The last trading week of 2022 has ended. On Sunday, January 1, the new year 2023 begins. Investors are still trying to be optimistic despite the existing epidemiological situation in different regions of the world (due to the coronavirus), the turbulent geopolitical situation in some regions of the world and military actions in Ukraine, uncertainty and imbalance of the energy market, and high inflation. Although investors did end the past 2022 on a negative note: world stock indices were mostly lower by the end of the year. The dollar was the winner. Its DXY index added about 15% at the end of the year. It could have been more if it had not started to decline after the November Federal Reserve meeting. This is when doubts started to emerge that the US central bank might keep the same high rates of monetary policy tightening, when the interest rate (in June, July, September, November) increased by 0.75%.
Now investors expect the dollar to weaken in 2023, which will accelerate as soon as the Fed completes the cycle of raising interest rates. And many economists believe that this will happen in the first half of the year.
The first week promises to be (closer to the second half of it) quite turbulent, given the release of data from the US labor market for December, inflation indicators for the eurozone and US PMI indices.
Also, market participants will pay attention to the release of important macro data on Germany, Canada, the United States, as well as minutes from the December Fed meeting.
Monday, January 02
Germany. Manufacturing Business Activity Index (PMI) (final release)
This S&P Global Manufacturing PMI is an analysis of a survey of 800 purchasing managers. Purchasing managers are asked to assess the relative level of business conditions including employment, production, new orders, prices, supplier deliveries and inventories. Since purchasing managers have perhaps the most up-to-date information on company conditions, this is an important indicator of the state of the German economy as a whole. This sector accounts for a large portion of Germany's GDP. Normally, a result above 50 signals is seen as positive, or bullish for the EUR, whereas a result below 50 is seen as negative, or bearish for the EUR. Data worse than the forecast and/or the previous value will have a negative impact on the EUR.
Previous values:
Manufacturing PMI: 46.2, 45.1, 47.8, 49.1, 49.3, 52.0, 54.8, 54.6, 56.9, 58.4, 59.8,
Forecast for December: 47.4 (preliminary estimate was 47.4 with a forecast of 46.7).
The level of impact on markets (final release) is medium.
Tuesday, January 03
UK. Manufacturing PMI (final release)
The Manufacturing PMI (released by S&P Global) is a significant indicator of the health of the UK economy. If the data turns out to be worse than expected and the previous value, the GBP is likely to decline short-term. Data better than the forecast and the previous value will have a positive effect on the pound. In the meantime, a result above 50 is seen as positive and strengthens the GBP, below 50 is seen as negative for the GBP.
Previous values:
Manufacturing PMI: 46.5, 46.2, 48.4, 47.3, 52.1, 52.8, 54.6, 55.8, 55.2, 58.0, 57.3.
Forecast for December: 44.7 (preliminary estimate was 47.7 with a forecast of 46.5).
The level of impact on markets (final release) is medium.
Germany. Harmonized Index of Consumer Prices (HICP) (preliminary estimate)
Consumer prices are a big part of overall inflation. Under normal economic conditions, rising prices force the country's central bank to raise interest rates in order to avoid excessive inflation (above the central bank's target level). One of the dangerous periods of the economy is stagflation. This is rising inflation in a slowing economy. In this situation, the central bank must act very carefully so as not to harm the recovery of economic growth.
The Consumer Price Index (CPI), published by the EU Statistics Office, is an indicator to measure inflation and is used by the Governing Council of the European Central Bank to assess the level of price stability. Normally, a positive reading is seen as positive (or bullish) for the EUR, while a negative reading is seen as negative (or bearish).
Growth is positive for the national currency (under normal circumstances). Data worse than the previous value and/or forecast is negative for the EUR.
The previous indicator values: +11.3% in November, +11.6% in October, +10.9% in September, +8.8% in August, +8.5% in July, +8.2% in June, +8.7% in May, +7.8% in April, +7.6% in March, +5.5% in February, +5.1% in January 2022 (annualized).
