Tag: Market Outlook

UPCOMING
EVENTS:

• Monday: China Caixin Manufacturing PMI, Switzerland
  Manufacturing PMI, Eurozone Flash CPI, Canada Manufacturing PMI, US ISM
  Manufacturing PMI.
• Tuesday: Eurozone Unemployment Rate, Canada-Mexico-China
  Tariffs Deadline, Trump Congress Speech.
• Wednesday: China Two-Sessions, Australia Q4 GDP, China
  Caixin Services PMI, Switzerland CPI, Eurozone PPI, US ADP, Canada
  Services PMI, US ISM Services PMI.
• Thursday: China Two-Sessions, Switzerland Unemployment
  Rate, Eurozone Retail Sales, ECB Policy Announcement, US Jobless Claims.
• Friday: Canada Employment Report, US Non-Farm Payrolls.

Monday

The Eurozone CPI
Y/Y is expected at 2.3% vs. 2.5% prior, while the Core CPI Y/Y is seen at 2.6%
vs. 2.7% prior. There’s some risk aversion in the markets, so a soft report
will likely ease some of those fears around inflation and give the ECB more
confidence to keep with the policy easing. Higher than expected figures though
would likely keep the markets on the edge. The market is expecting a total of
87 bps of easing by year-end.

The US ISM
Manufacturing PMI is expected at 50.8 vs. 50.9 prior. The recent S&P Global
US PMIs showed another uptick on the Manufacturing front with the index rising
to an 8-month high. The agency noted that many manufacturers also reported that
the rise in production and demand was in part linked to front-running potential
cost increases or supply shortages linked to tariffs, although future sentiment
remained relatively elevated in manufacturing by recent standards.

Wednesday

There’s no
consensus at the time of writing for the Switzerland CPI although the prior
release showed the Core measure rising to 0.9% vs. 0.7% prior. We haven’t got
any notable data point or comment from central bank officials, but the market
is certain of a 25 bps cut in March and is pricing around 60% probability of
another 25 bps cut by year-end.

The US ADP is
expected at 140K vs. 183K prior. This report will be seen in light of the
recent growth scare, so the market won’t like downside surprises. On the other
hand, strong data is likely to provide some support to the risk sentiment (all
else being equal).

The US ISM
Services PMI is expected at 52.9 vs. 52.8 prior. The S&P Global survey
showed some notable weakness in the Services sector with the index cratering to
a 25-month low. The agency noted that service providers commonly linked the
downturn in activity and worsening new orders growth to political uncertainty,
notably in relation to federal spending cuts and potential policy impacts on
economic growth and inflation outlooks. Optimism about the coming year slumped
to its lowest since December 2022.

Thursday

The ECB is
expected to cut interest rates by 25 bps bringing the policy rate to 2.50%. We
will get the Eurozone Flash CPI report a couple of days before the meeting so
that will likely shape their future sentiment. There’s been a growing concern
among some central bank officials about easing rates too fast amid high
services price inflation (which has been stuck around 4% since November 2023)
and tight labour market.

The US Jobless
Claims continue to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
continue to hover around cycle highs although we’ve seen some easing recently.

This week Initial
Claims are expected at 235K vs. 242K prior, while Continuing Claims are seen at
1883K vs. 1862K prior.

Friday

The Canadian
Employment report is expected to show 17.5K jobs added in February vs. 76.0K in
January and the Unemployment Rate to tick higher to 6.7% vs. 6.6% prior. Jobs
data has been beating expectations by a big margin in the last couple of months
as the aggressive BoC easing gave the economy a boost. The CAD though remains
at the mercy of the tariffs threats with the markets watching what happens on
Tuesday as the deadline expires.

The US NFP is
expected to show 153K jobs added in February vs. 143K in January and the
Unemployment Rate to remain unchanged at 4.0%. The Average Hourly Earnings Y/Y
is expected at 4.1% vs. 4.1% prior, while the M/M figure is seen at 0.3% vs.
0.5% prior. The Average Weekly Hours Worked is seen at 34.2 vs. 34.1 prior.

I personally think
that the recent risk-off sentiment has been triggered by the jump to a 30-year
high in the long-term inflation expectations in the final University of
Michigan Consumer Sentiment report. That might have not caused the selloff in
the stock market if it wasn’t for weak US Flash PMIs released just 15 minutes
earlier.

So, it kind of
compounded the effect on expectations that the Federal Reserve could react too
slowly to a slowdown in the economy due to the constraint of high inflation
expectations which would eventually lead to more economic pain.

Therefore, the
best-case scenario would be benign employment data coupled with lower than
expected wage growth data. Conversely, weak employment data and high wage
growth figures would likely trigger another selloff in the stock market and
renewed risk-off flows.

UPCOMING
EVENTS:

• Monday: BoJ Summary of Opinions, Australia Retail Sales,
  China Caixin Manufacturing PMI, Switzerland Manufacturing PMI, Eurozone
  Flash CPI, Canada Manufacturing PMI, US ISM Manufacturing PMI.
• Tuesday: US Job Openings, New Zealand Employment report.
• Wednesday: Japan Average Cash Earnings, China Caixin
  Services PMI, Eurozone PPI, US ADP, Canada Services PMI, US ISM Services
  PMI.
• Thursday: Switzerland Unemployment Rate, Eurozone Retail
  Sales, BoE Policy Decision, US Jobless Claims.
• Friday: Canada Employment report, US NFP, US University
  of Michigan Consumer Sentiment.

