In a week full of important economic data releases, the US Nonfarm Payrolls report and interest rate decisions coming from the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) stand out from the crowd.

RBA Interest Rate Decision: One more hike?

On Tuesday March 7th, the RBA will announce its interest rate decision. Economists suggest that Australia’s central bank will likely increase its benchmark interest rate for the 10th consecutive time. Analysts at ANZ, Commonwealth Bank and Westpac forecast a 0.25% hike. The RBA raised borrowing costs to 3.35% in its February meeting. 

According to a Reuters report, “Australia's central bank, startled by the risk that inflation could prove stickier than previously thought, abandoned all thought of pausing at its February policy meeting and signalled more rate hikes would be needed in the months ahead."

Nonfarm Payrolls: Another surprise on the way?

The US Bureau of Labour Statistics (BLS) is expected to publish the February Nonfarm Payrolls figures on Friday. Some analysts forecast that 200,000 jobs were added to the US economy during February. Nonfarm Payrolls tend to surprise markets and trigger volatility.

According to the BLS January NFP report, 517,000 new jobs were created during the first month of the year, with the figure triggering a US dollar rally. Market analysts had forecast a 185,000 rise. A Morgan Stanley report suggests that if the February NFPs reach the 500k figure once again, the Federal Reserve may have to consider a 50 basis points rate hike in its next monetary policy meeting.

BoC Interest Rate Decision: Pausing hikes?

On March 8th, the Bank of Canada (BoC) governing board will convene to decide on interest rates. The BoC’s policymakers have signalled that they are prepared to pause rate hikes as the tight monetary policy takes effect in the country’s economy. Last week, Statistics Canada reported that the country’s economy didn’t grow at all in the fourth quarter of 2022 versus the previous quarter, thus bringing an end to five consecutive quarters of GDP growth.

Currently, the BoC’s benchmark rate stands at 4.5%. CIBC’s economists suggest that interest rates will stay at 4.5% throughout the year before being eased gradually in 2024.

BoJ To Decide on Rates

On March 10th, the BoJ's governing board will have its monthly meeting and is expected to announce its interest rate decision. Economists suggest that borrowing costs will remain unchanged. Bank of Japan (BOJ) board member Junko Nakagawa told reporters that the central bank must maintain its ultra-loose monetary policy for the time being, as the economy hasn’t achieved its 2% inflation target.

However, a Reuters survey showed that about half of Japanese firms believe that new leadership at the BoJ should revise its negative interest rate policies, while more than a quarter said its inflation target should be changed.

Eurozone GDP expands in Q4 2022?

On Wednesday, Eurostat will reveal the Eurozone’s GDP Q4 2022 GDP growth figure. Market experts forecast 0.1% growth on a quarterly basis and 1.9% on a year-to-year basis. Economists reiterate that mild weather conditions may have helped the euro bloc’s economy to grow.

The European Commission (EC) has revised its economic growth forecast for the Eurozone upwards to 0.9% in 2023 from 0.3% previously, projecting 2024 growth unchanged at 1.5%.

Eurozone retail sales in January

Investors will have the opportunity to scrutinise the eurozone’s retail sales report, due to be published on Monday by Eurostat. Market analysts forecast a 0.3% drop, on a monthly basis, and a 1.2% fall, on an annualised basis, in January.

Retail sales had slumped in December 2022, showing the weakness in consumer demand amid high inflation. According to a Eurostat report, the annualized Eurozone Harmonised Index of Consumer Prices (HICP) came in at 8.5% in February versus January’s 8.6%.

Japanese economy likely to have grown in Q4 2022

On March 8th, the Japanese Cabinet Office will release its Q4 2022 GDP report. Economists suggest that Japan’s GDP grew by 0.2%, on a quarterly basis, in the fourth quarter of 2022. The figure could mark the first quarterly growth since the April-June quarter of 2022.

Economists at Moody’s Analytics noted that “our baseline view is still for Japan to eke out moderate growth in 2023 as domestic demand improves, supported by the removal of COVID-19 restrictions, falling inflation, and the resumption of international travel. But GDP remains some way from pre-pandemic peak levels of output, and risks to the outlook are significant. Weak momentum abroad will weigh on exports.”

China CPI inflation in February

On March 9th, investors will have the opportunity to scrutinise the Chinese February CPI inflation report, published by the National Bureau of Statistics (NBS). The report is expected to show that inflation remained unchanged at 2.1% on an annualised basis, while economists suggest that inflation slowed down to 0.3% on a month-to-month basis.

Analysts at Moody’s Analytics had said in mid-February that “China’s reopening won’t be a silver bullet. Although 2023 is looking a lot more promising than what we had previously expected, the year is set to be bumpy; it will take time for households to truly shake the Covid-19 blues.”

UK GDP growth: Gaining momentum?

The Office for National Statistics (ONS) is expected to publish data regarding the UK’s GDP growth in January. Economists suggest that the economy expanded by 0.1% on a month-to-month basis.

