As the first week of the year draws to a close

As the week draws into a close, we take a look at what next week has in store for the markets. On Monday, we make a start with China with the release of the Caixin Services PMI figure for December, followed the Eurozone’s sentix index figure for January, Germany’s preliminary HICP rates for December, the US Factory orders rate for November and Canada’s Ivey PMI figure for December. On Tuesday, we get the UK’s Halifax house prices , Switzerland’s CPI rate, France’s and the Eurozone’s preliminary HICP rates all for December, the Eurozone’s unemployment rate for November , Canada’s trade balance figure for November, the US ISM Non-Manufacturing PMI figure for December and the US JOLTs Job Openings for November. On Wednesday, we get Australia’s CPI rate November, Germany’s industrial orders rate for November, Sweden’s preliminary for December, the US ADP National employment figure for December, the Eurozone’s preliminary consumer confidence figure for January. On Thursday, we get Australia’s trade balance figure for November, China’s PPI and CPI rates for December, followed by Turkey’s unemployment rate and Germany’s industrial orders rate both for November, the Czech Republic’s unemployment rate for December and the US weekly initial jobless claims figure. Lastly, on Friday we start with Switzerland’s unemployment rate for December, Sweden’s GDP rate for November, Norway’s CPI rate for December and the highlight of the week which is the US Employment data for December and ending off the week with Canada’s employment data also for December and lastly the US preliminary University of Michigan consumer sentiment figure for January. On a monetary level we note on Tuesday the speech by Richmond Fed President barkin, on Wednesday the release of the FOMC’s December meeting minutes and on Thursday the speeches by Philadelphia Fed President Harker, BoE Deputy Governor Breeden, Richmond Fed President Barkin and Kansas City Fed President Schmid.

US Employment data next week

• On a fundamental level, President-elect Trump inauguration is set to occur this month, which in itself may have an impact on the markets.
• On a macroeconomic level, we get the US employment data next week which could bring a very interesting start to the year. The current expectations are for the NFP figure to come in at 150k with the unemployment rate set to remain steady at 4%, which could influence the market’s direction. Generally speaking, it is our view that we are now at a crossroads, where on the one hand we have the Fed implied that they may keep rates higher for longer and on the other hand, financial releases which could influence the Fed’s decisions down the line. Nonetheless, with the current expectations by economists, we would not be surprised to see a partial weakening of the greenback. Yet the unemployment rate remaining steady at 4% could take the stage in terms of financial releases. Although it should be said that the FOMC’s minutes could take the center stage for the better part of the week.
• On a monetary policy level, we note the release of the Fed’s last meeting minutes which is due out on Wednesday. The meeting minutes could shed some helpful insight into the Fed’s inner deliberations and in our view, could show the Fed preparing or taking into account the incoming administration’s alleged economic policies. Thus, should the minutes showcase a hawkish Fed which is our current view, then it could aid the greenback and vice versa.

Analyst’s Opinion

We are very interested in the release of the Fed’s last meeting minutes, as they could set the tone for the first quarter of the year and thus may garner significant attention. Moreover, the US Employment data before Trump’s inauguration will also be a highlight for next week. In our view, we wouldn’t be surprised to see the Fed’s minutes showcasing a willingness to remain restrictive for a prolonged period of time.

GBP – Easy going week for the pound

• On a monetary level, we don’t have much to say about the UK. The holidays and these last two days appear to have been relatively easy-going for cable traders as no major speeches from BoE officials where made over these last two days. The same might be said for next week, with the exception of the planned speech by BoE Deputy Governor Breeden on Thursday, which may be of interest. Should the Deputy Governor imply that the bank may withhold from cutting interest rates in the near future, it could aid the pound and vice versa.
• On a macroeconomic level, the nationwide house prices index rate for December was released during today’s early European trading session. On a year-on-year level the rate came in higher than expected at 4.7% versus 3.8% and thus may be somewhat of a positive note for the UK economy and thus could potentially aid the pound. Although, we remain concerned about the overall health of the UK’s economy.

Analyst’s Opinion

In our view, the BoE may be looking towards Trump’s comments once he is inaugurated as his foreign policy could also impact the UK economy as well, thus we would not be surprised to see BoE policymakers opting for a cautious approach to their monetary policy decisions in the near future.

