Market outlook for the week of 5th-9th January

Monday starts quietly in terms of economic events for the FX market. In the U.S., the focus will be on the ISM manufacturing PMI. On Tuesday, the services PMI data will be released for the eurozone, the U.K., and the U.S. while Wednesday brings inflation data from Australia and the eurozone. In the U.S., attention will be on the ADP nonfarm employment change, the ISM services PMI, and JOLTS job openings. On Thursday, Switzerland will release its CPI data, while the U.S. will publish weekly unemployment claims. Friday is packed with key labor market data. Canada will report employment change and the unemployment rate, while the U.S. will release average hourly earnings m/m, nonfarm payrolls, the unemployment rate, preliminary University of Michigan consumer sentiment, and inflation expectations. In Australia, the consensus for CPI m/m is 0.1% versus 0.0% previously. CPI y/y is expected at 3.7%, down from 3.8%, while the trimmed mean CPI m/m is forecast at 0.2% versus 1.0% previously. As a note, the release this week covers CPI data for November, with December figures expected later this month. October’s monthly CPI printed in line with expectations, though it was slightly firmer than the market had anticipated. While the expanded monthly CPI dataset provides a clearer view of price developments across the Australian economy, its relatively short history means that some of the detail will take time to interpret with confidence. For this week’s release, a modest monthly increase is expected, with the annual rate likely to remain steady near 3.8%. Westpac analysts note that a sharp 16% rise in electricity prices is the main driver behind the stronger monthly outcome. In Switzerland, the consensus for CPI m/m is 0.0% vs. -0.2% prior. The SNB forecasts that inflation will remain in the 0-2% target range for some time, with Chairman Schlegel previously noting that the softer inflation does not necessarily increase the likelihood of a return to negative rates. This week’s jobs data will be important for the Bank of Canada’s January policy meeting. After a run of firmer labour market results through the fall and an unusually sharp drop in the unemployment rate in November, December’s figures are expected to show some giveback. Employment is forecast to decline modestly, reversing part of November’s outsized gain, while the unemployment rate is projected to edge higher. Analysts at RBC argue this is more likely a correction following November’s volatility than evidence of renewed deterioration in labour market conditions. Recent jobs data have been choppy, with gains skewed toward part-time roles and younger workers, alongside softer participation. However, more stable indicators, such as core-age unemployment and wage growth, have held up, pointing to underlying resilience. Trade-sensitive sectors remain a weak spot, but there is limited evidence of broader spillovers across the economy. Hiring demand appears to be stabilizing, and slower population growth should help ease labour supply pressures. From a monetary policy perspective, the BoC is not expected to cut rates again in the near term. In the U.S., the consensus for average hourly earnings is 0.3% m/m, compared with 0.1% previously. Nonfarm payrolls are expected to rise by 57K, down from 64K, while the unemployment rate is forecast to edge lower from 4.6% to 4.5%. In recent months, payroll growth has been minimal, with employment essentially flat on a three-month basis and well below the pace seen earlier in the year. While part of this weakness reflects temporary factors, such as federal workers exiting payrolls under deferred resignation programs, hiring in the private sector has also slowed noticeably, outside of a few resilient areas such as healthcare. More concerning is the steady rise in the unemployment rate, which has moved above the Fed’s estimate of its longer-run neutral level. Data quality issues related to the government shutdown add some uncertainty, but the broader message is consistent with other indicators pointing to a gradual cooling in labour market conditions, including lower quit rates and higher continuing claims. December’s jobs report should provide a clearer picture as standard data collection resumes. Hiring is expected to remain subdued relative to historical norms, though Wells Fargo analysts don’t foresee further deterioration happening in the labor market. Wage growth is likely to remain soft, helping to contain labour-driven inflation pressures as the job market remains sluggish rather than outright weak.
This article was written by Gina Constantin at investinglive.com.

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