Economic data will be getting into full swing next week with a number of key releases for China, the United States, the Eurozone and Britain. Central banks will also be in focus as the ECB meets for the first time since December when it underwhelmed markets with its policy decision, while the Bank of Canada could cut interest rates for the first time since July 2015.
The week will initially get off to a quiet start as US markets will be closed for Martin Luther King Day. Industrial production figures from Japan may get some attention though, should they deviate too much from the preliminary readings.
Chinese data is likely to dominate Tuesday when fourth quarter GDP numbers are released. Economic growth is expected to moderate further, slowing from Q3’s 6.9% year-on-year growth to 6.8% in the final quarter of 2015. Industrial output is also forecast to ease, growing by 6.0% year-on-year in December from the prior month’s 6.2%. Retail sales are expected to buck the trend once again and are forecast to accelerate by 0.1% to 11.30% in December. Worse-than-expected readings are likely to put further pressure on the yuan and the country’s stock market, which has fallen sharply since the start of the year.
The Eurozone will see some key data releases next week ranging from the German ZEW economic sentiment survey (Tuesday) to the final Eurozone CPI readings for December (Thursday). The flash euro area PMI numbers are likely to attract more attention though when released on Friday. Manufacturing PMI is forecast to worsen slightly by 0.2 to 53.0 in December but the Services PMI is expected to improve a notch to 54.3.
The European Central Bank will come under the spotlight on Thursday when it announces its monetary policy decision and holds its first press conference for the year. ECB President Mario Draghi could come under media scrutiny after ECB officials were criticised for misguiding investors in the build-up to the December meeting and disappointing the markets with a smaller stimulus than what was signalled. There will also be focus on what Draghi will have to say about the recent developments in China and in oil prices and how these may affect the outlook for Eurozone inflation. If Draghi leaves the door open for further easing in the near term, the euro may come under renewed downside pressure.
The Bank of Canada will hold its monthly monetary policy meeting on Wednesday. Expectations of a 0.25% rate cut to 0.25% have increased following oil’s freefall since the beginning of 2015. However, the majority of analysts do not expect a cut this month according to a Reuters poll. The Canadian dollar, which has fallen to 13-year lows, may receive a short-term boost if no change is announced but is likely to fall further as speculation would grow for future cuts. Meanwhile, the latest inflation (Friday), retail sales (Friday) and manufacturing (Wednesday) data should provide further clues about the economy’s outlook.
Across the border in the US, December consumer prices figures will be watched closely by the Fed as it assesses how quickly inflation is likely to rise towards the target level of 2%. US CPI is forecast to quicken to 0.8% year-on-year in December from 0.5% previously. A number of Fed officials have recently expressed concern about slowing growth and falling inflation expectations and investors are looking for signs on when the next rate rise will come. Housing data should provide some clues about the level of domestic demand with building permits and housing starts (Wednesday), as well as existing home sales (Friday) all due next week.
Concerns are also growing in the UK about the pace of growth and the impact of the continued fall in oil prices on inflation. The pound has fallen to one-year lows against a basket of currencies as rate rise expectations have been pushed back due to subdued inflation. December CPI is forecast to edge up by 0.1% to 0.2% year-on-year on Tuesday but core inflation is expected to hold still at 1.2%. Unemployment figures on Wednesday will also be closely eyed as the all-important average earnings data are released. Average weekly earnings are forecast to ease further in the three months to November to 2.1% from 2.4%, while unemployment stays unchanged at 5.2%. Weak wage growth is seen as negative for the pound as it takes the pressure off the Bank of England to raise rates early. Finally, retail sales on Friday are expected to show consumer spending holding up in the final month of the year with a 4.4% year-on-year growth.
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