The BoE’s Chief Economist Huw Pill told reporters that the British economy shows slightly more momentum than anticipated while pay growth also proves faster than the central bank’s forecast.

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A GDP report published in Australia showed that its economy expanded 0.5%, on a quarter-to-quarter basis, in the last quarter of 2022. The Institute for Supply Management (ISM) will publish its Manufacturing and Services PMIs which could cause some US dollar volatility. St. Louis Federal Reserve President James Bullard told Reuters reporters that “soft landing is feasible in the US if the post-pandemic regime shift is executed well.”

Australian GDP rises in Q4 2022

The Australian Bureau of Statistics (ABS) published its Q4 2022 GDP report. According to the report, the Australian economy grew 0.5% on a quarterly basis in Q4 2022. Economists note that the country’s GDP rose by 2.7% in 2022, lower than the 5.9% figure recorded in 2021.

A report by the National Australia Bank (NAB) noted that “looking forward, we see growth slowing sharply as consumer spending comes under pressure from both higher rates and inflation.” NAB is expecting economic growth to slow to 0.7% over 2023 and 0.9% in 2024.

At the beginning of February, Australia’s Treasurer Jim Chalmers said that “the expectation of the Treasury forecasters is higher interest rates combined with difficult global conditions will slow our economy considerably, but they don't expect at this point a recession here in Australia.”

Eurozone HICP preliminary data due on March 2nd

Eurostat will release the Eurozone's Harmonised Index of Consumer Prices (HICP) preliminary data for February. Headline inflation is expected at 8.7%, on an annualised basis, against 8.5% in January while core inflation is set to remain unchanged at 5.2%. Markets are pricing in a 50 basis point hike at the ECB meeting in March.

China’s Manufacturing PMI report

China’s Federation of Logistics and Purchasing (CFLP) will release its Manufacturing PMI January report on Wednesday. Market analysts suggest that the country’s Manufacturing PMI dropped to 48.9 in the first month of 2023, indicating activity contraction.

A report published on January 31st had shown that China’s factory activity rose (50.1) for the first time since August. At a news conference last week, a Chinese commerce ministry spokesperson said that the recovery momentum in the country’s consumer market was strong in January, adding that “the government will take more measures to revive and expand consumption.”

US ISM Manufacturing and Services PMIs to be scrutinised by experts

This week, the Institute for Supply Management (ISM) will publish the Manufacturing and Services PMIs (February 2023) which are expected to provide valuable insights regarding the condition of the US economy. The Manufacturing PMI is expected to come in at 47.9 and the Services PMI at 52.4. Market analysts note that the services index accounts for nearly 80% of the US GDP. Economists don’t expect a significant change of strategy by the Fed as long as the PMI remains above the 50 mark.

Eurozone's unemployment rate likely to have dropped in January

The eurozone’s unemployment rate in January will be revealed by Eurostat on Thursday. Economists expect a slight rate drop to 6.5% from 6.6% recorded in December. If the forecast comes true, the figure will highlight the labour market's strength even as the economy seems to be losing steam.

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Interest rate decisions by the Reserve Bank of New Zealand (RBNZ) and the People’s Bank of China (PBoC) will dominate the financial news next week. The Federal Open Market Committee (FOMC) meeting minutes, due to be published on Wednesday, will be scrutinized by investors and traders for clues into the central bank’s monetary policy plans.

China: PBoC likely to keep interest rates unchanged

On Monday February 20th, the PBoC governing board is expected to convene and announce its decision on interest rates. A Reuters poll published on February 17th showed that 8 out of 10 economists expect the PBoC to leave its benchmark interest rate unchanged at 3.65%.

An ING report suggested that the country’s economic recovery and the PBoC’s decision to keep the medium-term lending facility (MLF) rate steady have reduced the possibility for a loan prime rate (LPR) adjustment.

RBNZ to decide on interest rates

The Reserve Bank of New Zealand (RBNZ) will announce its decision on interest rates on February 22nd. Some economists suggest that it will raise borrowing costs by 50 basis points to 4.75%. However, some market analysts forecast a 0.25% lift, following recent flat inflation and employment figures for the fourth quarter of 2022.

At the last meeting, the RBNZ’s board recognized that annual inflation was too elevated at 7.2%. Commenting on New Zealand’s economy, the country’s Finance Minister Grant Robertson said that there is evidence inflation has peaked.

It should be noted that New Zealand has been hit by Cyclone Gabrielle which has caused significant problems such as flooding and landslides across the North Island. A report by KiwiBank said: “The RBNZ should pause next week, as we deal with the devastating impact of Cyclone Gabrielle. The RBNZ can come back in April and resume tightening if required.”

Bank of Canada to release inflation report

The Bank of Canada (BoC) is expected to publish its January core CPI inflation report on February 21st. Economists suggest that core CPI inflation rose by 5.5% and 0.2% on a year-to-year and month-on-month basis, respectively.

