Week Ahead: Trade, Angela Merkel, and Central Banks


Last week, the focus among traders was on central banks, trade, and the meeting between the United States and North Korea. This week, the focus will largely be on OPEC, trade, and key economic data. Traders will also pay close attention to the yield curve, especially from the United States.
For weeks, Donald Trump has talked about a trade war and how it is easy to win. He argues that the US, as the country with a big deficit would be better-placed to win a trade war. In the coming weeks, he will test this. My prediction is that Trump will fail on this war. This is because a trade deficit is not the best measure of the success of trade. The reason the US has a higher trade deficit is that its economy is better than the other countries. As such, its people can afford buying the products from other countries which are often cheaper. For example, it is impossible for Americans to buy apparels made in the United States because of their cost. Wages in the US are 10 times higher than those in countries like China and Vietnam.
Therefore, in case of a trade war, the American consumers will be the ones to suffer because they can’t find cheaper alternatives from the United States. On the other hand, China will be just fine. This is because they will sell the same amount of goods. They will also find cheaper replacements for the major American imports like soybeans and corn.
In 2015, OPEC members and Russia met in Vienna for a meeting to address their miscalculation on US shale. In the meeting, they agreed to lower outputs in a bid to raise price. At the time, crude oil was trading in the low 30s. This week, the OPEC members will meet again in Vienna to decide on the future of crude oil production. They will decide on whether to rise production or hold at the current rate. Recently, Saudi Arabia has reportedly increased production. A move to hike production will see crude oil price fall from the current levels and vice versa.
Angela Merkel
Early this year, German chancellor, Angela Merkel entered into a coalition with the Bavaria party. This happened after she lost her majority in parliament. This weekend, sharp divisions emerged in the country about what to do on immigration which puts the future of Merkel at risk. There is risk that the new immigration issue will put her political future at risk. This is in line with the current populism wave in Europe.
Central bank Meetings
This week, traders will also focus on a key meeting of the major central bank governors. The governors will meet and issue statements. On Monday, Draghi, and Fed’s Bostic and Williams will address while on Tuesday, Jerome Powell will address the meeting.
Economic data
Today, we will receive the minutes from the Reserve Bank of Australia meeting and building permits from the United States. On Wednesday, major central bank governors will speak and we will also receive the existing home sales from the US. On Thursday, we will receive New Zealand’s GDP numbers and a rate decision from the Swiss National Bank (SNB) and bank of England (BOE). We will also receive Philadelphia manufacturing index. On Friday, we will receive the German manufacturing data and the CPI from Canada.
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