The upcoming week is expected to be relatively light, which is typical following the release of the NFP report. On Monday, attention will center on the Services PMIs for the eurozone, the U.K. and the U.S.
Moving to Tuesday, the RBA’s monetary policy announcement will be a key event. Meanwhile, in Canada, BoC Governor Macklem is scheduled to discuss the effectiveness and limitations of monetary policy at the Montreal Council of Foreign Relations in Quebec; audience questions are expected. Additionally, New Zealand will release the Employment Change q/q, Unemployment rate and Labor Cost Index q/q figures.
Wednesday brings the BoC Summary of Deliberation for Canada, while Thursday’s most notable event is the release of the Unemployment Claims data in the U.S.
On Friday, Australia’s RBA Governor Bullock is set to testify before the House of Representatives Standing Committee on Economics in Canberra. Meanwhile, Canada will announce its Employment Change figures and the Unemployment rate.
Throughout the week, various Federal Reserve members are scheduled to deliver their remarks.
The anticipated consensus for the U.S. ISM Services PMI is an increase from 50.6 to 52.0. Last week the Fed pushed back against market expectations for a rate cut at the next meeting in March. This, coupled with the recent robust labor market data makes a March rate cut very unlikely. While inflation is cooling down and moving in the right direction, the Bank needs more evidence that inflationary pressures are not reigniting.
The abrupt decline in the ISM services employment component in January that plunged it into contraction territory, surprised market participants. While some dismissed it as an isolated data point, analysts at ING note that “if we see a repeat, it’d be a huge story and could see the market refavoring a March cut once more.”
At the RBA meeting, it is widely expected that the monetary policy will remain unchanged. Although inflation in Australia is gradually cooling, it remains above the Bank’s target range of 2-3% suggesting that rate cuts from the RBA are still some time away. At the December meeting, the RBA even left room for potential rate hikes if deemed necessary; however, many analysts believe that the tightening cycle may have reached its peak.
The economic activity has also registered a deceleration, contributing to growing market expectations of potential rate cuts in the foreseeable future. For now, analysts from Wells Fargo forecast the beginning of rate cuts in Q3 of this year.
The Employment Change q/q in New Zealand is expected to increase from -0.2% to 0.3%, while the unemployment rate is predicted to climb from 3.9% to 4.3% and the Labor Cost Index q/q is projected to remain steady at 0.8%.
Under the influence of elevated interest rates, the country’s economy has seen a decline in demand, resulting in a mitigation of labor shortages. Additionally, migration patterns contribute to the high employment figures. Although the RBNZ is not currently placing a primary focus on employment, the data still offers valuable insights into the overall economic conditions. For now, the RBNZ is expected to hold the official cash rate on hold.
The consensus for the Canadian Employment Change is for a rise from 0.1K to 15.0K while the Unemployment rate is also anticipated to increase from 5.8% to 5.9%. The BoC recently noted that the labor market conditions in Canada are softening, but rising wages, currently by around 4-5%, continue to put pressure on inflation. If this trend continues and productivity growth doesn’t improve, it could be a while until the Bank starts considering rate cuts.
This article was written by Gina Constantin.