While testifying before the House of Commons finance committee, the BoC’s Governor Tiff Macklem told MPs that the economy is in excess demand, which is putting upward pressure on prices. Macklem noted that “for inflation to get back to 2%, the effects of higher interest rates need to work through the economy and restrain spending enough for supply to catch up. If inflation gets stuck and doesn't come all the way back to the 2% target, we are fully prepared to increase interest rates further.”

Japan National CPI report due on February 24th

The Japanese Statistics Bureau will release its January National CPI inflation report on Friday February 24th. Economists suggest that core CPI inflation could come in at 4.2%, on an annualised basis.

Japan’s Finance Minister, Shunichi Suzuki, said that Kazuo Ueda’s nomination as the BoJ's next governor is a result of consideration towards structural wage hikes and sustainable, stable achievement of the inflation target.

In other news, a report published by the UOB Group noted that the Japanese economy expanded below expectations in the last quarter of 2022. UOB analysts suggested that “with the weaker 2023 manufacturing outlook cushioned by the improving tourism and barring external events, we keep our modest 2023 GDP growth forecast of 1.0% (from 1.1% in 2022).”

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Inflation, GDP and retail sales reports are going to be the “talk of the town” this week as investors and traders will be able to scrutinise a plethora of data sets. The US and UK CPI inflation reports will show if monetary tightening policies have reduced inflationary pressures. 

In Japan, the government will present the nominees for the Bank of Japan’s (BoJ) governor seat to parliament. Some economists suggest that the central bank will adjust or back away from its stimulus program under a new governor. Haruhiko Kuroda is set to retire on April 8th, after serving as governor for ten years.

Japan GDP Q4 2022 report and the new BoJ governor 

The Japanese Cabinet Office will publish its preliminary Q4 2022 GDP report on February 13th. Economists monitoring the Japanese economy suggest that the report will show a 0.6% expansion on a quarterly basis.

Japan’s finance minister Shun'ichi Suzuki said on Friday, February 10th that pulling the economy out of deflation remains an important policy challenge. The Japanese government will present nominees for the BoJ governor’s seat to parliament this week.

UK unemployment rate unchanged in December? 

The Office for National Statistics (ONS) is expected to publish its ILO unemployment rate report on Tuesday, February 14th. Analysts suggest that the UK’s unemployment rate remained steady at 3.7% in the three months to December. Another report regarding average earnings is expected to show that salary increases lagged behind inflation.  

It should be noted that the Bank of England’s (BoE) Governor Andrew Bailey urged employers and employees to consider the anticipated sharp fall in inflation this year when negotiating salaries.

Eurozone GDP Q4 2022 second estimate

On Tuesday, Eurostat will publish its second estimate report regarding the Eurozone’s GDP growth in the fourth quarter of 2022. Preliminary data released on January 31st showed that the euro bloc’s economy grew by 0.1% during the last quarter of the previous year. The preliminary report had surprised market analysts as a Reuters poll had forecast a 0.1% contraction.

Economists at S&P Global Market Intelligence said that “the headline GDP figure gives a misleadingly favourable impression of economic conditions in late 2022. The key takeaway from member states' data is the breadth of weakness in private consumption, with the acute squeeze on household real incomes due to soaring inflation belatedly biting.”

Fed to scrutinise US CPI inflation report

Valentine’s Day will end with the US Bureau of Labour Statistics (BLS) report on inflation. Economists forecast headline inflation to have dropped to 6.2% in January, on an annualised basis. Core inflation is likely to have increased by 0.4% on a month-to-month basis. Federal Reserve Chairman Jerome Powell said that inflation is beginning to fall, though he expects it to be a long process.

Currency strategists at OCBC Bank noted that “the broad picture is the Fed doing policy calibration ... but for the near term there is caution, given recent Fed speakers and how the disinflation trend may be bumpy.”

UK inflation: Will it drop more?

The CPI inflation report, one of the most important sets of financial data coming from the UK, will be published on February 15th. Economists suggest that headline inflation recorded a small drop (-0.3%), reaching 10.2% (y/o/y) in January. Inflation in the UK is still close to a 40-year high and five times the BoE's target of 2%.

According to a GDP report released by the ONS on February 10th, the UK’s economy recorded zero growth in the last quarter of 2022, in line with analysts’ expectations. Finance minister Jeremy Hunt said that “the fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared. However, we are not out the woods yet, particularly when it comes to inflation.”

US retail sales: Consumers battle inflation

Economists expect US retail sales to have returned to positive growth (+0.9% m/o/m) in January. Retail sales had contracted in November and December 2022, pulled down by declines in purchases of vehicles and a range of other goods. A high reading could be seen as positive for the US dollar, while a low figure could hurt the currency’s value against its competitors.

