Major events of the upcoming week
Last week, investor sentiment on financial markets deteriorated. Messages on the extension of restrictive measures in the EU countries and the introduction of restrictions on movement in certain regions of China and other Asian countries worsened market expectations regarding the prospects for the development of the world economy. At the end of 2020, many experts predicted a rapid recovery in the global economy in 2021 amid the use of the COVID-19 vaccine. Now it is becoming obvious that the vaccination of the population will drag on for many months, and the effect of it will be manifested, most likely, only in the 2nd half of the year.
The very cautious statements of the head of the FRS Jerome Powell and the data of macroeconomic statistics from the USA did not help to improve the mood. Powell once again noted the high uncertainty of the prospects for economic development in the context of the pandemic. US Q4 GDP data released Thursday showed that the world's largest economy contracted by 3.5% in 2020. This is the largest decline since 1946.
This week the market will focus on macroeconomic statistics from key regions of the world. Traditionally, the focus will be on PMI indicators for the manufacturing and service sectors. At the end of the week, the US will publish a report on the labor market, which is always accompanied by a surge in market volatility.
Also next week will include meetings of the Bank of England and the Reserve Bank of Australia. The first event is of the greatest interest to the market due to high expectations of a decrease in the interest rate in the medium term.
China, EU, USA - Manufacturing PMIs
Markets have been following the release of PMI data very closely over the past year. These indicators help to quickly assess the impact of the coronavirus pandemic on economic activity in the country. Final PMI data for the world's key countries will be released this week.
China is to publish official PMI figures on Sunday, while data from Caixin is due on Monday. Surveys conducted by Reuters show that purchasing managers' activity in China will decrease slightly due to the introduction of restrictive measures in some regions of China, but the indicators will remain above 50, indicating that the positive dynamics remain.
The EU is expected to publish data in line with preliminary figures released earlier this month.
In the US, the manufacturing PMI is expected to decline from 60.5 to 60.0 points.
Australia - Reserve Bank of Australia meeting
Investors expect no surprises from the upcoming RBA meeting. Most likely, the regulator will leave the main parameters of monetary policy unchanged. The main attention will be focused on the speech of the head of the RBA Philip Lowe. If his speech does not contain signals about the bank's further plans to adjust monetary policy, the reaction of the Australian dollar may be very restrained.
UK - Bank of England meeting
The upcoming meeting of the Bank of England is of great interest to investors. In recent weeks, speculation has been growing in the market about a possible cut in the interest rate due to the difficult epidemiological and economic situation in the country. Additional pressure on the UK economy is exerted by the consequences of Brexit. Agreements on access to the European financial market between Brussels and London have not been reached.
Despite numerous speculations, most experts believe that the regulator will leave the interest rate and the volume of the asset repurchase program unchanged. This decision could contribute to a strong strengthening of the British currency, if the head of the Bank of England refrains from hinting at a possible easing of monetary policy in the future.
US – Non-Farm Payrolls
It is always very difficult to predict the market reaction to the publication of Non-Farm Payrolls. Much depends not only on the actual values of the key indicators of the report, but also on how this data will be interpreted by the market.
The traditional focus will be on three main indicators: dynamics of average wages, unemployment rates and changes in the number of people employed in the non-agricultural sector. The unemployment rate is expected to remain at 6.7%, the number of people employed in the non-agricultural sector will increase by 85 thousand, and the average hourly wage will increase by 0.3%.