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    Week Ahead – Spotlight on Japan GDP, China trade and US, UK inflation

    Data out of Japan and China will be watched closely next week as investors will be anxious to see how well Asia’s two largest economies are riding the latest economic storm. The UK will also be in focus with the release of three key indicators, while inflation data and FOMC minutes out of the US will keep dollar traders busy.

    With US and Canadian markets closed on Monday for a national holiday, Japanese data will dominate the day with the release of GDP and industrial production figures. Fourth quarter GDP estimates are expected to show a quarter-on-quarter growth rate of -0.3% (-1.2% annualized) in the initial reading. Japan dodged a technical recession in third quarter when GDP was revised up to positive growth. However, it’s unlikely that the economy will prove as resilient in the coming quarters as global growth continues to slow and the yen strengthens on safe-haven flows. Also to watch from Japan next week are machinery orders on Wednesday and trade figures on Thursday. Machinery orders are expected to recover partially from the 14.4% plunge in November to increase by 4.7% month-on-month in December.

    In China, January trade figures due on Tuesday may show the decline in exports and imports moderating. Exports are forecast to have fallen by 1.9% year-on-year in January, while imports are expected to drop by 0.8% y/y, which would make it the smallest decline since October 2014 and perhaps a sign of stronger domestic demand. Inflation figures will follow on Thursday where CPI is forecast to rise by 1.9% annually in January and compares with a rate of 1.6% in December. The pick-up in inflation may dissuade the People’s Bank of China from further easing, which is facing pressure to cut rates more aggressively given the weakening economy.

    Also facing pressure from China’s slowdown has been the Australian dollar due to Australia’s export dependency with the country. Australian unemployment figures out next week may provide some direction for the aussie as the only other major release next week, the RBA’s meeting minutes, are unlikely to reveal any surprises. The Reserve Bank of Australia’s meeting minutes out on Tuesday will likely repeat the meeting statement’s key points, which were that growth prospects in the economy remain strong but lower inflation may necessitate further rate cuts. Jobless numbers due next Thursday are likely to confirm the underlying strength in the economy, as employment in January is expected to increase by 15k, giving an unemployment rate of 5.8%,

    It will be a relatively quiet week for the Eurozone with only the German ZEW economic survey likely to attract attention. However, it will be a busy seven days for UK data with the release of inflation, unemployment and retail sales data. UK inflation data out on Tuesday is forecast to show annual CPI edging slightly higher to 0.3% in January from 0.2% the prior month. But core inflation is expected to ease to 1.3% from 1.4% previously. On Wednesday, the latest jobs and earnings figures are out and are expected to show the unemployment rate declining to 5.0% in December from 5.1%. This is unlikely to worry the Bank of England though as average weekly earnings are forecast to have eased further in the three months to December to 1.9% from 2.0% previously. Finally, retail sales figures out on Friday should show high street sales rebounding by 0.7% in January after a bigger-than-expected monthly drop in December. The pound could prove sensitive to any surprise strong reading given that market sentiment may have turned overly bearish on the British currency in recent weeks.

    The United States will also publish inflation data next week, due on Friday. But before then, housing data will be watched on Wednesday, with the release of the January building permits and housing starts. Industrial production figures are also out the same day. Industrial output is forecast to rise by 0.3% month-on-month in January, which would make it the first monthly increase since August 2015. There is likely to be more dollar action later in the day with the release of the FOMC minutes of the January meeting. Although no new rate projections will be included in the minutes, they may shed more light into what the Committee discussed regarding the market turbulence since the start of the year and the impact on the US economy. Rounding up the week will be the January inflation numbers with CPI expected to show a 0.1% month-on-month fall. Meanwhile, Core CPI is forecast to stay unchanged at 2.1% in January, having picked-up somewhat in the second half of 2015.

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