As the holiday period comes to an end, the economic calendar is looking more packed over the coming week despite many major markets being closed on January 2nd. The US and the Eurozone will have the busiest calendars, while PMI figures out of China and the UK will also be important.
China manufacturing PMI likely to ease in December
Whilst most of the world will be celebrating the New Year, PMI data out of China will start the week on January 1st. The official manufacturing and non-manufacturing PMIs are both released on Sunday, while the Caixin manufacturing and services PMIs are out on Tuesday and Thursday, respectively. China’s manufacturing sector is expected to remain in growth territory but activity is forecast to slow slightly in December from the prior month. The official manufacturing PMI is expected to come in at 51.5 and the Caixin PMI at 50.7. The lack of momentum in manufacturing growth continues to worry investors getting into 2017, with the yuan’s near 7% slide versus the dollar in 2016 not yet seen to be providing much of a boost.
Eurozone business surveys and flash inflation in focus
There will be plenty of business survey data for the Eurozone next week, starting with Markit’s final manufacturing PMI for December on Monday. The final services and composite PMIs will follow on Wednesday but no revision to the preliminary readings are expected. There will be more business survey numbers on Friday in the form of the economic sentiment index. Economic sentiment in the Eurozone is expected to improve further in December with the index rising to 106.8 from 106.5 in November. Euro area retail sales figures are also out on Friday but the highlight will likely be the flash inflation figures for December.
The preliminary estimates for Eurozone inflation are out on Wednesday. Annual CPI is expected to accelerate to 1.0% in December as higher energy prices feed into the index. Core CPI is forecast to hold steady however at 0.8%, meaning the ECB is unlikely to be alarmed just yet from the higher headline inflation. Also to watch next week are November industrial orders numbers out of Germany on Friday.
UK PMIs might struggle for attention
The UK will see a trio of PMI releases from Markit/CIPS next week – the manufacturing PMI on Tuesday, the services PMI on Wednesday and the construction PMI on Thursday. All three indices are forecast to show a small deterioration in activity in December compared to November but to hold comfortably above 50. However, the pound might not see much reaction to the data as the main focus going into 2017 is how Brexit will pan out. The first key risk event is expected to come in early January when the UK Supreme Court will decide whether to overturn the High Court ruling that said the British government cannot trigger Article 50 without MPs approval.
All eyes on NFP as dollar rally pauses
Key data out of the US next week will be watched closely as markets seek direction amid signs of a cooling in the dollar rally over the past two weeks. The first important data is the ISM manufacturing PMI on Tuesday. The index is expected to improve marginally to 52.5 in December. The non-manufacturing PMI will follow on Thursday and is expected to decline from November’s 13-month high of 57.2 to 56.7 in December.
On Wednesday, the Fed will publish the minutes of the FOMC meeting held on December 13-14. Investors will be looking to see whether FOMC members took into account the possibility of a fiscal stimulus into their rate projections for 2017. The Fed surprise markets at its December meeting when its latest dot plot chart forecast three rate increases instead of the two expected for the coming year.
This led to the dollar hitting 14-year highs, though it has since been consolidating. Friday’s non-farm payrolls report will therefore be the big event of the week as traders seek further direction for the greenback. Non-farm payrolls are expected to rise by 175k in December, while the unemployment rate is forecast to edge up by 0.1% to 4.7%. Average earnings are expected to grow by 0.3% month-on-month in December, after falling by 0.1% the previous month. The dollar will likely prove sensitive to significant deviations from the forecasted figures.
Also to watch on Friday are factory orders for November, while Canada will also release its employment report. After a surprise contraction in Canadian monthly GDP in October, the latest jobs report will be looked for further potential signs of weakness that could yet lead to a rate cut by the Bank of Canada. The data is expected to show the Canadian economy shedding 2.5k jobs in December.