Market Outlook for the Week of 3rd – 7th February

On Monday, key events include the eurozone inflation data and the ISM manufacturing PMI from the U.S. On Tuesday, the U.S. will release the JOLTS job openings, while New Zealand will report employment change (q/q) and the unemployment rate.

On Wednesday, the U.S. will publish the ADP non-farm employment change and the ISM services PMI. On Thursday, the focus in the U.K. will be on the Bank of England’s monetary policy announcement.

On Friday, Canada will release employment change data and the unemployment rate. In the U.S., key releases include average hourly earnings m/m, non-farm employment change, the unemployment rate, preliminary UoM consumer sentiment, and preliminary UoM inflation expectations.

Throughout the week, several FOMC members are expected to deliver remarks.

This week’s inflation data for the eurozone will be closely monitored to determine whether the disinflation trend continues. If it does, the ECB is likely to proceed with further rate cuts. The consensus expects headline y/y inflation to come in at 2.4%, with core inflation likely declining to 2.6%. Services inflation is also expected to decrease.

The ECB has noted that policy is still restrictive and that disinflation is progressing. If this week’s data comes in softer than expected, the Bank is likely to deliver another 25 bps rate cut at the March meeting, especially given the ongoing softening of economic conditions.

In the U.S., the consensus for the final manufacturing PMI is 50.1, unchanged from the previous reading.

The ISM manufacturing PMI is expected to remain at 49.3, while ISM manufacturing prices are projected to print at 52.6, slightly up from the prior 52.5. The ISM manufacturing PMI is expected to stay in contractionary territory, but some indicators suggest that demand and production are showing signs of improvement. Analysts at Wells Fargo emphasized that it remains to be seen whether this is a temporary boost from pre-tariff demand or an early-stage recovery following a 100 bps rate cut from the Fed since September.

In New Zealand, the consensus for the employment change q/q is -0.2% vs -0.5% prior, while the unemployment rate is expected to rise from 4.8% to 5.1%.

Overall, labor market data in New Zealand continues to soften but is showing signs of stabilization. The Monthly Employment Indicator (MEI) registered modest gains of 0.1% in December and 0.2% in November, following a 1.8% decline from March to October.

Q4 employment remains 0.2% lower than Q3, and the participation rate is expected to decline from 71.2% to 71.0% as some workers exit the labor force. Wage growth is also slowing, with private sector wages anticipated to rise by 0.6% in Q4, bringing annual growth to a three-year low of 3.0%.

In terms of monetary policy, the RBNZ is expected to deliver a 50 bps rate cut in February. Since the latest data remains firmer than their forecasts, it is unlikely to alter their stance on rate cuts. Additionally, inflation continues to ease and remains in line with the RBNZ’s expectations, further supporting a 50 bps rate cut.

In the U.S., the consensus for the ISM services PMI is 54.2, slightly up from the prior 54.1, while the final Services PMI is expected at 53.1 vs. the previous 52.8.

Compared to the manufacturing PMI, the ISM services index has remained in expansionary territory, with all components showing growth. This week’s data is expected to remain strong, and analysts from Wells Fargo highlight that a key focus will be on industry commentary regarding pricing and demand, particularly in relation to tariff expectations.

With the Fed pausing rate cuts amid persistent inflation, any signs of price increases linked to expected tariffs could complicate the policy outlook.

At this week’s meeting, the BoE is expected to deliver a 25 bps rate cut to 4.50% together with a dovish statement.

Recently, the U.K. has seen a string of weak economic data—retail sales disappointed to the downside, and services inflation has been declining slowly. This data supports additional rate cuts. However, the BoE is expected to signal a gradual pace of 25 bps cuts, likely once per quarter.

A downward revision to the BoE’s inflation forecasts, particularly if they fall below 2% in the medium term, could lead markets to anticipate more aggressive rate cuts, aligning with the 100 bps of easing expected in 2025.

In Canada, the consensus for employment change is 26.5K, down from the previous 90.9K, while the unemployment rate is expected to rise from 6.7% to 6.8%.

Overall, Canada’s labor market continues to soften, with a growing labor force likely contributing to the increase in the unemployment rate, according to RBC analysts. Hiring demand remains weak, with job openings 23% below year-ago levels and businesses signaling limited hiring plans. Wage growth is slowing, and layoffs have played a significant role in the rising unemployment rate.

Job gains have been concentrated in public sector services, while manufacturing faces challenges from weak demand and potential tariff disruptions. With lower immigration targets expected to slow population growth, job creation is anticipated to decelerate further through 2025.

In the U.S., the consensus for average hourly earnings m/m is 0.3% vs prior 0.3%. The non-farm employment change is expected at 154K, down from the prior 256K, while the unemployment rate is likely to remain steady at 4.1%.

During the summer, the U.S. labor market showed signs of weakness, but recent data suggests stabilization. The FOMC has upgraded its assessment of the labor market, highlighting stability in the unemployment rate and solid conditions, as reflected in recent data that exceeded expectations.

According to Wells Fargo analysts, average hourly earnings likely advanced 0.3% in January, which reinforces the idea that the labor market is no longer driving price pressures with inflation stuck above the Fed’s target.

This article was written by Gina Constantin at www.forexlive.com.