The continued fall in oil prices has raised expectations of policy easing by the Reserve Bank of New Zealand and the Bank of Japan as they meet next week. But they may decide to stand pat for now like the Fed is expected to when it also holds its policy meeting. On the data front, GDP releases for the US and UK for the fourth quarter of 2015 will be watched closely.
Starting the week with Japan, which will see a flurry of data, export figures are out on Monday and are expected to show a decline in December. Retail sales will follow on Thursday, while Friday will be dominated by key releases for unemployment, inflation, industrial production and household spending, as well as the latest policy meeting by the Bank of Japan. The unemployment rate is expected to stay unchanged at lowly rate of 3.3% and there may be some signs of this boosting household spending, which is forecast to increase by 2% month-on-month in December. Industrial production however, is forecast to decline by 0.3% month-on-month as export demand continues to wane. Meanwhile, inflation is expected to divert away from the Bank of Japan’s target to decline to 0% in December. There’s been increased speculation this week that the BoJ may expand its stimulus program next Friday as the latest slide in oil prices is likely to make it more difficult for the Bank to meet its 2% inflation target by March 2017.
Another central bank with increased odds of loosening monetary policy next week is the Reserve Bank of New Zealand, which meets on Thursday. A bigger-than-expected drop in quarterly inflation has raised expectations that the RBNZ may cut rates as early as next week, sending the New Zealand dollar lower. However, the RBNZ is unlikely to take action having only just cut its cash rate last month to 2.5%. Meanwhile, Australia will report its quarterly inflation figures on Wednesday. Inflation is forecast to edge up to 1.6% on an annual basis. A weaker reading could put downward pressure on the Australian dollar and bring forward more rate cuts by the RBA, which has signalled it is holding rates steady for now.
In the US, durable goods orders and fourth quarter GDP numbers will be the main data to watch out for. Durable goods orders are expected to drop by 1% in December after no change in the prior month. Weak industrial production contrasts with the robust growth in consumer spending in the US – one of the reasons why the Fed decided that the US economy could withstand a rate rise in December. The Fed’s FOMC is scheduled to meet again on Wednesday, though they are widely expected to hold rates this time. However, it should be interesting to see the committee’s view on the recent developments in global financial markets in its meeting statement. The initial GDP estimates out on Friday may also impact the outlook for future rate hikes and the dollar. The US economy is expected to have grown at an annualized quarterly rate of 1.3% in the final quarter of 2015, down from 2% in the third quarter.
The UK will also publish the first estimates of fourth quarter growth. UK GDP growth is forecast to come in at 0.5% quarter-on-quarter – a slight improvement on the third quarter’s 0.4% rate. Prospects for the British economy have been somewhat dampened lately after second and third quarter growth were unexpectedly revised down and downside risks from global events have increased. This has led to a sudden depreciation of the pound and another weak reading could put more pressure on sterling.
Finally, in the Eurozone, flash inflation figures for January are due with annual inflation in the Eurozone estimated to have edged up to 0.4%. Core inflation is also expected to increase slightly to 0.9% year-on-year but this is still far below the ECB’s 2% target and unlikely to put pressure on the euro. Eurozone GDP estimates for the fourth quarter are not due until mid-February but French and Spanish growth data out next week will be watched for an indication to the euro wide numbers.
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