Key Events for Financial Markets in the Week Ahead
The week ahead starts slowly with no important economic events on Monday. Despite the President of the European Central Bank (ECB), Christine Lagarde, holding two speeches today, the focus this week will be on Wednesday’s Federal Open Market Committee (FOMC) Statement and the press conference that follows shortly after.
The ECB last Thursday delivered an ambiguous message to financial markets. Its statement, while emphasizing the loosen financial conditions in the Euro area, ended up being perceived by the markets as slightly hawkish. As such, the Euro pairs ended the week with a bullish tone, something that persists at the opening of today’s London session.
German VAT and Vaccines Rollout
Europe faces a difficult week. The coronavirus pandemic ravages major countries in Europe, and it threatens to do so still. The pharmaceutical companies announced delays in the delivery of vaccines, and so Europe is well behind others in terms of vaccine rollout.
Pressure mounted over Brussels to make public the contracts with the pharmaceutical companies as it is unacceptable that the United Kingdom already inoculated 10% of its population, the United States 6%, while the EU only 2%. Any developments in this area are enough to create market volatility, especially on the Euro pairs.
On Thursday, the German inflation is key for ECB watchers. The central bank argued multiple times in the past that one reason for the low inflation in the Euro area is the cut in the German VAT. On Thursday, we are about to find out exactly by how much, and that may move the Euro pairs.
FOMC To Bring No Changes
The Fed is not expected to deliver anything new on Wednesday. The focus will therefore be on any hint of possible tapering in the future because it may happen without the Fed’s implicit action. For example, the market expects more fiscal stimulus from the new administration in Washington, but that means the Treasury to issue huge amounts of debt. If the Fed does not end up buying the entire issuance, the move may be perceived as tightening by financial market participants.
As this is the last trading week in the month, Friday’s closing is important for the positioning for the rest of the year. Therefore, expect some fireworks and volatility towards the end of the trading week.