- US rate call could irk monetary policy hawks if no movement seen
- Will buoyant German employment data underline divergent state of Eurozone recovery?
- UK CBI data has potential to show supply chains normalsing.
Monday 24th
The week starts with a slew of flash Manufacturing and Services PMI data, with Eurozone and UK prints leading the way. As always, the key number to watch for here is how close these readings sit to the break-even 50 mark. The assumed trend for both sets is that Services PMI will soften a little, whilst manufacturing will tick higher. That services figure may be a cause for concern as the dual impacts of rapidly rising inflationary pressures and COVID lockdowns will be dragging on growth here and inflation may end up lingering far longer than this latest peak of the pandemic.
Later in the day, US Manufacturing and Services PMI data will be published. Again, it’s expected to be a story of decent growth, but the comparative absence of harsh lockdown restrictions across the pond seems likely to ensure that both prints remain comparatively upbeat. The risk here would be any surprise shortfall in those prints which are expected to land in the upper 50’s and arguably this is something that may result in downside pressure on wider US sentiment.
Tuesday 25th
Tuesday morning will see the publication of the UK’s CBI Business Optimism Index for Q1. This reading rallied hard last Spring off the back of optimism over the expected post-pandemic rebound, but confidence has been steadily eroded since. Forecasts suggest this print could come in not much above zero, although will hopefully be up on the +2 we saw registered in Q4 ’21. Concerns over the supply chain have been dragging sentiment lower here, so even a relatively modest improvement could be interpreted as an early indication that distribution networks may be starting to normalise.
Wednesday 26th
The big release on Wednesday will be the Federal Reserve’s Monetary Policy statement. Despite runaway inflation, expectations remain that we won’t see any change in rates here until the March meeting, but there’s talk that the fed may well need to strengthen its rhetoric in a bid to wind in market exuberance. A quarter point hike here would be a very blunt tool, knocking equities and arguably spiking the greenback too, so something more nuanced would perhaps be a better fit although rate increases surely aren’t that far off.
Thursday 27th
Thursday sees the forward looking Gfk Consumer Confidence data from Germany for February. After three months of declines, this is expected to stage a modest reversal and whilst likely to remain underwater, is tipped to come in around -4, up from the -6.8 printed a month ago. Whether that’s achievable given the fact high levels of inflation are impacting the Eurozone remains to be seen, but at least Germany has a very robust labour market so again stands to fare better than many in the currency bloc.
US Q4 GDP will also be released on Thursday and this is forecast to show a meaningful jump from the 2.3% seen in Q3. Analysts are suggesting a number a little over 5% will be delivered and again this will provide more ammunition for policy hawks who want to see the Fed acting more aggressively to cool the economy. As such, anything that looks too hot here could serve to take a toll on US equities, although it needs to be considered that Wednesday’s FOMC statement could arguably front-run this news.
Friday 28th
Rounding out the week on Friday, we have December’s German Unemployment data set for release. This could hit pre-pandemic all time lows of just a shade over 3%, but it also has the potential to flag further divergence in terms of economic prosperity across the currency bloc. Given inflation is soaring whilst employment in many states remains sluggish, ECB action to moderate price growth needs to be carefully managed. With that in mind, the impact of an upbeat number here – maybe beyond lending some support for German consumer stocks – could be difficult to see play out in debt or currency markets.
Finally, US Income and Spending data for December will be issued. The pattern of consumers borrowing to fund purchases may be broken in this set of releases, with expectations suggesting income could comfortably exceed outgoings. That however has the potential to send something of a prompt to markets over whether confidence is starting to wane so if stock have had a good week, this may well end up serving as a catalyst for at least a degree of profit taking.
