US
The main theme in the US economy is the slowdown in the manufacturing sector and the concomitant steady growth in the service sector, which has left economic policy makers in a difficult position.
The December payrolls number, however, occurs in a somewhat different setting than any other payrolls number in recent years. With the Fed having now commenced its hiking cycle, the question becomes: has the significance of any single non-farm number now decreased somewhat?
The surprising factor here is that even as the Fed raised rates in December, it still seems as though it will be carefully weighing labor data in determining policy moves.
The bar for disrupting the current course of policy should be fairly high – or at least higher than the bar for putting off rate hikes had been earlier this year. The December FOMC minutes also confirmed that the FOMC had been concerned about the dip in the labor market in August-September, which saw initially reported payroll gains at 173k and 142k respectively.
The state directed funds to buy Chinese equities overnight and stopped eight consecutive daily yuan devaluations which at least buys the authorities some time – like perhaps into this weekend – in order to figure out what to do next. Funds purchased financial shares and others with large weightings in benchmark indexes, the people said. Chinese policymakers, who took unprecedented measures to prop up stocks during a summer crash, are stepping into the market again after a rout erased more than USD 1 trillion of value in the first four days of the year.
It is a very thin calendar in the euro area next week with the most interesting release being the Sentix investor confidence for January due for release on Monday.
UK
The most important event next week is the January meeting of the Bank of England’s Monetary Policy Committee on Thursday. As expected, the BoE took another dovish stance at the December meeting due to a combination of a poor risk environment and the lower oil price, which has lowered the inflation outlook.
Staying in the UK, the Purchasing Managers’ Index for all sectors reflects a more downbeat sentiment in December.
The UK’s deficit on trade in goods and services was estimated to have narrowed slightly in November due to the trade in goods where the deficit has narrowed. Total imports and exports fell, but as trade in imports fell slightly more than exports, the overall trade balance narrowed.
Sources: Commerzbank, TD Economics, BMO Capital, Danske Bank, Handelsbanken Capital Markets, Standard Life Investments, CIBC