Japanese stocks opened the week higher as the post BoJ rally extends. But China equities are under mild pressure after PMI misses. Aussie is also weighed down mildly on concern of slowdown in China. The official China PMI manufacturing dropped to 49.4 in January versus expectation of 49.6. That's the lowest reading since August 2012 and the sixth straight month on contraction, the longest losing streak on record. The official non-manufacturing PMI also dropped to 53.5. The Caixin PMI manufacturing, on the other hand, rose slightly to 48.4, above expectation of 48.1. Markit noted that "according to panellists, relatively weak market conditions and fewer new orders led firms to cut production." From Japan PMI manufacturing was revised down to 52.3 in January.
PMI data will be the main focus today Eurozone will release PMI manufacturing revision. But focus will be on UK PMI manufacturing which is expected to drop slightly from 51.9 to 51.8 in January. UK will also release mortgage approvals and M4 money supply. Swiss will also release SVME PMI. From US, personal income and spending will be released. More focus would be on ISM manufacturing which is expected to stay below 50 in January. The employment component of ISM manufacturing was below 50 in December and October last year. And a focus will be whether this component can recover back to 50.
The economic calendar ahead is very busy. Two central banks will meet. While RBA will most likely keep interest rates unchanged, Aussie could be vulnerable if RBA flags cut later in the year. BoE is widely expected to keep interest rate and asset purchase target unchanged. Markets have been pricing out of a rate hike this year. And such expectations would be further adjusted on the updated projections in the quarterly inflation report.
Non-farm payroll report will continue to be a main focus. The market pricing of 16% chance practically means that Fed won't hike in March. And furthermore, fed fund futures are only pricing in 33% chance for a June hike only. Some analysts noted that last week's move by BoJ was another important sign of global economic slowdown. And policy divergence between Fed against ECB and BOJ would risk strengthening dollar while dampen inflation in US. And, a batch of strong employment data may not chance such expectations in near term.
Here are some highlights for the week:
- Tuesday: RBA rate decision Swiss retail sales; German unemployment; UK construction PMI
- Wednesday: New Zealand employment; Australia building approvals, trade balance; Japan consumer confidence; Eurozone retail sales; UK PMI services; US ADP employment, ISM services
- Thursday: ECB monthly bulletin, retail PMI; BoE policy decision and inflation report; US jobless claims, non-farm productivity, factory orders
- Friday: Australia retail sales; Japan leading indicators; German factory orders; Swiss currency reserves; Canada employment and trade balance, Ivey PMI; US non-farm payroll, trade balance