European Outlook: Asian markets were mixed overnight. Japan managed to close with gains as markets started to focus on corporate earnings, while stocks in Hong Kong were under pressure as markets reopened, with U.S. policy concerns weighing on confidence. A weaker yen underpinned Japanese markets. Japan’s final manufacturing PMI was revised slightly down, but business sentiment was still at a 31-month high and Chinese PMIs held steady and point to ongoing expansion. In Europe, the calendar holds final Eurozone PMI readings as well as the U.K. CIPS manufacturing PMI. Germany auctions 5-year Bobls, but political events will remain at the forefront as U.S. President Trumps seems to promote a breakup of the EU.
Japan: Final Manufacturing PMI came in slightly down at 52.7 from 52.8 in December. As HIS Markit / Nikkei reported, Japanese manufacturing sector started 2017 with operating conditions improving at the sharpest rate in 3 years’ time. Both Production and new order rose in January, with the latter rising at the quickest rate since December 2015.
China: Chinese PMIs held pretty steady with 51.3 from 51.4 last period (expectation at 51.2) and point to ongoing expansion. Also, indicates that steadiness in Chinese economy will continue.
US data reports: revealed modest shortfalls across the Q4 ECI data and the January figures for consumer confidence and Chicago PMI, though the shortfalls did nothing to change the outlook for GDP growth of 2.0% in Q1 after a 1.9% Q4 rise. A 0.5% Q4 U.S. ECI gain undershot the 0.6% increases of the last three quarters, and we saw a restrained 0.5% wage and salary rise that defied the steeper hourly earnings uptrend, and we expect a firm 0.3% January hourly-earnings rise fueled by minimum wage hikes, alongside a 190k payroll rise. We saw a Chicago PMI drop to 50.3 from 53.9, which may reflect the 4% drop we expect in the January vehicle assembly rate given this index’s sensitivity to the auto sector. For consumer confidence, we saw a drop to a still-firm 111.8 from a 113.3 (was 113.7) December cycle-high, though confidence is still at its highest levels since the 9-11 terrorist attack in 2001. Inflation expectations bounced sharply in January after an odd December pullback, as gauged by both the Consumer confidence and Michigan sentiment surveys.
Canada: BoC’s Poloz continued to highlight uncertainty in his prepared remarks and his Q&A with the press. In his Q&A, he said “The way we think of it now is uncertainty has risen in the wake of the election and that is likely to feed through to investment thinking.” In his speech, he championed the importance of judgment in setting policy, noting that uncertainties such as geopolitical risk limit the effectiveness of economic models. On the currency, he said that some rise in the loonie is premature given excess capacity. The energy crisis (plunge in oil) has left Canada with persistent excess capacity. As for Trump, the impact of the new president is not knowing what to expect. No change for an extended period remains the base case scenario.
Main Macro Events Today
- UK Markit PMI – UK Markit Manufacturing PMI expected to fall to 55.9 from 56.1 in December.
- FOMC & Fed’s Rate – Monetary policy announcement coming today, while there will not be any press conference or release of estimates. No policy changes are expected at this point. Fed’s Interest Rate will also be decided later today.
- US ISM – January ISM is out today and should reveal a 54.5 (median 55.0) headline that remain unchanged from the post-revision level set in December. Other measures of producer sentiment have mostly improved for the month and hence the ISM-adjusted average of all measures expected to climb to 55 from 53.2 in both December and November and 51.9 in October.
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