The latest non-farm payrolls out of the United States will be on traders’ watch list next week as another solid report will likely be taken as confirmation that the Fed will raise rates when it meets in mid-March. In the meantime, there will be other central bank meetings to keep traders occupied as both the Reserve Bank of Australia and the European Central Bank meet for their policy meetings.
RBA likely to remain neutral
Following the upbeat fourth quarter GDP figures this week out of Australia, the RBA is not expected to shift its neutral tone when it meets on Tuesday. The Australian economy grew by a bigger-than-expected 1.1% quarter-on-quarter in the final three months of 2016, more than recovering from a 0.5% dip in the prior quarter and reinforcing the RBA’s view that the economy is quickly returning to above-trend growth. However, despite the diminishing odds of a rate cut, the Australian dollar has struggled to move past $0.77 and has come under renewed pressure this week from the stronger greenback and weaker commodity prices. The RBA’s statement next week will therefore likely have limited impact on the aussie as it’s expected to stick to its recent stance, with the currency being more driven by US dollar moves. Also to watch for the aussie next week are retail sales numbers out on Monday.
Canadian jobs eyed after dovish Bank of Canada statement The Bank of Canada has been giving out mixed signals with regards to its outlook for the Canadian economy. Having unexpectedly flagged the possibility of a policy easing in the autumn, the BoC had been more confident at the start of the year that inflation is moving closer to its 2% inflation target. However, at its last policy meeting on Wednesday, the Bank sounded more worried about the “significant uncertainties” that could impact the economic outlook. Employment data due on Friday will consequently be watched closely for any signs that the slack in the labor market is increasing. The Canadian economy is not forecast to add any jobs in February, after a 48.3k gain in the previous month. A weaker-than-expected reading could hurt the loonie, which has slid over 2% against its US counterpart over the past week due to weaker oil prices and Fed rate hike expectations.
Chinese exports growth expected to accelerate further in February
Exports from China rose at the fastest pace in two years in January, signalling a strong start to the year for Chinese manufacturers. That momentum is expected to hold in February, with exports forecast to rise by 10% year-on-year when released on Wednesday. The data should provide some support to the yuan if it meets or surpasses expectations. The yuan weakened to 6.9 to the dollar for the first time since January today on the back of the bullish greenback. Investors are also on alert for a possible hike in the benchmark one-year lending rate by the People’s Bank of China following increases in short term rates last month. Apart from excess capital outflows and rising household and corporate debt levels, a surge in producer prices is also of concern to the PBOC. Producer prices are forecast to rise from 6.9% to 7.7% y/y in February, though a slowdown in consumer price inflation from 2.5% to 1.6% over the same period may provide the PBOC with some additional time before raising its key rate.
ECB meets amid heightened election uncertainty
The ECB will announce its latest policy decision on Thursday and is expected to hold its main rates and its asset purchase program unchanged. ECB President, Mario Draghi, will likely once again attempt to play down talk of the central bank winding down its bond purchases even as headline inflation hits 2%. Draghi could also be questioned about whether the upcoming elections in the Netherlands and France is influencing policymakers’ decision as the uncertainty surrounding the region’s political scene has driven the euro to near 7-week lows against the dollar. Also to watch for the Eurozone next week are Monday’s sentix index and Tuesday’s GDP revisions for the fourth quarter, as well as German industrial production on Wednesday.
Will the US jobs report give the Fed the green light?
As the markets dramatically adjust their expectations of an imminent rate hike by the Federal Reserve, Friday’s jobs report could provide the final clue as to what the Fed will announce at the March 14-15 FOMC meeting. Before then however, factory orders on Monday and the trade balance on Tuesday (both for January) will be in focus. Wednesday’s ADP employment report will also be watched as it’s a good indication of what the official payrolls numbers will look like on Friday.
The US economy is forecast to add 186k jobs in February, which would be down from January’s figure of 227k, but nevertheless a solid reading as it’s well above the 100k mark which the Fed considers to be a healthy number. Average earnings, another important indicator for the Fed, is expected to grow by 0.3% month-on-month, up from 0.1% the prior month. A weaker-than-expected reading would very likely cause a sell-off for the dollar given the recent build-up in anticipation of a March tightening, whereas a report that’s within analysts’ estimates or better would only reinforce a Fed hike later this month.
In other notable data releases next week, Japan will publish its second estimate of fourth quarter growth for 2016 on Wednesday where an upward revision is expected. Meanwhile, the UK will see the release industrial output figures for January on Friday where a monthly contraction is forecast.