Service sector PMIs will set the tone for the week, as certain economies face the rising threat of a Q1 recession.
On Tuesday, the RBA will deliver its first interest rate decision for 2024 and could discuss the timing rate cuts.
However, investors must also consider inflation numbers from China and central bank commentary throughout the week.
It is an important week for the Aussie Dollar. On Monday, trade data for December will draw investor interest. Australia has a trade-to-GDP ratio of over 50%. A pickup in demand could delay RBA discussions about an interest rate cut.
On Tuesday, retail sales also warrant investor attention. Downward trends in retail sales could dampen demand-driven inflationary pressures. A softer inflation outlook could allow the RBA to bring forward the timing of an RBA rate cut.
However, the RBA interest rate decision is the main event of the week. Economists expect the RBA to leave interest rates unchanged at 4.35% on Tuesday. Forward guidance on inflation, household spending, and interest rates would move the dial.
From elsewhere, investors must also consider economic indicators from China.
On Monday, the Caixin Services PMI for January will draw investor interest. The services sector accounts for over 50% of the Chinese economy. A pickup in service sector activity could fuel demand for riskier assets and trade-sensitive currencies, including the Aussie and Kiwi dollars.
However, investors must also consider inflation numbers out on Thursday. A less marked-than-expected decline in producer prices and a larger-than-forecast rise in consumer prices would favor riskier assets. Producers adjust prices based on the demand environment. Importantly, producer prices are a leading indicator of consumer price inflation.
For the US, on Monday, the all-important ISM Non-Manufacturing PMI will garner investor interest. A pickup in service sector activity could further reduce bets on a March Fed rate cut. Recent US economic indicators, including the US Jobs Report, left the probability of a March Fed rate cut at 38% on Friday.
However, investors must consider the sub-components of the PMI, including prices and employment.
The US labour market will be under the spotlight on Thursday. Another upswing in jobless claims could raise bets on a March Fed rate cut.
Beyond the numbers, investors must monitor FOMC member speeches.
On Monday, finalized UK Services PMI numbers will put the GBP under the spotlight. An upward revision to the Services PMI could influence the timing of a Bank of England rate cut. However, investors must consider, input price inflation, and employment sub-components.
On Wednesday, the UK housing sector will be in focus. Deteriorating housing sector conditions could impact consumer confidence and spending and dampen demand-drive inflation.
On Wednesday, Bank of Canada Governor Macklem will influence buyer demand for the Loonie. Forward guidance on inflation and monetary policy intentions would move the dial.
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