Uncertainty is the most certain thing.
Uncertainty is the most certain thing seen in the financial markets these days. Economic data and outlook, inflation numbers, and central banks’ decisions create a chaotic situation. In the week ahead, with central banks meeting in China and New Zealand, PMI numbers from European countries, and Personal Spending data from the US, we will get a brighter outlook on global economic condition.
1- PBoC Interest Rate Decision – Monday
Week starts with the interest rate decision meeting of the People’s Bank of China. We expect no change in interest rates for this week’s meeting, which should be a positive sign for Chinese stock markets but not for its currency. In the last meeting, PBoC did not change its 3.65% interest rates but added $73 billion in cash to the Chinese banking system.
2- Eurozone PMIs – Tuesday
Recently published data showed that gas and, in general, energy prices have slowed a bit in the past several months. It is expected that European companies have used this opportunity and increase their activities. Manufacturing activities expect to rise, but PMI numbers will still be under expansionary territory, while Service activities can continue the growth above the 50-level. By avoiding a recession in Q4 2022, we can now be less worried about the 2023 recession. However, we still expect a recession this year, but it can be short and soft. These data can help the euro to gain some strength.
3- UK PMIs – Tuesday
For the same reasons as the European Union, we expect to see improving economic conditions and activities. Especially with recent labor market data and the surprise fall in jobless claims, we hope for better-than-expected PMI numbers. Both manufacturing and Service PMIs are expected to grow under the expansionary territory. Estimated data can help the UK stock markets to gain more this week.
4- Canada Inflation – Tuesday
Busy Tuesday continues with another essential data. Recently inflationary data from Canada have been encouraging. After slowing inflation in December to 6.3%, we expect headline inflation to slow down further to 6.0% in January. The Bank of Canada (BoC) already announced that its monetary tightening cycle ended with a final 25 bps hike to 4.50%. For now, we do not expect changes in Canadian Monetary policies, but these data can support the Canadian dollar.
5- RBNZ meeting – Wednesday
New Zealand inflation is still high, and RBNZ has room to raise the rates. Therefore, we expect another 50-bps rate hike in this meeting to increase the introductory rates to 4.75%. With inflation at 7.2% and economic data we have so far from New Zealand, RBNZ rates can increase up to 5.25% in the following meetings. These expected decisions will favor the Kiwi.
6- US Home Sales – Tuesday & Friday
Looking back at the 2022 data shows that New and Existing home sales fell by 26.6% and 34% compared to a year ago. Nevertheless, we could see some recovery signals in the last two months of 2022. We expect the recent positive reading in home sales to carry over into January, but the likely growth will be very mild. These desired data will favor the US dollar.
7- US Personal Income and Spending – Friday
And finally, the Key data of the week. After raising both consumer and producer inflation numbers in January, now eyes will be on the Fed’s preferred measure of inflation. We expect a growth in nominal personal income up 0.8% in January. And about January’s spending, we expect 2.0% raise. Desired data will raise inflation fear and can hold pressure on US stock markets.