Market Outlook for the Week of 6th – 10th January

Monday is expected to be a relatively quiet day for the FX market, with few economic events scheduled. On Tuesday, attention will shift to Switzerland’s CPI data and the eurozone flash CPI. In the U.S., the focus will be on the ISM services PMI and the JOLTS job openings.

Wednesday will bring Australia’s inflation data, while in the U.S., markets will watch for the ADP non-farm employment change, unemployment claims, and the release of the FOMC minutes. On Thursday, Australia’s retail sales data will take the spotlight.

Friday will be a busy day, particularly for the U.S., where average hourly earnings m/m, non-farm employment change, and the unemployment rate will be released. In Canada, the employment change numbers and the unemployment rate will also be published.

Throughout the week, remarks from various FOMC members are expected.

In Switzerland, the consensus for CPI m/m is -0.1% vs -0.1%. After the SNB surprised the markets with a 50bps rate cut and made an adjustment to its near-term inflation forecast, no other big policy changes are expected during the first part of the year.

The SNB reduced its inflation projection for Q4 to 0.7% from 1% due to lower inflation for oil products and food. A return to negative interest rates remains possible, but Chairman Schlegel said the likelihood is small.

The consensus for the eurozone CPI y/y is 2.4%, up from the prior 2.2%, while core inflation is projected to remain steady at 2.7%.

From a monetary policy perspective, if inflation continues to align with expectations, the ECB is likely to proceed with rate cuts, particularly if there are indications of broader economic weakness. The market currently expects a 25bps rate easing at the January meeting.

In the U.S., the consensus for the ISM services PMI is 53.2, up from the prior reading of 52.1. Last month, the index came in below expectations but managed to stay above the contractionary threshold, unlike the manufacturing index. This week’s print is expected to show signs of stabilization, offering a more optimistic outlook.

Solving the last mile of disinflation is not straight forward for the Fed, analysts at Wells Fargo said. “The challenge for policymakers is finding a way to slow growth in the service sector without completely extinguishing it, while also avoiding overly restrictive policies that could negatively impact manufacturing and other rate-sensitive parts of the economy.”

The consensus for Australian CPI y/y is 2.2% vs 2.1% prior. The RBA previously noted some easing of inflation pressures, but Governor Bullock said there needs to be more progress before policy changes are considered. Economists expect a first rate cut in February, but this remains uncertain until more data is released.

In the U.S., the consensus for average hourly earnings m/m is 0.3%, compared to the prior 0.4%. For non-farm employment change, the expectation is 154K, down from the previous 227K, while the unemployment rate is likely to remain unchanged at 4.2%.

The U.S. job market is showing signs of cooling, and this week’s data is expected to reinforce this trend. At the December meeting, Chair Powell said additional labor market softening is not needed in order to address inflationary pressures and that’s because wage growth has moderated overall and no longer puts pressure on consumer prices. This suggests the Fed might take a slower approach to cutting rates this year.

In Canada, the consensus for the employment change is 24.5K compared to the prior 50.5K, while the unemployment rate is expected to remain steady at 6.8%.

The Canadian labor market continues to face challenges due to a mismatch between job creation and labor force participation. However, stabilization is anticipated this year, driven by monetary policy adjustments and slower population growth.

In terms of monetary policy, the BoC is expected to implement a 25bps rate cut at the January meeting and continue with additional cuts through mid-2025 to support the underperforming economy.

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