Weekly Outlook: Dec 30 — Jan 3: Manufacturing PMIs Of Major Economies, FOMC Meeting Minutes
This week should be an interesting one, as we will open the first trading day of 2020 on Thursday, with the markets being closed on January 1 st. This is where we can say that we are entering the ‘20-ies again, which will be full of new technological breakthroughs, economic ups and downs and maybe of something else, but we will just have to wait and see. The economic calendar for this week is fairly busy, despite the early close of a few indices on the 31 stand a full shutdown on January 1 st. Manufacturing PMIs will be delivered by some major economies and investors will wait for the FOMC meeting minutes.
On Monday, we will have a relatively quiet European morning. But later in the day we will be getting the US retail inventories excluding Autos, together with the Chicago PMI number. The later is expected to have risen from 46.3 to 48.0. Although this would be an improvement, still, anything below 50 shows that the sector is in contraction. The Chicago PMI can be helpful in trying to estimate the ISM manufacturing PMI number, which is released at the end of this week and since August has been in contraction.
Another economic indicator from the US that we will keep an eye on is in regards to the pending home sales for November, where the number is forecasted to jump back into positive territory. The expectation is for it to move from -1.7% to +1.1%, which could help improve the US housing market stats and give the US dollar a boost.
Tuesday is New Year’s Eve, so a few stock exchanges across the globe will be closed or they will have an early close. For example, the German DAX and the Japanese Nikkei will be closed, whereas the UK’s FTSE, the French CAC and the Australian ASX exchanges will close earlier than usual.
But during the early hours of the Asian morning China will deliver on few PMI figures for the month of December. These will be the readings, which will show how the Chinese factories have performed in the month of December, so that we could have the final look on how the sector performed during 2019. Although there seems to be no forecast available for the composite PMI, the NBS manufacturing and non-manufacturing PMIs are believed to have declined somewhat. The manufacturing number is expected to have dropped fractionally, from 50.2 to 50.1, and the non-manufacturing figure is forecasted to have moved from 54.4 to 53.6. If the numbers come out as expected, this would still mean that the sector is in expansionary territory, as the readings would be above 50.
Wednesday is the first day of 2020. Markets will be closed across the globe.
On Thursday, although New Zealand, Japan, Russia and Switzerland will still be on holiday, the rest of the world’s major markets will open up and start their first trading day of 2020. The first important data release to keep an eye on will be the Caixin manufacturing PMI figure from China, which is expected to have declined slightly, going from 51.8 to 51.7. Then the focus will fall on the manufacturing PMIs coming out of the European continent. Sweden and Norway will deliver their, but no forecast is currently available on the two. Spain, Italy, France, Germany and the UK will also be among those, who will provide their manufacturing PMI readings. Spain and Italy figures are expected to have slid slightly, whereas the French and the German PMIs are believed to have stayed unchanged, at 50.3 and 43.4 respectively. UK’s number is forecasted to have gone down from 48.9 to 47.6. If so, this could put some more pressure on the British currency, as it already continues to suffer due to Brexit issues. Let’s not forget that, also, we will get the whole of eurozone’s manufacturing PMI reading for the month of December, which is believed to have stayed in contraction territory, at 45.9.
Later on in the day, Canada and the US will present their Markit manufacturing PMI figures for December. Although there is currently no forecast for the Canadian set, the US one is expected to have remained the same, at 52.5. If it comes out as forecasted, then there might not be any significant change in the movement of USD, as the main focus would fall in the FOMC meeting minutes released in a few hours after.
As mentioned above, investor focus might fall on the FOMC meeting minutes and the Fed’s next steps. So far, the Fed is happy with the job situation in the country, as the sector, on average, has shown solid gains over the past few months. Unemployment continues to stay low and consumer spending seems to be healthy. Inflation managed to pop back slightly above the Fed’s target of 2.0%, which is still inline with the Bank’s expectations. Currently, the Federal Reserve target rate is sat in a range between +1.50% and +1.75%. According to FedWatch Tool, the probability for the Fed to keep the rates in the same range in January’s meeting, at the time of writing, is sat at around 95%.
Finally, on Friday, Japan will still be on holiday, but most of the other markets will be open. Norway will kick off Friday’s economic calendar by providing its unemployment, which is expected to have stayed the same, at 3.9%. Later on, Germany will also provide its unemployment figure for December, which is forecasted also to have remained the same, at 5.0%.
UK is set to release the construction PMI number, which is believed to have improved slightly, going from 45.3 to 45.9. If there will be no Brexit related news, and if the construction number comes out as expected, then this might give a slight boost to the pound. But the boost might be short-lived, as the figure would still be in the contraction zone.
Apart from that, we will be getting the preliminary Italian and German CPI figures, which are forecasted to have improved slightly.
But the main focus on Friday will be on the US ISM manufacturing numbers for the month of December. As usual, the important figure from that list will be for the ISM manufacturing PMI. The expectation currently sits at 49.0, which is an improvement from the previous 48.1. After peaking in August 2018, the indicator has been on a gradual slide and entered contraction territory in August of 2019. If the figure comes out better than expected, this might spark some positivity in the market and give investors hope that there is still a chance to move back above 50.0 any time soon. This could move US indices a bit higher again. A reading above the previous, but below the forecast might still be seen as a negative, as it could mean that the sector is still struggling to get back into expansionary zone. The Fed will also keep an eye on this set of data, which may play its small role in the Bank’s evaluation of the economy, when deciding on their interest rates.
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Originally published at https://www.jfdbank.com on December 30, 2019.