The central banks theme will continue into next week as the Reserve Bank of Australia and the Bank of England meet. The closely watched manufacturing PMIs in China should give a fresh insight into the state of China’s struggling manufacturing sector. The all-important non-farm payrolls in the US will round up the week.
Starting off the week on Monday are the January manufacturing PMI readings for China. The official manufacturing PMI is expected to show a marginal decline to 49.6 from 49.7 in December. The alternate Caixin manufacturing PMI is also forecast to deteriorate, declining to 48.0 from 48.2. The services PMI readings are also due – a strong showing in services activity could provide some relief if the manufacturing PMI disappoints. If the January data fails to provide any signs of an upturn or bottoming out, this would likely renew concerns about the pace of growth in the world’s second largest economy and put further pressure on the yuan.
In the Eurozone, the final PMI readings for January are not expected to divert from the preliminary figures. Apart from the Euro wide unemployment numbers on Tuesday and retail sales on Wednesday, the only other noteworthy data for the Eurozone will be the German factory orders due on Friday. Industrial orders in Germany are estimated to have declined by 0.3% month-on-month in December, reversing some of November’s 1.5% gain. Weakening export markets threaten to dampen Germany’s growth prospects in 2016 and the flash PMI data has already pointed to slower growth at the start of the year.
Over in the UK, PMI data for manufacturing, construction and services are due on Monday, Tuesday and Wednesday respectively. All three readings are forecast to show a slight worsening in January, though remaining comfortably above 50 in expansion territory. The big risk event for sterling next week is the Bank of England’s ‘Super Thursday’. February’s monetary policy decision will be followed by the Bank’s quarterly inflation report and press conference, in addition to the publication of the meeting minutes. At the last quarterly press conference in November, the Governor, Mark Carney, triggered a sharp sell-off in the pound after suggesting that the much anticipated rate hike could be pushed back to as late as 2017. Carney is likely to sound another downbeat tone next week as global uncertainties have increased since the last meeting in January.
The Reserve Bank of Australia will also hold its monetary policy meeting next week on Tuesday. No change in the RBA’s cash rate is expected. However, the Governor’s statement will be closely inspected for any clues if the Bank is intending to cut rates anytime soon following December’s 25bs reduction to 2%. Expectations of more cuts were dampened after the fourth quarter inflation numbers came in above estimates. In December, the RBA hinted that future cuts will depend mostly on a weaker inflation outlook.
It will be a relatively busy week for the US with some key data releases. Personal income and consumption figures are out on Monday, as well as the PCE price index. Personal income is expected to grow by 0.3% in December, unchanged from the previous month. But personal consumption is forecast to ease to 0.1% from 0.3%. Also out on Monday is the ISM manufacturing PMI for January. The survey is expected to show a small decline to 48.0 from 48.2. The non-manufacturing PMI out on Wednesday is also forecast to worsen slightly. On Thursday, factory orders for December are expected to show another monthly decline, while unit labor costs are estimated to have increased by 3.6% in the fourth quarter. Ending the week on Friday, is the January jobs report, which should provide some clues on whether the Fed is likely to raise interest rates at its March meeting. Non-farm payrolls are forecast to increase by 200k in January, a somewhat slower pace than December’s 292k change. The unemployment rate is expected to stay unchanged at 5.0% but average earnings are estimated to have increased by 0.3% month-on-month – an acceleration on the previous month’s no change rate.
Risk Warning: Forex, Commodities, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you fully understand the risks involved and do not invest money you cannot afford to lose. Please refer to our full Risk Disclosure.