Data published on January 27th showed that real consumer spending (adjusted for inflation), which drives more than two-thirds of all U.S. economic activity, declined by 0.3% in December 2022.

UK retail sales: Are they on the rise?

On Friday February 17th, market analysts will focus on the ONS report regarding January retail sales in the UK. Economists forecast a 1.8% growth on a yearly basis, but zero growth on a month-to-month basis. A better than expected figure could boost the UK pound, whilst a lower than anticipated figure could weaken the currency.

According to a British Retail Consortium (BRC) and KPMG report, retail sales rose by 4.2% year-on-year in January, around half December’s pace and down from 11.9% growth a year earlier.

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The Reserve Bank of Australia (RBA) interest rate decision will be one of the major economic events this week. Some market analysts suggest that the RBA will raise borrowing costs, following the example set by the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE).

Eurostat is expected to publish data regarding retail sales in the euro bloc during January, with economists waiting to see how high inflation figures have influenced consumer demand. In the UK, preliminary Q4 2022 GDP data will give a glimpse of how the UK economy performed in the last quarter as the government is urged to control elevated living costs.

RBA board to decide on interest rates 

On Tuesday February 7th, the Reserve Bank of Australia (RBA) is expected to announce its interest rate decision. Economists polled by Reuters forecast that Australia’s central bank will raise rates by 25 basis points for the fourth time in a row. Most economists said that the RBA could hike rates by 0.25% once more in its March 2023 meeting.

Commenting on the RBA’s monetary policy, Westpac’s economists noted that “we expect that the Board will leave its options open in the Governor’s Statement after the February meeting to allow scope to raise rates at the March meeting. A central bank is unlikely to pause when there the evidence of demand pressures and firms seizing some pricing power associated with rising services inflation as we saw in the December inflation report.”

According to a report published on January 25th, ING’s economists seem to agree, suggesting that “the RBA is hiking the cash rate by 25bp a meeting, and we do not believe this will change. We now believe they will have to keep hiking for at least another two meetings, taking the peak cash rate up another 50bp to 4.1%.”

Eurozone retail sales in January likely to have dropped

On Monday February 6th, Eurostat will release its eurozone December retail sales report. Market analysts forecast a 2.0% drop on a month-to-month basis and a 2.8% fall on an annualised basis.

The mild winter in Europe and the improved consumer sentiment didn’t seem to help the German retail sales in December as they tumbled by 5.3% on a monthly basis even though a Reuters poll had indicated a 0.2% increase.

Has China’s CPI inflation accelerated in January?

The National Bureau of Statistics (NBS) in China is expected to release its CPI inflation report for January 2023. Economists forecast an increase to 2.3% on a year-to-year basis, accelerating when compared to the 1.8% figure recorded in December 2022.  

Speaking to CNN Business on January 27th, market analysts suggested that the reopening of the world’s second-largest economy could boost global inflation as prices for fuel, industrial metals and food could be pushed up. According to an NBS report, China's consumer price index rose by 2% year-on-year in 2022, well below the central bank’s target of around 3%.

ONS to publish preliminary UK GDP data

On February 10th, economists will have the opportunity to scrutinise the Q4 2022 GDP preliminary data published by the Office for National Statistics (ONS). Forecasts indicate a 0.3% increase on a quarterly basis and a 2.1% rise on a year-to-year basis.

According to the Bank of England’s forecast, the UK’s GDP is not expected to reach pre-pandemic levels before 2026. The BoE’s policymakers have suggested that the UK can no longer sustain a growth rate of 1% per year without generating inflation.

As the cost of living continues to put pressure on households, the International Monetary Fund predicts that the economy of the United Kingdom will contract (-0.6% in 2023) and perform more poorly than other advanced economies, including Russia.

Statistics Canada to release unemployment rate report

Statistics Canada will publish its January unemployment rate survey, which is expected to show that the rate remained unchanged at 5%. The Bank of Canada’s (BoC) Governor Tiff Macklem said in a press conference (Jan. 25) that “part of rebalancing demand and supply in the economy is rebalancing the labour market.”

Canada’s central bank has raised interest rates eight times in a row. The BoC’s governing board noted that it would put its monetary policy tightening on hold. However, the BoC’s policymakers stressed that they are ready to raise borrowing costs more if inflation doesn’t drop.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. 

Interest rate decisions coming from the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE) are going to dominate the news this week. All three of them are likely to raise borrowing costs as their monetary tightening policies aim to ease inflationary pressure. While most economists don’t expect any surprises, hiking interest rates could create market volatility and affect the exchange rates of the US dollar, the euro, and the British pound.

Other upcoming financial data releases include China’s NBS Manufacturing PMI (Dec. 2022), the German retail sales report (Dec. 2022) and the US ISM Manufacturing PMI survey (Jan. 2023).

