The Week Ahead

During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.

The United States holds importance this week in terms of high impact events as we see the FOMC rate decision, ISM Manufacturing, and Nonfarm payrolls jobs.

Aside from the US economy, we see the Bank of England and European Central Bank meeting to decide on interest rates.

FOMC Policy Announcement

Most market participants expect that the FOMC will lift its Federal Funds Rate target by 25bps to 4.50-4.75%, although some still expect the central bank to hike rates by a larger 50 basis point increment.

The Federal Reserve is again expected to lean back on the market’s dovishness, as well as the looser financial conditions that have been seen recently.

Chair Powell tested positive for COVID, it was announced on January 18th; in the event that Powell is unable to attend the February FOMC, guidance suggests that the FOMC’s Vice Chair Williams will assume Powell’s duties.

ISM Manufacturing

The headline ISM number is expected to slip below the 50-level, which divides expansion and contraction, with the consensus view expecting 48.2 in January from 48.4 in December. 

Analysts expect the Services ISM headline will return above the 50-mark, which separates expansion and contraction, with the consensus looking for 50.5 in January from 49.6 in December. 

NFP Jobs Report

The rate of payroll additions to the US economy is expected to moderate to 175k in January vs 223k prior. The US unemployment rate is forecast to tick-up by 0.1% to 3.6%.

With monetary policymakers firmly fixated on reducing inflationary pressures, there will again be outsized attention on average hourly earnings, which are expected to rise 0.3% M/M, matching the rate seen in December.