• RBNZ signals it won’t focus on low headline inflation RBNZ Governor Wheeler dampened expectations for further rate cuts overnight as he stated that it would be inappropriate for the Bank to cut rates in order to offset the temporary effects of low oil prices. The Governor repeated that the official cash rate tends to influence inflation over an 18-24 month period, implying that the effects of the previous cuts may not be apparent yet. Bank officials may feel even less pressure to act also after the unemployment rate declined significantly in Q4, beating expectations of a minor increase. However, if concerns around the global economy deepen, which could impact New Zealand’s economy, officials may need to ease again to ensure the rise of inflation. The Kiwi strengthened on both the Governor’s comments and the fall in the unemployment rate, and could gain further on any signs that the global turbulence is stabilizing.
• BoJ Kuroda mimics Draghi… BoJ Governor Kuroda stated there is no limit to the measures for monetary easing and signaled the Bank’s readiness to cut rates again. He countered criticism that the Bank is running out of policy ammunition and said that if the current measures are not enough, officials could institute new tools to meet their inflation target. While the Governor did not offer many clues on what could be the trigger of further easing, he did state that global volatility and slowing EM economies could discourage firms from boosting wages. Such external risks could hurt Japanese business sentiment, which may delay inflation from reaching the target.
• Today’s highlights: During the European day, we get the final service-sector PMIs for January from the countries we got the manufacturing data on Monday. The final forecasts for France, Germany and Eurozone are the same as the initial estimates, so no major reaction is expected.
• The UK service-sector PMI for January is forecast to have fallen somewhat from the previous month. Bearing in mind the mixed results of the manufacturing and construction PMIs for the same month, the services index could provide more evidence on how the economy has started the year. Services account for the vast majority of the UK’s GDP and therefore, a possible decline in the services PMI could confirm that the UK economy had a soft entrance in 2016.
• Eurozone’s retail sales for December, a closely watched measure of household confidence, are forecast to have rebounded on a monthly basis after falling for the previous three months. The expected rise in the figure could mainly be due to seasonal factors such as holiday shopping. However, an improving labor market and lower energy prices may also be reflected in a possible improvement in sales. This could support the common currency a bit, at least at the release. Norway’s AKU unemployment rate for November is due to be released as well.
• From the US, we get the ADP employment report for January, two days ahead of the NFP release. The ADP report is expected to show that the private sector gained 195k jobs, fewer than it did in the previous month where the print hit 257k. Nevertheless, this is still pretty close to the 200k mark and also in line with the Fed’s view from the latest statement that labor market indicators will continue to strengthen. Although an unreliable predictor of the NFP number, this could increase the likelihood that the NFP print on Friday may also come near 200k. Expectations for the NFP figure are currently at 190k. The ISM non-manufacturing PMI and the final Markit service-sector PMI, both for January, are also coming out. There is no forecast available for the Markit index but in any case, the market generally pays more attention to the ISM figure which is expected to have fallen. Given that the ISM manufacturing index for January remained below its 50 line for the 3rd consecutive month, a decline in the non-manufacturing index could cause the dollar to lose some steam.