Fed likely to hike interest rates by 0.25%

On Wednesday February 1st, the US Federal Reserve (Fed) is expected to announce its decision on interest rates. Some economists forecast that the Fed will raise borrowing costs by 0.25%, bringing the target range between 4.5% and 4.75%. In December 2022, the Fed’s Federal Open Market Committee (FOMC) raised the benchmark interest rate by 0.5%, slowing down after four consecutive hikes of 0.75%.

Market analysts suggest that the Fed will likely proceed with smaller rate hikes in the next few months as inflation seems to be dropping according to the latest reports. They note that such a strategy could help balance the risk of reducing inflation without affecting the country’s unemployment rate.

Commenting on the US economy, Commerzbank’s analysts suggested that “the US economy grew strongly by 2.9% in the final quarter of 2022. However, this is likely to be the last strong quarter for a while, especially as the details are already not quite so encouraging. We still expect the economy to slide into recession due to the Fed's massive rate hikes.”

Will the BoE hike rates for the 10th consecutive time?

On Thursday February 2nd, it will be the Bank of England’s turn to announce its decision on interest rates. The BoE’s Monetary Policy Committee (MPC) will likely hike interest rates by 50 basis points to 4%. Economists note that this could be the 10th consecutive rate hike by the BoE.

The country’s economy suffers from record-high inflation that weighs on household and business budgets. However, the BoE’s Governor, Andrew Bailey, told reporters last week that inflation might have made a positive turn after it fell in both November and December.

A report by ING bank suggested that “the UK’s somewhat unique combination of structural worker shortages, and therefore potential for persistently higher wage growth, as well as its exposure to Europe’s energy crisis, suggests the Bank of England will be less quick to cut rates than in the US.”

ECB likely to raise borrowing costs once again

The ECB is expected to follow the BoE in raising interest rates on February 2nd. A Reuters poll showed that economists forecast hikes of 50 basis points at the next two meetings and an eventual rate peak of 3.25% from the current rate of 2%.

The ECB’s head, Christine Lagarde, reiterated last week that inflation in the euro bloc remains too high. Lagarde noted that “we have made it clear that ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive and stay at those levels for as long as necessary.”

The ECB’s governing council member and Governor of the Bank of Ireland, Gabriel Makhlouf, noted that “we need to continue to increase rates at our meeting next week – by taking a similar step to our December decisions – and also at our March meeting, although our future policy decisions need to continue to be data-dependent given the prevailing uncertainty.” The ECB’s board member, Fabio Panetta, told Handelsblatt reporters that the ECB shouldn’t pre-commit to any specific policy move beyond February.

Focus on the US NFP report 

On Friday February 3rd, investors and traders will scrutinise the US Nonfarm Payrolls January report due to be published by the Bureau of Labour Statistics (BLS). In general, a high reading is seen as positive for the US dollar, while a low reading could weaken the currency’s value.

Economists suggest that 175,000 new jobs were added to the US economy in January, down from 223,000 in December. The US unemployment rate is expected to have ticked higher, reaching 3.6%. December’s NFP figure surpassed analysts' expectations, showing that the labour market remained strong despite the Fed’s monetary tightening policy.

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Inflation reports coming from Australia and New Zealand, the Bank of Canada’s interest rate decision and preliminary US Gross Domestic Product data for the fourth quarter of 2022 will be in the centre stage this week.

Japanese inflation hits 41-year high

According to data published on January 19th, Japan’s CPI inflation jumped to a 4-decade high in December 2022, reaching 4% on a year-to-year basis. Economists noted that the central bank would be forced to raise interest rates in order to control rising living costs. Earlier in the week, the Bank of Japan had surprised investors and traders as it kept borrowing costs near zero; the move weakened the Japanese Yen’s value against other major currencies.

Christine Lagarde forecasts inflationary pressure

Speaking at a CNBC panel in Davos, Switzerland, the European Central Bank’s head Christine Lagarde said that the Chinese economy’s reopening would increase inflation in Europe. Lagarde noted that “we will have inflationary pressure on many of us, simply because the level of energy that was consumed by China last year was certainly less than what they will consume this year. So, there will be constraints, there will be more inflationary pressure coming out of that added demand.”

Reuters poll forecast 2 Fed rate hikes in Q1 2023

The majority of economists polled by Reuters suggested that the US Federal Reserve (Fed) will likely proceed with raising borrowing costs by 25-basis-points at each of its next two monetary policy meetings and then pause its tightening cycle until, at least, the end of the year. The poll showed a nearly 60% probability of a U.S. recession within two years, according to the Reuters report published on January 20th.

New Zealand inflation likely to have dropped in Q4 2022

On Tuesday January 24th Statistics New Zealand will publish its Q4 2022 CPI inflation report. Economists forecast that CPI inflation fell to 7.1% on an annualised basis, in the last quarter of the previous year. New Zealand made the global news headlines as its Prime Minister Jacinda Ardern announced her intention to resign once the Labour Party nominates a successor.

