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Friday’s data will provide a snapshot of business activity in Europe ahead of this month’s European Central Bank meeting to set interest rates.
The January reading for IHS Markit’s composite purchasing managers’ index – which combines manufacturing and services activity – will be closely watched, analysts said, as it comes ahead of Donald Trump’s inauguration. The incoming president has promised sweeping tariffs, which could dampen sentiment in the coming months.
Many of the bloc’s biggest economies, including Germany and France, are already struggling with an economic slowdown. A consensus of analysts expects a reading of 49.7, below the 50 mark that separates growth from contraction. However, that would mark a slight improvement from December’s reading of 49.6.
The data is likely to be an important input for policymakers at the ECB meeting at the end of the month. In December, members of the governing council became more vocal on the prospect of growth in the bloc, in addition to uncertainty over the incoming Trump administration’s trade policies. With inflation slowing, the central bank is widely expected to cut rates by 0.25 percentage points from its current rate of 3 percent.
Consumer demand remains soft and there are growing signs of “fissures” in the labor market, leaving the ECB “further and further behind the curve with its slow easing cycle,” according to Tomas Dvorak, an economist at Oxford Economics. Mari Novik
Will UK wage growth continue to rise?
Investors will be hoping that UK wages data on Tuesday will provide some clues about the path of interest rates after a turbulent period for the gilts market.
Economists polled by Reuters expect regular annual income growth to have accelerated to 5.5 percent in the three months to November, from 5.2 percent in the three months to October, which would increase pressure on worried policymakers. for the return of the domestic price. the pressures.
The Bank of England mentioned wages 15 times in its monetary policy summary last month and is also grappling with the impact on earnings of a rise in the National Living Wage and an increase in employers’ National Contributions from April.
The labor market figures will come after data this week showed inflation unexpectedly fell to 2.5 percent in December and an economy that barely grew in the three months to November. Walnut yields, which rose sharply earlier this month, fell this week as traders bet the central bank will cut interest rates more aggressively to kick-start growth.
Philip Shaw, economist at Investec, also forecast a 5.5 percent rise in earnings, but said the rise in wages was unlikely to prevent the BoE from another rate cut in February, from the current level of 4.75 percent. “A gradual easing of policy seems warranted given sub-par growth and falling inflation,” he noted.
Moreover, the Bank has also shown signs that it may reduce the expected wage growth in the official data. In December, she acknowledged the pick-up in wage growth, but said official earnings growth “tended to be more volatile than other wage indicators”. Valentina Romei
Are American companies still optimistic about the future?
January has already proved to be a roller-coaster month for US markets, as investors revised their expectations for interest rate cuts by the Federal Reserve this year.
In a week starting with Donald Trump’s presidential inauguration, traders will be watching measures of business activity in the world’s largest economy – looking for clues about the Fed’s likely course of action.
On Friday, S&P Global will release its monthly flash purchasing managers’ index, which will give traders insight into manufacturing and services activity. In recent months, this number has underlined the stability of the American economy. Last month, flash PMI estimates rose to 56.6, a 33-month high, although it was later revised to 55.4. A reading above 50 signals growth.
But another strong reading in January would likely deepen concerns among traders that the Fed will ease up on planned rate cuts.
Earlier this month, better-than-expected December payrolls sent Treasury yields higher as traders trimmed their bets on the number of rate cuts this year. Days later, weaker-than-expected inflation data prompted a rethink – sending government debt and stocks soaring as bets on a rate cut rose again.
“The market is still wary of the incoming administration’s policies, particularly around tariffs and tax cuts, which could help fuel inflation,” said John Kerschner, head of U.S. securities products and portfolio manager at Janus Henderson Investors, shortly after reading the consumer price index.
Still, “the latest inflation numbers go a long way to give the market confidence that Fed policy is on target,” he added. “Perhaps most importantly, the market is relieved that potentially nosebleed interest rates have been removed, for now.” Harriet Klarfelt