Monday

The Eurozone CPI
Y/Y is expected at 2.4% vs. 2.4% prior, while the Core CPI Y/Y is seen at 2.6%
vs. 2.7% prior. The inflation data we got from France
and Germany
on Friday showed further easing and saw the market adding to rate cuts bets
for the ECB. The market expects at least three more rate cuts by the end of
the year which could increase in case Trump goes hard on tariffs.

The US ISM Manufacturing
PMI is expected at 49.8 vs. 49.3 prior. The expectations are skewed to the
upside following the US
S&P Global Manufacturing PMI returning in expansion with an upbeat commentary
from the agency saying that “the US businesses are starting 2025 in an upbeat
mood on hopes that the new administration will help drive stronger economic
growth.

“Rising
optimism is most notable in the manufacturing sector, where expectations of growth over the coming year
have surged higher as factories await support from the new policies of the
Trump administration, though service providers are also entering 2025 in good
spirits.”

Tuesday

The US Job
Openings are expected at 8.000M vs. 8.098M. The last
report surprised to the upside as rate cuts and Trump’s victory boosted
business confidence and activity. Overall, the data continues to point to a
solid labour market although the low quits and hiring rates suggest that it
might be hard to get a job but there’s also less chance of losing one.

The New Zealand Q4
Employment change Q/Q is expected at -0.2% vs. -0.5% prior, while the
Unemployment Rate is seen increasing further to 5.1% vs. 4.8% prior. The Labour
Cost Index Y/Y is expected to ease to 3.0% vs. 3.4% prior, while the Q/Q rate
is seen at 0.6% vs. 0.6% prior.

The RBNZ got
inflation back within the target band and it’s now focusing on growth much like the Bank of Canada. The market expects
another 50 bps cut at the upcoming meeting and a total of 120 bps of easing by
year end.

Wednesday

The Japanese
Average Cash Earnings Y/Y is expected at 3.8% vs. 3.0% prior. As a reminder,
the BoJ hiked interest rates by 25 bps at the last meeting as the central bank
got enough evidence of stronger wage growth.

We haven’t got
much in terms of forward guidance other than the usual “will raise rates if the
economy and prices move in line with forecasts”. If the data keeps on strengthening
though, the market might move forward the expectations for a rate hike or even
price in one more hike by the end of the year.

The US ADP is
expected at 150K vs. 122K prior. This is not a reliable indicator for NFP, but
it’s been pointing to a normalising but stable job creation. It shouldn’t
be as market moving as it was in second half of last year as the market has
already repriced interest rate expectations and it’s now just about further
easing in inflation.

The US ISM
Services PMI is expected at 54.2 vs. 54.1 prior. The US
S&P Global Services PMI missed expectations by a big margin but as the
agency noted “although output growth slowed slightly in January,
sustained confidence suggests that this slowdown might be short-lived.

Especially
encouraging is the upturn in hiring that has been fuelled by the improved
business outlook, with jobs being created at a rate not seen for two-and-a-half
years.” Anyway, the Manufacturing PMI is a better indicator for the turns in
the business cycle.

Thursday

The Bank of
England is expected to cut interest rates by 25 bps bringing the Bank Rate to 4.5%
with a 7-2 vote split. As a reminder, the BoE kept the Bank Rate unchanged as expected at the last
policy decision but we got a more dovish than expected vote split as 3
voters wanted a rate cut compared to just 1 expected.

Policymakers
continue to lean towards four rate cuts for this year compared to three rate cuts expected by the market.
The recent UK
PMIs showed all the indices jumping to a three-month high although the S&P
Global noted that companies have been cutting employment amid falling sales and
that price pressures reignited pointing to a stagflationary scenario. It
adds that although output ticked higher, it’s an economy that is broadly
flatlining with risks remaining skewed to the downside.

The US Jobless
Claims continue to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial
Claims remain inside the 200K-260K range created since 2022, while Continuing Claims continue to hover around
cycle highs although we’ve seen some easing recently.

This week Initial
Claims are expected at 215K vs. 207K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior release showed a
decrease to 1858K vs. 1900K prior.

Friday

The Canadian Employment
report is expected to show 25K jobs added in January vs. 90.9K in December and
the Unemployment Rate to tick higher to 6.8% vs. 6.7% prior. The last
report was really strong with wage growth easing further. The data from
Canada has been pointing to gradual improvement after the aggressive rate cuts
which would have likely seen the CAD getting stronger if it wasn’t for Trump’s
tariffs threats.

The US NFP is
expected to show 170K jobs added in January vs. 256K in December and the
Unemployment Rate to remain unchanged at 4.1%. The Average Hourly Earnings Y/Y is
expected at 3.8% vs. 3.9% prior, while the M/M figure is seen at 0.3% vs. 0.3%
prior.

The last
report came out much stronger than expected and led to another hawkish
repricing in interest rates expectations, although eventually it marked the
top as we got benign US inflation data the following week.

The Fed is
mainly focused on inflation now given that the labour market remains solid and it’s not a source of
inflation pressures given the easing wage growth and a low quits rate. The data
we got up to now points to another strong employment report.