After the prime minister’s announcement (Jan.19th), the New Zealand dollar lost ground, however some analysts suggested that the drop was more a function of the global market sentiment than local news. According to a report published by the New Zealand Institute of Economic Research, “New Zealand's business confidence in the fourth quarter of last year hit its lowest level since 1974 as companies grapple with higher interest rates, cost pressures and soft demand.”

Australia CPI inflation decelerates in Q4 2022?

On Wednesday January 25th, investors and traders will be expecting to scrutinize the Q4 2022 CPI inflation report due to be published by the Australian Bureau of Statistics (ABS). Economists estimate that CPI inflation edged lower, reaching 1.7% on a quarterly basis.

The Australian dollar is among this year’s top-performing major currencies with economists suggesting that the country’s currency could strengthen even more as the economy could receive additional support from China’s growth potential.

Bank of Canada to decide on interest rates

On January 25th the Bank of Canada’s (BoC) governing board will convene to decide on interest rates. Although CPI inflation seems to be easing, some economists said that the central bank’s policymakers are not ready to pause the interest rate-hiking cycle with some of them forecasting the eighth consecutive increase.

Raising borrowing costs by 0.25% would mean that the BoC’s benchmark interest rate would come in at 4.5%, the highest level recorded in the last 16 years. According to a Reuters report published on January 6th, some currency analysts expect the Canadian dollar to rally as the country’s economy recovers in the second half of the year. Canada’s currency weakened by 6.8% in 2022.

US Durable Goods and Preliminary GDP reports

On January 26th the US economy will be in the spotlight. Market analysts will be expecting December’s Durable Goods report to be published by the Census Bureau. Analysts forecast that orders increased by 2.5% in contrast with November’s 2.1% decline. A high figure could strengthen the US dollar while a lower one could weaken the US currency.

Following the Durable Goods report, the Bureau of Economic Analysis will release its preliminary GDP Q4 2022 report. Economists suggest that the US GDP grew by 2.8% in the fourth quarter of 2022. A survey published by the Commerce Department on December 22nd showed that the country’s GDP expanded by 3.2% in the third quarter, surpassing market expectations. High GDP readings or better than expected figures could be seen as positive for the US dollar, while a low reading could be negative.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

The UK and Eurozone inflation reports and retail sales data coming from the US and the UK are expected to be in the spotlight next week. Whilst rising gold spot prices drew investors’ and traders’ attention last week, the World Economic Forum in Davos and several reports regarding some of the major economies will offer a stream of valuable financial data.

On Friday Jan.13th gold spot prices climbed above the $1,900 mark for the first time since May 2022. In the US, the Department of Labor (DoL) published December’s CPI inflation report which showed a decrease of 0.1% on a month-to-month basis. Commenting on the report, economists suggested that the Federal Reserve (Fed) of the United States may slow down the pace of rate rises.

These are some of next week’s most important financial data releases:

Monday January 16th 

On Monday Jan.16th US markets will be closed due to Martin Luther King Day. More than 2,500 world leaders such as politicians, investors, bankers and financial analysts will be already in Davos, Switzerland, for the World Economic Forum’s (WEF) annual meeting for the first time after 3 years. A report published by the WEF this week noted that the increase in living costs is a significant short-term risk for the global economy, with WEF’s analysts forecasting high energy and food inflation for the next two years.

Another WEF report stresses that the current energy crisis puts a strain on economic growth, adding that short-term backward steps like increasing electricity output produced from coal and energy consumption subsidies are risky.

Tuesday January 17th

The National Bureau of Statistics in China will publish data regarding the country’s GDP growth in the fourth quarter of 2022. According to the median forecasts of 49 economists polled by Reuters, the Chinese GDP rose by 1.8% in the last quarter of 2022, on an annualised basis, down from the 3.9% growth seen in the third quarter as anti-virus regulations tightened. The same survey by Reuters showed that the Chinese GDP likely grew by just 2.8% in 2022 as lockdowns weighed on activity and confidence.

Market analysts also expect the Chinese December retail sales report. November’s retail sales data disappointed investors and traders as it showed a 5.9% drop on a year-to-year basis, much worse than the anticipated –3.7% figure. It should be noted that the Chinese government decided to lift many of its Covid-19 restrictions at the beginning of January, a move that may affect retail sales across the country.

In the UK, the Office for National Statistics (ONS) is expected to publish its unemployment rate data for the 3 months to November 2022. The UK’s unemployment rate stood at 3.7% in October, whilst the number of vacancies remained at historically high levels despite five successive quarterly declines.

Statistics Canada will be publishing December’s inflation (CPI) data. Canada's consumer-price index in November 2022 rose 6.8% from a year earlier, after holding steady at 6.9% the previous two months. The Bank of Canada (BoC) governing board has said that it will be focusing on such data to decide whether to increase borrowing costs.

Wednesday January 18th

The Bank of Japan’s governing board is expected to announce its decision on interest rates. A Reuters survey showed that most economists expect the BoJ to leave its benchmark interest rates unchanged. However, 4 out of 10 participants forecast moves either in April, when a new governor will be appointed or in June.