Forecast for December: +11.8%.
The level of impact on markets (pre-release) is high.
New Zealand. Dairy Price Index
The Dairy Price Index released by the National Statistics Service is a measure of the weighted average price of milk products sold by the dairy industry. The dairy price index released by the Global Dairy Trade (GDT) is a measure of the total trade balance of a country.
New Zealand's economy is still very much a commodity economy, with dairy and animal food products accounting for the bulk of New Zealand's exports (27%, as of 2020). Therefore, a decline in world prices for dairy products negatively affects NZD quotes, as it signals a decrease in export revenues flowing into the budget of New Zealand.
Conversely, an increase in the Dairy Price Index is positive for the NZD.
Previous values are -3.8%, +2.4%, -3.9%, -4.6%, +2.0%, +4.9%, -2.9%, -5.0%, -4.1%, -1.3%, +1.5%, -2.9%, -8.5%, -3.6%, -1.0%, -0.9%.
The level of influence on the markets is low to medium.
Canada. Manufacturing PMI
The S&P Global Manufacturing PMI released by S&P Global is an important indicator of business conditions in the Canadian manufacturing sector and the overall Canadian economy. A result above 50 signals is seen as positive (or bullish) for the CAD, while a result below 50 is seen as negative (or bearish) for the CAD. Readings above 50 signals an acceleration of activity, which positively affects the CAD price. Generally speaking, if the indicator is below 50, the CAD is likely to decline sharply in the short term.
Previous indicator values: 46.2, 48.8, 48.7, 52.5, 54.6, 56.8, 56.2, 58.9, 56.6 and 56.2 (in January 2022).
The level of influence on the markets is medium.
US. Manufacturing PMI (from S&P Global) (final release)
The S&P Global Composite PMI and PMI manufacturing and service sector indices are among other data released monthly by S&P Global and are an important indicator of the health of these sectors and of the US economy as a whole. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish) for the USD. Readings above 50 signals an acceleration in activity, which is positive for the USD. A drop below 50 would result in a sharp short-term weakening of the USD.
The previous PMI values for the manufacturing sector were 47.7, 50.4, 52.0, 51.5, 52.2, 57.0 and 59.2.
Forecast for December: 46.2 (preliminary estimate was 46.2).
The market impact level of this S&P Global report (final release) is medium. It is also lower than the similar report from ISM (American Institute for Supply Management)
Wednesday, January 04
Germany. Purchasing Managers' Index (PMI) (final release)
This S&P Global report is an analysis of a survey of 800 purchasing managers. Purchasing managers are asked to assess the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories. Since purchasing managers have perhaps the most up-to-date information on company conditions, this indicator is an important indicator of the state of the German economy as a whole. This sector accounts for a large portion of Germany's GDP. Normally, a result above 50 signals is seen as positive, or bullish for the EUR, whereas a result below 50 is seen as negative, or bearish for the EUR. Data worse than the forecast and/or the previous value will have a negative impact on the EUR.
Previous values:
Composite PMI: 46.3, 45.1, 45.7, 46.9, 48.1, 51.3, 53.7.
Forecast for December: 48.9 (preliminary estimate was 48.9 with a forecast of 46.3).
The level of impact on markets (final release) is medium.
Eurozone. Manufacturing Composite PMI (final release)
The eurozone Manufacturing PMI Composite (from S&P Global) is an important indicator of the health of the entire European economy. A result above 50 signals is seen as positive (or bullish) for the EUR, whereas a result below 50 is seen as negative (or bearish) for the EUR. Data worse than the forecast and/or previous value will have a negative impact on the EUR. Previous values: 47.8, 47.3, 48.1, 48.9, 49.9, 52.0, 54.8, 55.8, 54.9.
Forecast for December: 48.8 (preliminary estimate was 48.8 with a forecast of 48.0).
The level of impact on markets (final release) is medium.
