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 EU CPI, Chinese Manufacturing, Australian Retail Sales and ISM Services data from the United States economy.

Chinese Manufacturing

Now all Covid-19 restrictions lifted, workers are back at work, the vast majority of factories are no longer running closed-loop operations, and land and port traffic are back to normal.

A return to normalcy means more jobs for workers, and most idle workers should be able to find new work in the first quarter of this year, and this could affect the Chinese manufacturing figure this week.

In my opinion, how the engine of the world is performing on the manufacturing sector to really effect risk trades. The consensus is still for a 48 reading. Any upside surprise would be good for sticks.

ISM Services

ISM services are a big indicator for the Fed, so this should be closely monitored. Last month the index jumped from 49.6 in December to 55.2, while new orders also surged, to 60.4 from 45.2, their highest level since August.

Prices paid remained steady at 67.8, while employment was steady at 50.0. The resilience of these numbers, along with bumper retail sales, showed the US economy surged in January.

This week a modest slowdown to 54.4 from 55.2 is expected with the employment component also likely to be a leading indicator for next weeks delayed payrolls report. 

EU CPI

The EU January consumer price index (CPI) dropped sharply, from 9.2% in December to 8.6% in January, with many taking the view that we could continue to see sharp declines in the headline numbers over the coming months.

However, these sharp falls aren’t being reflected in core prices, and wages are still rising. I think we can draw some parallels between what is happening in the US also.

When the January CPI data was released, core CPI was at a record high of 5.2%. It has since been revised up to 5.3%. Annual CPI is tipped to hit 9.6% this month, if this is correct it could hit risk trades.