As usual, Monday is expected to be a relatively quiet day with nothing significant on the calendar. Moving on to Tuesday, Switzerland is set to reveal the KOF Economic Barometer, while the U.S. will get the CB Consumer Confidence and JOLTS Job Openings data.
Wednesday will bring the BoJ Summary of Opinions for Japan, Australia's inflation data, and significant prints for the U.S., including the ADP Non-Farm Employment Change and the Employment Cost Index quarter-on-quarter. However, the day's most important release will be the FOMC policy announcement.
Thursday's noteworthy events include OPEC-JMMC Meetings and the release of the BoE Monetary Policy Report, Monetary Policy Summary, MPC Official Bank Rate Votes and the Official Bank Rate for the U.K. Meanwhile, in the U.S., attention will be on the Unemployment Claims, Final Manufacturing PMI, ISM Manufacturing PMI and ISM Manufacturing Prices.
Closing the week on Friday, the U.S. will witness key releases, including Average Hourly Earnings m/m, Non-Farm Employment Change, the Unemployment Rate and the Revised UoM Consumer Sentiment and Inflation Expectations.
The consensus for the KOF Economic Barometer is for a rise from 97.8 to 98.3. This is not necessarily a market moving indicator, but a significant deviation from expectations might cause some volatility and impact the CHF. Despite moderate improvement over the past two months, the barometer is still below its long-term average, suggesting that the Swiss economy remains under pressure.
Throughout the previous year, Australia experienced a surge in prices for fresh food and energy due to cold weather conditions, contributing to elevated inflation levels. Additionally, a surge in tourism further fueled inflationary pressures. However, recent data suggests that inflation is cooling down. The expectation for this week's CPI m/m print is an increase of around 0.8%, but the y/y figure is anticipated to decrease from 4.3% to 3.5%. This is still above the RBA's desired target range of 2-3%, so the central bank is likely to wait for clear evidence of a sustained inflation cooling before considering rate cuts.
During this week's FOMC meeting, it is widely anticipated that the Federal Reserve will maintain the federal funds target range at 5.25-5.50%. A noteworthy development occurred during the December FOMC meeting, where the Fed adopted a dovish stance, signaling potential rate cuts in the coming year.
Initially, the market priced in seven 25bps rate cuts for the year, with the first expected in March. However, the landscape has since shifted, with robust labor market data introducing uncertainty about that timing as the Fed may adopt a more patient approach. That said, the Core PCE deflator, a key inflation metric for the Fed, has consistently hovered around 2% annualized for two consecutive quarters, suggesting inflation is softening so it's only a matter of time until rate cuts will start. ING analysts forecast a rate target range of 3.75-4% this year with potential cuts starting in May.
At this meeting, particular attention will be given to Federal Reserve Chair Powell's remarks on whether inflation is firmly on a path to 2%. Analysts from Wells Fargo have noted market discussions regarding potential changes to the pace of QT and there are expectations that this meeting may involve discussions about the path forward for the Federal Reserve's balance sheet. The analysts now expect QT pace to slow down starting in June, but they wouldn't be surprised if this happens earlier, in May.
Meanwhile in the U.K., the BoE refrained from signaling rate cuts at the last meeting in December due to the fact that inflation remains elevated compared to its desired target of 2%. At this meeting, the market focus will be on what BoE Gov Bailey has to say about this “higher for longer” stance considering that inflation shows some signs of improvement and the market has already priced in around 100bps of cuts for this year.
The consensus for the U.S. Final Manufacturing PMI is to remain unchanged at 50.3, while expectations for the ISM Manufacturing PMI are for a drop from 47.4 to 47.0. The ISM Manufacturing Prices index is likely to see a rise from 45.2 to 45.6.
The pressure from elevated interest rates and weaker economic growth has continued to put pressure on the factory sector. The ISM manufacturing index has remained in contractionary territory for 14 consecutive months. There are some signs that manufacturing activity might start to improve over the next months especially given the prospect of rate cuts. The preliminary S&P Global US Manufacturing index for January already surprised to the upside.
As far as the U.S. job market data goes, the consensus for the Average Hourly Earnings m/m is for a rise of 0.3% compared to the prior 0.4% while the Non-Farm Employment Change is expected to see a decrease from 216K to 177K. The unemployment rate is anticipated to slightly rise from 3.7% to 3.8%.
Analysts at ING point out that despite a growing number of job lay-off announcements, the trend was not reflected in jobless claims data, suggesting that people don't have a problem finding new employment. The expected growth in payrolls, despite lower than last month, will continue to be driven by the government, leisure and hospitality, and education and healthcare services sectors, but Wells Fargo expects further moderation in the months ahead.
This article was written by Gina Constantin.