U.S. ISM manufacturing PMI
The Institute for Supply Management's (ISM) monthly report releases (among other data) the U.S. manufacturing PMI, an important indicator of the health of the sector and the U.S. economy as a whole. A result above 50 signals is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish) for the USD. Readings above 50 signals an acceleration in activity, which is positive for the USD. When the indicator falls below the forecasted value, and especially below 50, the dollar may weaken sharply in the short term.
Previous indicator values: 49.0, 50.2, 50.9, 52.8, 53.0, 56.1, 55.4, 57.1, 58.6, 57.6 (in January 2022).
Forecast for December: 49.6.
The level of influence on markets is high.
US. Minutes from the December Federal Open Market Committee meeting (FOMC minutes)
A detailed report of the last FOMC meeting which gives an in depth view of the economic and financial conditions that influenced the FOMC members' decision. The minutes is extremely important in determining the course of the Fed's current policy and the prospects of an interest rate hike in the United States. Trading volatility in financial markets tends to increase during the release of the minutes, as its text often contains either changes or clarifying details regarding the outcome of the last FOMC meeting of the Fed.
The soft tone of the minutes will have a positive effect on stock indices and a negative effect on the US dollar. It is worth noting, however, that at the end of the December FOMC meeting the Fed policymakers decided to lower the pace of monetary policy tightening, raising the interest rate by 0.50%, rather than by 0.75%, as it was done in June, July, September and November.
Aggressive stance from Fed policymakers on the outlook for monetary policy will push the dollar up further. Conversely, soft rhetoric from their statements will have a negative impact on the dollar.
The level of impact on the markets is high.
Thursday, January 05
UK. Composite PMI and the Services Business Activity Index (PMI) (final release)
The UK Composite PMI (released by S&P Global) is a significant indicator of business conditions in the UK economy. If the data is worse than expected and the previous reading, the GBP is likely to decline short-term. Data better than the forecast and the previous value will have a positive effect on the pound. In the meantime, a result above 50 is seen as positive and strengthens the GBP, below 50 is seen as negative for the GBP.
Previous values: 48.2, 49.1, 49.6, 52.1, 53.7, 53.1, 58.2, 60.9, 59.9, 54.2 (in January 2022).
The preliminary estimate was 49.0.
The level of impact on markets (final release) is low to medium.
UK Services Business Activity Index (S&P Global) is an important indicator of the health of the British economy. The service sector employs the majority of the UK's working population and accounts for about 75% of GDP. The most important part of the services sector is still financial services. If the data is worse than the forecast and the previous value, the pound is likely to fall short-term. Data better than the forecast and the previous value will have a positive effect on the pound. In the meantime, a result above 50 is seen as positive and strengthens the GBP, below 50 is seen as negative for the GBP.
Previous values: 48.8, 50.0, 50.9, 52.6, 54.3, 53.4, 58.9, 62.6, 60.5, 54.1 (in January 2022).
The preliminary estimate was 50.
The level of impact on markets (final release) is low to medium.
US. ADP Private Sector Employment report
ADP will release its monthly private sector employment report for December. This report usually has a strong effect on the market and USD quotes, although a direct correlation with Non-Farm Payrolls is usually not observed. Strong data is positive for the USD; a decline may be negative for it.
In any case, there may be more volatility in the market and especially in the dollar during the release of this report.
Previous values are 127,000 in November, 239,000 in October, 192,000 in September, 185,000 in August, 270,000 in July, 358,000 in May, 457,000 in April, 425,000 in March, 375,000 in February, 372,000 in January 2022.
The level of impact on the markets is medium to high.
U.S. Unemployment Claims
The U.S. Department of Labor will release its weekly report on the state of the U.S. labor market with data on the number of initial and continuing jobless claims. The labor market condition (together with GDP and inflation data) is a key indicator for the Fed in determining its monetary policy parameters.
A higher than expected result and a rise in the indicator suggests weakness in the labor market, which negatively affects the U.S. dollar. A fall in the indicator and its low value is a sign of labor market recovery and can have a short-term positive impact on the USD.
