The US Federal Reserve’s first meeting of the year – its decision and the contents of its post meeting statement – will dominate markets in the coming week, overshadowing a meeting at the Bank of Japan, the US 4th quarter earnings season, the January jobs report, as well as the usual start of month reports on the health of manufacturing, especially from China.
While the Fed is expected to leave interest rates on hold on Wednesday (Thursday morning, our time), Fed Chair Yellen is likely to stress that future rate hikes will be gradual.
Not enough has changed since the last rate hike in December to justify another rise at the moment and the Fed is still awaiting clarity on the size of any fiscal stimulus that President Trump plans to deliver.
And the weak first estimate of 4th quarter GDP (1.9%, down from 3.5% annual in the third quarter) should be ignored because it doesn’t contain up to date data on business investment, consumer spending and especially the impact of foreign trade.
They will be more accurate in the second reading in a month’s time and the trade account could be a major weakness in the GDP report and limit US growth for the three months and for 2016 as a whole. But the biggest factor was a sharp fall in soybean exports in the 4th quarter which crunch the contribution from the trade account.
Economists say that the focus will be on whether the post-meeting statement implies more rate hikes than the three suggested back in December for 2017, and what it says about the chaotic start to the Trump Presidency.
On the data front in the US the focus will be on the January manufacturing conditions ISM index (on Wednesday night our time) which is expected to remain strong.
Friday night sees the January jobs report and the AMP’s chief economist, Dr Shane Oliver says the report is expected to show a 170,000 gain in payrolls and unchanged unemployment at 4.7%.
Inflation according to the core private consumption deflator (tonight) is expected to rise to 1.8% year on year, the employment cost index (Tuesday) is expected to confirm a slight increase in wages growth and consumer confidence (Wednesday) is expected to have remained high.
US December quarter earnings reports will continue to flow with over 100 major companies due to report, with Apple’s first quarter report to dominate the week, but 4th quarter reports from the likes of Facebook and Amazon will also be watched very closely for confirmation their strong growth from mid 2016 is continuing.
Apple though is expected to report a weak set of figures for the three months to December. The big unknown will be the pace of sales in China. US car sales data for January will be out Wednesday night. And Snapchat is expected to reveal details of its IPO late this week.
In the Eurozone, December quarter GDP (Tuesday night, our time) is expected to show a slight acceleration in growth to 0.4% quarter on quarter or 1.7% year on year.
The ECB’s first non-monetary policy meeting for 2017 is scheduled for Thursday.
Meanwhile, economic confidence data (tonight, our time) is likely to have remained strong and headline CPI inflation (Tuesday night) is likely to have risen further to 1.5% yoy but core inflation is likely to have remained flat at 0.9% yoy.
Unemployment for January is also out this week and is expected to show another small improvement. Retail sales figures will also be issued for the eurozone.
And in London the Bank of England announces its latest monetary action and releases an update inflation/monetary policy outlook on Thursday night, Sydney time.
Dr Oliver says the Bank of Japan (tomorrow) “ s not expected to make any changes to monetary policy having committed in September to open ended quantitative easing until it exceeds its 2% inflation target, which at this stage remains a long way away.”
"Japanese data on the labour market, household spending and industrial production will be also be released.” Friday’s inflation report for January was again weak.
Chinese manufacturing PMIs will be released on Wednesday and Friday and are expected to show little change in what should be a solid monthly performance.
In Australia, the NAB business conditions and confidence indexes (tomorrow) will be watched for an improvement after recent deterioration. The RBA’s credit figures for December and 2016 are out tomorrow as well, and the monthly Commodity Price Index for January will be issued on Wednesday.
Building approvals for December will be issued on Thursday, along with the trade balance (both Thursday) is likely to show an even larger surplus that November’s on the back of higher commodity prices. Core Logic home price data for January will also be released on Wednesday.
The Australian December half profit reporting season will also get underway with a handful of companies due to report (including Navitas, Downer EDI, Tabcorp and James Hardie).
The NAB spin off, CYBG (Clydesdale Bank) holds its AGM in Melbourne tomorrow and issues its first quarter trading update. It revealed swingeing cost cuts and branch closures earlier this month.