Eurostat will publish the Eurozone’s December CPI inflation final report. On January 6th, preliminary data showed that the euro-bloc's annual inflation rate softened from 10.1% to 9.2%, lower than the 9.7% figure anticipated by economists.

Market analysts will also be focusing on the UK’s December CPI inflation report released by the ONS. November’s data showed that UK inflation stood at 10.7%, close to a 40-year high, with rising living costs making the headlines and limiting citizens’ available budgets. The UK’s government has vowed to reduce inflation to a much lower level by the end of 2023, whilst the Bank of England has hiked interest rates to the higher level seen in the last 14 years.

The US Census Bureau is expected to publish December’s retail sales report. Retail sales in the US fell at a stronger pace than expected in November, recording a 0.6% drop on a month-to-month basis. The fall came despite accelerating employment and earnings figures. Some economists suggest that declining retail demand could force producers to cut prices of goods and services.

Thursday January 19th

The Australian Bureau of Statistics (ABS) will publish the country’s December unemployment report. Australia's seasonally adjusted unemployment rate stood at 3.4% in November 2022, unchanged from October's 3-month low and in line with market expectations. Analysts at Commonwealth Bank said that whilst the jobs market had been in favour of employees in 2022, it is likely to become more balanced in 2023.

Investors and traders will scrutinise Japan’s National CPI inflation data for December. November’s report had shown that core inflation stood at 3.7%, the highest reading recorded since 1981. Japan has one of the lowest inflation rates in the world and the country’s central bank has kept its ultra-loose monetary policy to boost the economy.

Friday January 20th

December’s UK retail sales data released by the ONS will be in the spotlight on Friday morning. With the country’s economy struggling due to high inflation and rising interest rates, economists are expected to review the retail sales figures, which will include purchases made during Christmas. A similar report published by the British Retail Consortium (BRC) on January 10th showed that British retailers benefitted from a sales boost (+6.9% y/o/y) in December.

Just before the Chinese New Year celebrations start, the People’s Bank of China (PBoC) will announce its decision on interest rates. According to a Reuters economists’ survey published on January 13th, the central bank will likely keep its benchmark interest rates on hold for a fifth straight month.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

The macroeconomic outlook is clouded by concerns over the US manufacturing sector which contracted for a second consecutive month in December, according to the ISM Manufacturing Purchasing Managers Index (PMI). It was the lowest reading since February 2016, not including the curve-bending implosion triggered by the pandemic in April 2020.

The downturn in December tracked the weaknesses in new orders and production output seen in November with the difference of an upturn in employment which moved into positive territory. The segment employs close to 10 percent of the entire US workforce and the average compensation for workers is nearly 9 percent higher than for the rest of the private sector, meaning that household savings and spending from employees is a significant contributor to GDP.

Economic vulnerabilities

What happens when the manufacturing sector contracts?

Like the housing sector, the manufacturing sector accounts for a major part of economic activity, meaning that vulnerabilities can damage or even cripple growth. Manufacturing contributes nearly one quarter of total Gross Domestic Product (GDP) activity in the US, including direct and indirect values.

At the beginning of last year, the Federal Reserve anticipated the downturn in output seen in 2022 and forecasted that real GDP growth would step down in 2023 even as labour conditions remain tight. At the end of 2022, the Fed reiterated that “economic growth was still forecast to slow markedly in 2023,” according to the FOMC Minutes, December 2022.

The Fed’s forecast became a self-fulfilling prophecy. Part of the slowdown stemmed from the restrictive monetary policy that started in the first quarter of 2022 and tightened further throughout the year.

At the beginning of the new year, the Fed’s hawkish policy is not expected to change in the short term, an impression that’s strengthened by a quote from the Minutes: “No participants anticipated that it would appropriate to begin reducing the federal funds rate target in 2023.”

A restrictive monetary policy is likely to persist until inflation is on a ‘sustained downward path to 2 percent’. This will take some time although inflation is projected to decline markedly over the next year, according to the central bank.

Returning to the manufacturing sector, the rising cost of business loans and inflation pressures are significant barriers to funding new ventures and investing in job creation. On the other hand, supply bottlenecks and costs of raw materials have eased and the December performance in the jobs sector was better than expected, according to the ADP Employment Change report.

What to expect from the next Fed meeting

The last interest rate hike was 0.5 percent and the next one is seen at the same level, taking overall guidance to 5 percent.

Prior to the decision due for release on February 1, market sentiment could fluctuate during January depending on the Fed’s rhetoric during speeches and interviews. Chairman Jerome Powell is due to give a speech in Stockholm on January 10 that could include off-the-cuff comments to the media, for example. The USD might see support provided the Fed’s rhetoric is in line with the market’s expectations for an interest rate hike at the next meeting.