The initial and continued Jobless Claims are expected to remain at pre-pandemic lows, which is also a positive sign for the USD, indicating a stabilization of the US labor market.
Previous (weekly) values for initial jobless claims data: 225,000, 216,000, 214,000, 231,000, 226,000, 241,000, 223,000, 226,000, 217,000, 214,000, 226,000, 219,000, 190,000, 209,000, 208,000, 218,000, 228,000, 237,000, 245,000.
Previous (weekly) values on unemployment reapplication data: 1,710,000, 1,672,000, 1,678,000, 1,670,000, 1,609,000, 1,551,000, 1,503,000, 1,494,000, 1,438,000, 1,383,000, 1,364,000, 1,365,000, 1,346,000, 1,376,000, 1,401,000, 1,401,000, 1,437,000, 1,412,000.
The level of influence on the markets - from medium to high.
US. S&P Global Business Activity Index (PMI): Composite and Services Economy (final release)
The S&P Global Composite PMI and Services PMI are among other monthly reports released by S&P Global. They are important indicators of the health of these sectors and of the US economy as a whole. A result above 50 signals is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish) for the USD. Readings above 50 signals an acceleration in activity, which is positive for the USD. A drop below this number, and especially a drop below 50, would result in a sharp short-term weakening of the USD.
Previous values of the PMI indicator:
Composite: 46.4, 48.2, 49.5, 44.6, 47.7, 52.3, 53.6, 56.0;
Services sector: 46.2, 47.8, 49.3, 43.7, 47.3, 52.7, 53.4, 55.6.
The level of market impact of this S&P Global report (final release) is medium. It is also lower than a similar report from ISM (American Institute for Supply Management).
Forecast for December:
Composite: 44.6 (preliminary estimate was 44.6).
Services sector: 44.4 (preliminary estimate was 44.4).
The level of impact on markets (final release) is medium.
Friday, January 06
Banks and stock exchanges in some European countries will be closed due to a holiday, which will affect trading volumes.
Germany. Retail sales
Germany's statistical office will publish a retail sales report. The change in the retail sales report influences consumer spending and is an indirect indicator of the health of the German economy and its income level.
The German economy is the driving force behind the overall European economy. Therefore, EUR quotes are very sensitive to important macro data on Germany.
A high reading usually strengthens the EUR, while a low reading weakens it. Data better than the forecast and/or the previous value is likely to have a positive effect on the euro, but in the short term.
Previous values: -2.8% (-5.0% y/y), +0.9% (-0.9% y/y), -1.3% (-4.3% y/y), +1.9% (-2.6% y/y), -1.5% (-9.6% y/y), +1.2% (+1, 1% annualized), -5.4% (-0.4% annualized), +0.9% (-1.7% annualized), +0.2% (+6.9% annualized), -0.2% (+10.1% annualized) in January 2022.
Forecast for November: +0.3% (-2.5% annualized).
The level of impact on markets is medium to high.
Eurozone. Core Consumer Price Index (Core CPI) (preliminary release). Retail Sales
CPI measures changes in prices of a basket of goods and services during a specific period. CPI is a key indicator for inflation and changes in purchasing habits.
The Core Consumer Price Index (Core CPI) excludes food and energy in the calculation for a more accurate estimate.
Inflation estimates are important for central bank guidance in setting the parameters of current monetary policy. A figure below the forecast/previous value can provoke a weakening of the euro, as low inflation will force the ECB to pursue a soft monetary policy. Conversely, rising inflation and high inflation will put pressure on the ECB to tighten its monetary policy, which in normal economic conditions is seen as a positive factor for the national currency.
Previous CPI values (annualized): +10.1%, +10.6%, +9.9%, +9.1%, +8.9%, +8.6%, +8.1%, +7.4%, +7.4%, +5.9%, +5.1% (in January 2022).
