It's not the most high-impact of weeks in terms of macroecononomic data until Friday, while major policy decisions are due from the central banks of Canada and Japan.
US non-farm payrolls
Friday's US jobs report is the big swinging data of the week.
"American jobs will be centre stage in the coming week, as central bankers, economists and investors try to work out whether the US economy is heading for a hard landing and a deep recession, a soft landing and a shallow one, or indeed no recession at all," said analysts at AJ Bell.
"This is important because it could dictate the direction and pace of any changes in US interest rates. Financial markets have rallied since autumn in the view that we will see a gentle retreat in inflation, a soft landing and a pivot in central bank policy from raising rates now to cutting them by year end. The danger is therefore that any diversion from that appealing scenario – either the economy cools sufficiently to threaten corporate profit and dividend forecasts, or it keeps going and inflation forces more central bank action – could lead to disappointment."
Michael Hewson at CMC Markets noted that the boom in the January payrolls numbers proved to be a significant catalyst in a change of perception about the health of the US economy, as well as shaking markets out of the complacency that had characterised sentiment as we started 2023 on a strong note.
"The market reaction was most notable in terms of bond yields, and while equity markets have continued to hold onto a narrative that any further rate hikes are likely to be limited, the strength of the economic data since then has cast that perception into doubt. In the space of a month, we’ve gone from a narrative that had rate cuts coming before the end of the year, to an imminent pause in the next couple of months, to how many more rate hikes can we now expect?"
He said this week’s payrolls report "could well go further in reinforcing the latter if the jobs growth we saw in January continued into February" though "no one is expecting another 517k" and there could be a significant revision.
"But a February number anywhere close to 200k would still be in line with a robust US labour market."
Earlier in the week, Federal Reserve Chair Jerome Powell will be appearing before Congress to present the central bank’s Semi-Annual Monetary Policy Report.
"His testimony will be closely followed for hints as to whether he thinks there should be a re-acceleration in the Fed’s policy tightening or whether having hiked rates so far and so fast that the more modest 25bp incremental moves remain the most sensible course of action to take. He will be appearing before the Senate on Tuesday and the House of Representatives on Wednesday," said ING economists.
China trade data Tuesday
Earlier in the week there will be data from China that could prove telling for the global economy too.
The last two months of 2022 saw the various rolling restrictions and lockdowns slow down the Chinese economy markedly, with the fourth quarter seeing the Chinese economy stagnate to the tune of growth of 0%, equating to annual GDP growth of 3%.
"This has been shown clearly, not only in the trade numbers but also in a sharp decline in consumer spending, which has seen retail sales slide sharply," says Hewson.
In. With this week’s trade numbers for the months of January and February which will showcase the period over the Chinese New Year, we will get a better idea of how much the relaxation of lockdown restrictions has unleashed pent-up demand. Having seen exports finish 2022 with a -9% decline, while imports declined -7,5%. This week’s numbers will be a decent indicator of how much consumer confidence there is in the economy, compared to previous January, and February numbers. 12 months ago year to date exports saw a gain of 16.1%.
Reserve Bank of Australia rate decision Tuesday
Following the larger-than-expected decline in January’s inflation figures, coupled with a slowdown in GDP growth in the fourth quarter, the upcoming RBA meeting is "going to be much more interesting than has been the case recently" said economists at ING.
"Although the January inflation rate had dropped a full percentage point, inflation still stands at 7.4% year-on-year – way higher than the RBA will be comfortable with. The RBA will want to see confirmation of a downward trend in inflation, not just a reversal of seasonal spikes to even consider pausing its current 25 basis point per meeting tightening strategy."
Bank of Canada Wednesday
At its last meeting in January the Bank of Canada decided that it would take the decision to signal a pause in its rate hiking cycle after its latest rate rise of 25bps took the headline rate to 4.5%.
Headline CPI in Canada has fallen to 5.9%, but core prices still look more sticky at 5%, and recent economic data has shown the economy looks resilient.
No changes are expected to monetary policy; however, guidance will be important.
Bank of Japan on Friday
The recent appointment of Kazuo Ueda as the new Bank of Japan governor, replacing Haruhiko Kuroda and with a lot of the commentary has painting Ueda as a fairly neutral chap on the prospect of possible policy tweaks.
"This would suggest that the current policy of yield curve control (YCC) is unlikely to see any changes in the short term," said Hewson.
"That said this will be Kuroda’s last meeting as central bank Governor begging the question as of whether he might start to lay the groundwork for a policy change in the coming months. Japanese inflation is already well above target at 4.3% and looks set to continue rising. It’s hard to envisage a scenario that would see the Bank of Japan happy with an inflation rate that is rising sharply, and a currency that is once again wilting against the onslaught of a strong US dollar."
UK GDP Friday
UK economic output fell sharply in December,
It probably only partially rebounded in January, said ING's James Knightley.
"Admittedly, these monthly GDP figures have been hard to read, owing to distortions surrounding both the Queen’s funeral last September and then the World Cup (which threw around consumer services activity). That December plunge, however, means that the economy is likely to register an overall first-quarter GDP decline (our current forecast is for a 0.2% fall).
"The underlying trend in the economy appears to be one of very gradual contraction, thanks in part to an ongoing downtrend in retail spending. We’re expecting a technical recession in the UK in the first half of this year, albeit one that’s not much to write home about.
"The fall in wholesale gas prices should help consumer bills fall by the summer, which should limit further damage to consumer spending."