Other than the run up to the Fed’s rate decision, US data to watch in January includes the MBA Mortgage Applications figures for the week ending January 6. Last seen at minus 10.3 percent, the sharp drop in mortgage applications reflected the effects of rising interest rates which could in turn knock onto the banking sector’s revenues if the trend continues in the first quarter.

Fast approaching on January 12 is the US Core Inflation Rate release for December. Seen at the level of 5.9 percent compared with 6 percent in November, core inflation is the Fed’s main benchmark for evaluating price stability. Headline inflation is seen at 6.9 percent compared with the previous result of 7.1 percent in November. If inflation didn’t meet the market’s expectations and rose instead of falling in December, this could increase the chances of a more hawkish interest rate policy. A steeper than expected decline in inflation might mean the Fed will maintain a more moderate stance in the short term.

Finally, the preliminary Michigan Consumer Sentiment report for January is due out on January 13. Expected at the level of 60.5 compared with 59.7 previously, the important economic benchmark covers consumer sentiment, which accounts for approximately two-thirds of GDP in the US. Provided the indicator rises in line with expectations, this could support other more promising bright spots like the employment sector. There’s a chance that the benchmark index could disappoint expectations, dimming the outlook for growth.

Volatility

Will January be more volatile or less volatile compared to December when it comes anticipating the Fed’s next move? Stock markets ended last year in a bearish mood made worse by global recession fears and sell-offs in key sectors from technology to energy. Since inflationary headwinds have blown into 2023 from 2022, investors and traders should prepare for adjustments in the interest rate environment and watch for the effects of uncertainty on sentiment.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Retreating inflation and relatively moderate interest rate increases from the Bank of England (BoE), Federal Reserve and European Central Bank (ECB) have shifted market attention from high prices to the possibility of a global slowdown. 

China’s Industrial Production figures for November showed a distinct downturn. On an annual basis, industrial output fell from 5 percent in November 2021 to 2.2 percent in the same month this year. China’s caution on COVID-19 kept industrial centers under lock and key for much of the year and the country has only just begun to exit from its zero-tolerance coronavirus policy. After relying heavily on lockdowns to manage the spread of COVID-19, the policy change has resulted in a surge in new COVID cases that are weighing on economic activity - as was seen in other countries that opened earlier in the year.

Of significance to European and US luxury retailers who market their products to the 1.4 billion consumers in China, retail sales in the Asian giant declined from minus 0.5 percent in November last year to minus 5.9 percent in the same month this year. Considering that retail sales were expected at minus 3.7 percent, the weakness is likely to impact on the bottom line for the luxury retail sector which will have to wait longer until demand in China recovers.

Insights into the effects of subdued retail sales in China are likely to feed into purchasing manager indexes (PMI) in France, UK, Italy and Germany, all of which produce luxury clothing, accessories and cars. France’s S&P Global Flash Manufacturing PMI for December is in risky territory at 48.9 - anything under 50 indicates a contraction. Similarly, Germany’s Flash PMI for December came in at 47.4.

Taking the headwinds into account, it’s still counted as a bright spot that China will gradually return to normal and in the medium term, growth rates could start picking up.

Market news in the week before Christmas

Germany’s Ifo Business Climate report for December is out on Monday and is a key indicator to watch because the last reading was less pessimistic, coming in at a 3-month high of 86.3 for November. If the business climate declined significantly from November to December, it could be a warning sign for exports and supply bottlenecks. Already, less than half of the companies surveyed want to raise prices in the next three months, marking a drop from previous reports in Q4. The consensus for December’s Ifo survey is seen at 87.4.

In other trading news, the Reserve Bank of Australia will release its Meeting Minutes on Tuesday, providing further insight into the central bank’s outlook on interest rates. One of Australia’s primary export markets is Japan, where the interest rate policy diverges considerably with likely impacts on the balance of trade and foreign exchange.

“In my view, concern about a wage-spiral in Japan is far from warranted.” Speech by Nakamura Toyoaki Bank of Japan Member of the Policy Board, December 7, 2022.

The Bank of Japan focuses on long-term inflation expectations and sees prices in the services sector as changing more slowly than on imported and locally manufactured goods. The central bank is expected to maintain ultra-low interest rates at the level of minus 0.1 percent, continuing the divergence with trading partner Australia. If there are any surprises in the BoJ’s decision, there might be an impact on JPY currency crosses.

Another global central bank decision will be foreshadowed on Wednesday, when Canada’s inflation rate for November is expected. Price growth is seen at the level of 6.8 percent compared with 6.9 percent in October. If inflation rose unexpectedly, the Bank of Canada might decide on a more hawkish stance in January. By the same token, if inflation has dropped, the central bank might follow the less hawkish approach of the Federal Reserve, ECB and BoE.

Does trading on macroeconomic news interest you? Learn how this approach works with our free webinars. Meet and interact with expert traders. Watch and learn from live trading sessions.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.