Economic Data Set to Influence Markets During January 5-9 Week

As the week of January 5-9 unfolds, key economic data releases across several nations are expected to shape market sentiment and trading strategies. The U.S. will be in focus with several reports that could influence financial markets, including the Institute for Supply Management (ISM) manufacturing Purchasing Managers’ Index (PMI) and crucial labor market figures.

On Monday, the week begins quietly, but attention will shift on Tuesday with the release of services PMI data from the Eurozone, the U.K., and the U.S. Wednesday will see inflation data emerge from Australia and the Eurozone. In the U.S., the ADP nonfarm employment change, ISM services PMI, and Job Openings and Labor Turnover Survey (JOLTS) job openings will highlight the day’s agenda.

Key Economic Indicators to Watch

Thursday will bring consumer price index (CPI) figures from Switzerland, alongside weekly unemployment claims from the U.S. Friday is poised to deliver a significant array of labor market data. Canada will report its employment change and unemployment rate, while the U.S. will unveil average hourly earnings month-over-month, nonfarm payrolls, the unemployment rate, preliminary University of Michigan consumer sentiment, and inflation expectations.

In Australia, the consensus for CPI month-over-month is projected at 0.1%, slightly rising from 0.0% previously. Year-over-year CPI is anticipated to be 3.7%, down from 3.8%, while the trimmed mean CPI month-over-month is expected at 0.2% compared to 1.0% earlier. This week’s release pertains to November’s CPI data, with December figures due later. Analysts from Westpac highlight a notable 16% increase in electricity prices as a significant factor behind the anticipated monthly uptick.

In Switzerland, the forecast for CPI month-over-month stands at 0.0%, compared to a previous figure of -0.2%. The Swiss National Bank (SNB) projects that inflation will remain within the 0-2% target range for the foreseeable future. SNB Chairman Schlegel has indicated that lower inflation does not necessarily increase the likelihood of a return to negative interest rates.

Labor Market Trends and Projections

The upcoming jobs data will be particularly significant for the Bank of Canada’s January policy meeting. Following a series of robust labor market results in the autumn and a sharp decline in the unemployment rate in November, expectations for December indicate a potential reversal. Employment is anticipated to decrease modestly, counterbalancing some of November’s notable gains, with the unemployment rate projected to rise slightly.

Analysts at RBC suggest that this anticipated decline is more about correcting November’s volatility than signaling a broader deterioration in the labor market. Recent data has exhibited fluctuations, with gains skewed towards part-time positions and younger workers, as well as softer participation rates. Despite these challenges, more stable indicators like core-age unemployment and wage growth remain resilient, indicating underlying strength.

Trade-sensitive sectors continue to face challenges, yet there is minimal evidence of widespread economic spillovers. Hiring demand appears to be stabilizing, and slower population growth may alleviate some labor supply pressures. From a monetary policy standpoint, the Bank of Canada is not expected to implement further rate cuts in the near future.

In the U.S., predictions for average hourly earnings stand at 0.3% month-over-month, an increase from 0.1% previously. Nonfarm payrolls are expected to rise by 57,000, down from 64,000, while the unemployment rate may decrease slightly from 4.6% to 4.5%. Recent payroll growth has been modest, with employment showing minimal change on a three-month basis, significantly lower than earlier in the year.

This stagnation reflects temporary factors, such as federal workers leaving payrolls under deferred resignation programs, but private sector hiring has also slowed considerably, outside of resilient areas like healthcare. A growing concern is the steady rise in the unemployment rate, which has surpassed the Federal Reserve’s long-run neutral estimate.

Data quality issues arising from the government shutdown add uncertainty, but broader trends indicate a gradual cooling in labor market conditions, evidenced by declining quit rates and increased continuing claims. The December jobs report is anticipated to provide a clearer picture as standard data collection resumes. Hiring is expected to remain subdued relative to historical norms. Nonetheless, analysts at Wells Fargo do not foresee a further deterioration in the labor market. Wage growth is likely to remain modest, contributing to contained inflation pressures as the job market experiences sluggishness rather than outright weakness.