change to policy is expected until a new governor is appointed. Elsewhere, in Asia it will be a quiet week with China closed all week for New Year celebrations, while the Singapore and Hong Kong markets reopen on Wednesday and Thursday, respectively.
 

For data watchers important releases in the US include Wednesday’s January retail sales — expected to rise by a modest 0.1% month-on-month (m-o-m). On Friday January industrial production is expected to be slower than December, rising 0.2% m-o-m, while the preliminary University of Michigan Consumer Sentiment Index for February may show a pick up from 73.8 a month earlier.
 

Over in Europe, Tuesday sees the release of various inflation figures in the UK; the consumer price index (CPI) inflation rate is expected to have remained at 2.7% year-on-year (y-o-y) in January. The Bank of England’s inflation report for February will be released on Wednesday. Thursday sees a raft of euro area fourth quarter gross domestic product (GDP) releases; growth is likely to have contracted 0.6% and 0.2% y-o-y for the euro area, and France, respectively with Germany expected to record a rise of 0.2%.