JPY – Fundamentals for the BOJ next week

• This week has been a relatively quiet week for the JPY traders in terms of financial releases. Yet, we would like to note the release of the Jibunk manufacturing PMI figure for December which came in higher than expected at 49.6 versus the expected figure of 49.5. The better-than-expected figure may have aided the JPY yet the figure still implies that the manufacturing sector of the Japanese economy remains in contraction territory. Looking at what next week has in store for JPY traders, we would not be surprised to see the JPY cede control to other pairs such as the USD which has a number of high impact financial releases due out.

Analyst’s opinion

For 2025, with many bank’s now on a rate cutting path, we may see the Yen strengthening as the BOJ could continue hiking interest rates during the year, when other central banks such as the ECB could continue cutting rates. Nonetheless, time will tell and we would like to see the bank adopting a much more determined tone for future rate hikes.

EUR – HICP rates next week.

• On a monetary level, we highlight ECB President Lagarde’s comments earlier on this week, in which she stated per Bloomberg, that the bank hopes to hit its 2% inflation target this year. In turn, the implications that the bank may be reaching it’s 2% inflation target may be perceived as dovish in nature and thus could weigh on the EUR as the new year begins.
• On a macroeconomic level, EUR traders may be interested in the release of the Eurozone’s, France’s and Germany’s preliminary HICP rates which are set to be released next week. Currently economists are expecting the HICP rates to showcase a slight acceleration in inflation, which could imply that the bank may still have some work to do before fully declaring victory against inflation. Thus should the preliminary HICP rates come in as expected or higher, it could aid the EUR. Whereas a lower-than-expected figure could weigh on the common currency.
• Fundamentally, we would like to note that Germany’s early elections are set to take place next month and thus heavy emphasis may be placed on polling results, as Germany heads to the polls.

Analyst’s opinion

We would not be surprised to see the EUR gaining next week should the HICP rates come in as expected, yet we would also not be surprised to see the overall tone from ECB policymakers being relatively dovish in nature.

AUD – CPI rates next week

• On a macroeconomic level, Australia’s CPI rate for November is due out next Wednesday. The prior reading came in at 2.3% and thus traders may be looking forward to seeing if inflation has eased or accelerated in Australia’s economy. Thus we place forth two scenarios, with the first being an acceleration of inflationary pressures in the Australian economy. In such a scenario, we may see the Aussie strengthening, as it may imply that the RBA could adopt a more restrictive and hawkish stance in their next monetary policy meeting. The second scenario is for the CPI rate to showcase easing inflationary pressures, which in turn could allow the RBA to adopt a softer tone and potentially opening the door for a looser monetary policy stance. Such a scenario could weigh on the Aussie.
• On another note, given Australia’s close economic ties with China, we would like to note that the recent measures by President Xi on Wednesday, in which he stated that the government would adopt more proactive policies, may have also aided the AUD.

Analyst’s opinion

The possibility of a trade war with China with the new US administration could keep the RBA on its feet as the Chinese economy in our view is still in trouble. Thus, a further deterioration in China could inadvertently weigh on the AUD, in spite of the proposed proactive measures as stated by President Xi.

CAD – Employment data next week for Canada

• On a macroeconomic, Canada’s employment data for December is set to be released next Friday. We could also note Canada’s Ivey PMI figure earlier on in the week and their trade balance figure for November, yet those may be secondary to the Employment data. As such, Canada’s unemployment rate is of interest for us and should it showcase a loosening labour market, it could weigh on the Loonie and vice versa.
• Moreover, the employment data could also influence the BoC’s next steps, as a loosening labour market could intensify calls for the BoC to continue on their rate cutting cycle which could also weigh on the CAD. Whereas should the labour market remain relatively tight, it could allow the BoC to ease on cutting interest rates and potentially take a breather. Such a scenario could aid the CAD.

Analyst’s opinion

As we have mentioned for the previous pairs, central banks may be looking for a justification to remain on hold. The reasoning behind our assessment is that Trump’s inauguration is taking place this month and thus many nations are eagerly awaiting to see whether his campaign rhetoric will be truly implemented. Hence given the variety of issues discussed by Trump which include Canada, central banks may wish to truly assess the impact of future legislation on their respective economies.

General Comment

Overall we expect market activity in the coming week to intensify rapidly. We have numerous inflation prints being released such as the Eurozone and Australia and various financial releases from other nations such as manufacturing PMI figures, trade data and most importantly the US Employment data on Friday. From all the releases, the highlight is set to be the NFP figure on Friday and thus the greenback may regain the initiative from other pairs. For the US Equities markets, they appear to be ending the week in the reds which may be of concern should they continue on their downwards trajectory.

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