The Week Ahead: China, the Fed, and the Bank of England in Focus

Highlights

• Central banks take center stage, with the Fed and the Bank of England delivering interest rate decisions.
• US consumer confidence and the US Jobs Report will impact investor bets on a March Fed rate cut.
• The Eurozone economic calendar and private sector numbers from China also need consideration.

The US Dollar

On Monday, the Dallas Fed Manufacturing Index will garner investor interest. Recent US economic indicators, including private sector PMI and Q4 GDP numbers, raised expectations of a soft landing. A larger-than-expected decline could impact buyer demand for the US dollar.

However, consumer confidence and JOLTs Job Openings will likely have more influence on Tuesday. Strong consumer confidence and an upward trend in job openings could reduce bets on a March Fed rate cut.

On Wednesday, ADP employment figures for January warrant investor interest ahead of the Fed interest rate decision. The US labor market remains a focal point for the Fed. Tight labor market conditions support wage growth and disposable income. Upward disposable income trends fuel consumer spending and demand-driven inflation.

However, the Fed interest rate decision, Rate Statement, and Press Conference will be the main event. Economists expect the Fed to leave interest rates at 5.50%, putting the focus on the Rate Statement and Press Conference.

On Thursday, US jobless claims, nonfarm productivity, and unit labor costs need consideration. Softer labor market conditions could influence bets on a March Fed rate cut. Other stats include ISM Manufacturing PMI numbers. However, barring a slump in manufacturing sector activity, the numbers will likely play second fiddle to the labor market data.

On Friday, the US Jobs Report will wrap up a busy week for the US dollar. Wage growth, nonfarm payrolls, and the US unemployment rate will influence bets on a March Fed rate cut.

Other stats include finalized Michigan Consumer Sentiment numbers for January. Revisions to preliminary numbers and inflation expectation numbers also need consideration.

The EUR

On Tuesday, French, German, and Eurozone GDP numbers for Q4 will influence buyer appetite for the EUR/USD. An increasing threat of a Eurozone economic recession could influence the timing of ECB discussions about rate cuts.

On Wednesday, the German economy will be in the spotlight. German retail sales, unemployment, and inflation numbers warrant investor attention. A deteriorating macroeconomic environment could drag the Eurozone into a recession.

However, preliminary inflation numbers from Germany and France may influence the ECB rate path more.

Manufacturing PMI numbers from Italy, France, Germany, and the Eurozone will be in focus on Thursday. However, preliminary Eurozone inflation figures for January will be the focal point for investors.

Beyond the numbers, ECB commentary also needs monitoring. ECB Chief Economist Philip Lane (Tues/Thurs), Vice President Luis de Guindos (Mon), and Executive Board member Anneli Tuominen (Tues) are on the calendar to speak.

The Pound

On Wednesday, the Pound will be in the hands of the UK housing market. A larger-than-expected fall in UK house prices could impact consumer confidence, spending, and inflation trends.

However, the Bank of England interest rate decision is the main event. Economists expect the BoE to leave interest rates at 5.25% on Thursday. A hold on interest rates would put the focus on the MPC Meeting Minutes and BoE Governor Andrew Bailey.

Governor Bailey will speak later in the Thursday session. In December, two MPC members voted for a rate hike. A hawkish BoE would drive buyer demand for the Pound.

On Friday, BoE Chief Economist Huw Pill will close out a busy week for the Pound.

Other stats include finalized Manufacturing PMI numbers for January (Thurs). However, the markets will likely brush aside the numbers, with the BoE in the spotlight.

The Loonie

On Wednesday, GDP numbers for November will provide direction to the Loonie. A pickup in economic activity could delay Bank of Canada plans to cut interest rates.

Last week, the Bank of Canada left interest rates at 5.25%.

The Australian Dollar

On Tuesday, finalized retail sales figures for December will influence buyer appetite for the Aussie dollar. An upward revision to preliminary numbers could influence bets on an RBA rate hike in February.

However, Q4 inflation figures (Wed) will be the focal point for the RBA and the markets. Hotter-than-expected inflation figures could cement an RBA rate hike.

On Friday, producer price figures for Q4 also need consideration. Economists consider producer prices a leading indicator of consumer price inflation.

From elsewhere, private sector PMIs from China and stimulus chatter from Beijing warrant investor attention.

The Kiwi Dollar

The Kiwi dollar will be in the hands of private sector PMI numbers from China. A pickup in private sector activity would be a boon for the New Zealand economy and the Kiwi dollar.

NBS Private sector PMIs (Wed) and the all-important Caixin Manufacturing PMI (Thurs) will move the dial.

There are no economic indicators from New Zealand to consider.

The Japanese Yen

On Wednesday, industrial production numbers for December will put the Japanese Yen in the focus. A pickup in industrial production could support bets on a Bank of Japan pivot from negative rates.

The BoJ recently raised concerns about the macroeconomic environment, delaying discussions about exiting negative rates.

Beyond the numbers, investors must track BoJ chatter throughout the week.

Out of China

On Wednesday, NBS Manufacturing and Non-Manufacturing PMIs for January warrant investor attention. A pickup in private sector activity would drive buyer demand for riskier assets.

However, the Caixin Manufacturing PMI (Thurs) will likely have more impact. An unexpected contraction would pressure Beijing to deliver more stimulus measures to bolster the economy.

Beyond the numbers, investors must monitor stimulus comments from Beijing.