The Week Ahead: Services PMIs, the RBA, Fed Speakers, and China in Focus

Highlights

• Service sector PMIs will set the tone for the week, as certain economies face the rising threat of a Q1 recession.
• On Tuesday, the RBA will deliver its first interest rate decision for 2024 and could discuss the timing rate cuts.
• However, investors must also consider inflation numbers from China and central bank commentary throughout the week.

The US Dollar

On Monday, the all-important ISM Non-Manufacturing PMI will garner investor interest. A pickup in service sector activity could further reduce bets on a March Fed rate cut. Recent US economic indicators, including the US Jobs Report, left the probability of a March Fed rate cut at 38% on Friday.

However, investors must consider the sub-components of the PMI, including prices and employment.

On Tuesday, the RCM/TIPP Economic Optimism Index needs consideration. An upward trend in sentiment toward the economy could drive buyer demand for the US dollar.

The US labor market will be under the spotlight on Thursday. Another upswing in jobless claims could raise bets on a March Fed rate cut.

Beyond the numbers, investors must monitor FOMC member speeches. FOMC members Barkin (Wed/Thurs), Bostic (Mon), Bowman (Wed), and Mester (Tues) are on the calendar to speak. Views on the economic outlook, inflation, and the Fed rate path would move the dial.

The EUR

On Monday, trade data from Germany will kickstart the week for the EUR/USD. A slide in exports would support rising expectations of a Q1 economic recession. However, service sector PMIs for January also need consideration later in the session. An upward revision to the preliminary PMI numbers and the PMI from Italy would move the dial.

The services sector accounts for over 60% of the Eurozone economy and remains the main contributor to inflation. Beyond the numbers, investors must consider the prices and employment sub-components.

German factory orders will be in focus on Tuesday, with industrial production numbers on Wednesday. Further declines in orders and production would send Q1 recessionary signals.

Finalized German inflation numbers for January wrap up another important week for the EUR/USD. A downward revision to preliminary numbers would fuel bets on an April ECB rate cut.

Beyond the numbers, ECB commentary also needs monitoring. ECB Chief Economist Philip Lane (Thurs) and Executive Board members Frank Elderson (Thurs) and Piero Cipollone (Fri) are on the calendar to speak.

The Pound

On Monday, finalized UK Services PMI numbers will put the Pound under the spotlight. An upward revision to the Services PMI could influence the timing of a Bank of England rate cut. However, investors must consider, input price inflation, and employment sub-components.

The BRC Retail Sales Monitor will garner investor interest on Tuesday. A smaller-than-expected rise could instigate Bank of England discussions about interest rate cuts.

On Wednesday, the UK housing sector will be in focus. Deteriorating housing sector conditions could impact consumer confidence and spending and dampen demand-drive inflation.

The RICS House Price Balance report for June also needs consideration on Thursday.

Beyond the numbers, investors must track Bank of England commentary. Bank of England Chief Economist Huw Pill (Mon), Sarah Breeden (Wed), and Catherine Mann (Thurs) are on the calendar to speak.

The Loonie

On Wednesday, Bank of Canada Governor Macklem will influence buyer demand for the Loonie. Forward guidance on inflation and monetary policy intentions would move the dial.

However, trade data also needs consideration on Wednesday. A pickup in exports and a widening in the trade surplus would impact the USD/CAD.

On Friday, employment numbers from January need to signal steady labor market conditions to avoid a USD/CAD rally.

The Australian Dollar

It is an important week for the Aussie dollar. On Monday, trade data for December will draw investor interest. Australia has a trade-to-GDP ratio of over 50%. A pickup in demand could delay RBA discussions about an interest rate cut.

On Tuesday, retail sales also warrant investor attention. Downward trends in retail sales could dampen demand-driven inflationary pressures. A softer inflation outlook could allow the RBA to bring forward the timing of an RBA rate cut.

However, the RBA interest rate decision is the main event of the week. Economists expect the RBA to leave interest rates unchanged at 4.35% on Tuesday. Forward guidance on inflation, household spending, and interest rates would move the dial.

From elsewhere, investors must also consider economic indicators from China.

The Kiwi Dollar

On Thursday, inflation expectation numbers for Q1 will influence the buyer appetite for the Kiwi dollar. Softer-than-expected inflation expectations would impact the buyer demand for the New Zealand dollar.

From elsewhere, investors must also consider economic indicators from China.

The Japanese Yen

On Monday, finalized services PMI numbers for January will influence the buyer appetite for the Japanese Yen. The services sector accounts for over 60 of the Japanese economy. An upward revision to service sector activity could fuel bets on an H1 2024 Bank of Japan pivot from negative rates.

However, household spending numbers for December also warrant investor attention. A pickup in household spending could fuel demand-driven inflation and force the BoJ to exit negative rates.

Beyond the stats, investors must track BoJ chatter throughout the week. Views on a pivot from negative rates would move the dial.

Out of China

On Monday, the Caixin Services PMI for January will draw investor interest. The services sector accounts for over 50% of the Chinese economy. A pickup in service sector activity could fuel demand for riskier assets and trade-sensitive currencies, including the Aussie and Kiwi dollars.

However, investors must also consider inflation numbers out on Thursday. A less marked-than-expected decline in producer prices and a larger-than-forecast rise in consumer prices would favor riskier assets. Producers adjust prices based on the demand environment. Importantly, producer prices are a leading indicator of consumer price inflation.

Beyond the economic calendar, investors must consider stimulus chatter from Beijing.