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 dictate financial market moves.

The economic calendar is jammed packed with important data releases this week, including US PCE, Eurozone & UK PMI, GDP data from the United States economy, and the release of the FOMC minutes.

Eurozone PMI

The consensus is for the eurozone PMI data to remain largely unchanged this week. The EU Composite Index rose for the third month in a row, hitting 50.2 in January.

In the UK, last month’s figures were gloomier: the Composite PMI fell to 47.8, touching a 24-month low. Markets are braced for mixed PMI data from the UK and the EU

US Core PCE

the Fed’s preferred measure of inflation, the core personal consumption expenditures (PCE) price index, fell to 4.4% in the year to December, down from 5.2% in September.

The recent strong non-farm payrolls jobs report for January suggests that core PCE is unlikely to have fallen sharply. Inflation could therefore remain relatively high, with prices potentially inflated by higher personal spending among those in work.

FOMC Minutes

At his press conference on 1 February, Powell insisted that more rate hikes were coming and said the Fed was not looking at rate cuts this year. But his failure to push back emphatically on direct questions about market expectations of rate cuts widened the gap between market pricing on rates and the Fed’s economic forecasts.

Tt’s worth remembering that the last Fed meeting took place before the release of US services data and the jobs report, which showed strong data.

A big question that the minutes may answer is whether Fed officials stand by their December dot plot, which projected a year-end 2023 rate of 5.125%.

RBNZ Rate Decision

Most economists expect the Reserve Bank of New Zealand to hike interest rates by 50 basis point to 4.75% this week, in line with market pricing, due to recent data and hawkish chatter from the RBNZ.

A hawkish hike should lift the New Zealand dollar, which has recently been correcting against the greenback. However, more NZDUSD strength may soon rely only on external factors

Peaking inflation and a deteriorating housing market and activity suggest the RBNZ will not reach its projected 5.50% peak rate.