Previous Core CPI values (annualized): +5.0%, +5.0%, +4.8%, +4.3%, +4.0%, +3.7%, +3.8%, +3.5%, +3.0%, +2.7%, +2.3% (in January 2022).
Preliminary estimate for December: +0.8% (+10.5% annualized) and -0.1% (+5.2% annualized) for core CPI.
The level of impact on markets (preliminary estimate) is high.
The Retail Sales released by the Eurostat is a measure of changes in sales of the retail sector. Changes in the Retail Sales released by the Eurostat influence the rate of consumer spending. Indirectly, it is an indicator of the health of the European economy and the income level of its citizens.
Generally speaking, a high reading strengthens the EUR while a low reading weakens it.
Previous values: -1.8% (-2.7% annualized) in November, +0.4% (-0.6% annualized) in September, -0.3% (-2. 0% annualized) in August, +0.3% (-0.9% annualized) in July, -1.2% (-3.7% annualized) in June, +0.2% (+0.2% annualized) in May, -1.3% (+3.9% annualized) in April, -0.4% (+0.8% annualized) in March, +0.3% (+5.0% annualized) in February, +0.2% (+7.8% annualized) in January. Better than expected data is likely to be positive for the euro.
Forecast for December: +0.1% (+2.4% y/y).
The level of impact on the markets is medium to high.
U.S. NFP (New Jobs Created Outside of Agriculture) and Unemployment Rate
Friday's main event will be the release of the monthly report of the U.S. Labor Department with data on the country's main labor market indicators for December. Market participants closely follow the report, and market volatility typically rises sharply during its release, especially in the dollar.
The report's rising numbers (average hourly earnings and new nonfarm payrolls) and falling unemployment numbers are positive for the dollar.
Previous values (average hourly earnings / number of new jobs created outside the agricultural sector / unemployment rate): +0.6% in November, +0.4% in October, +0.3% in September and August, +0.5% in July, +0.3% in June, May and April, +0.4% in March, 0% in February, +0.7% in January 2022 / +0.263 million in November, 0.261 million in October, 0.263 million in September, 0.315 million in August, +0.528 million in July, +0.372 million in June, +0.390 million in May, +0.428 million in April, +0.431 million, +0.678 million in February, +0.467 million in January 2022 / 3.7% in November and October, 3.5% in September, 3.7% in August, 3.5% in July, 3.6% in June, May, April and March, 3.8% in February, 4.0% in January 2022.
Forecast for December: +0.5% / +0.057 million / 3.7%, respectively.
As you can see, unemployment remains at pre-pandemic lows and average hourly earnings continue to rise. The NFP section of the report is alarming: the number of new jobs created outside of the agriculture sector is expected to increase quite a bit. Economists calculate that the U.S. economy needs to create up to 150,000 new jobs each month (outside the agricultural sector) to keep the labor market stable, and a significant slowdown in this indicator is a negative factor for the dollar.
However, the market reaction to the Labor Department's report can be unpredictable as previous monthly reports are subject to frequent revisions.
With volatility traditionally expected to spike during the release of this report, it might be a better choice for conservative traders to stay out of the market during this period of time.
The level of influence on the markets is high.
Canada. Labor Market Data
Like the Fed, GDP, inflation, and labor market data are crucial for the Bank of Canada in its monetary policymaking.
Although unemployment has risen in Canada during the coronavirus pandemic (from the usual 5.6% to 5.7% to 7.8% in March and already to 13.7% in May 2020), there has also been some progress in recent months. Falling unemployment is positive for the CAD. If the unemployment rate rises, the CAD will fall.
Previous unemployment figures are: 5.1%, 5.2%, 5.2%, 5.4%, 4.9%, 4.9%, 5.1%, 5.2%, 5.3%, 5.5%, 6.5% (January 2022) indicating an improvement in the Canadian labor market.
Forecast for December: 5.1%.
The level of impact on markets is medium to high.
US. Economic Services PMI (from ISM)
The ISM Index is the result of a monthly survey of the largest U.S. companies in 62 segments of the services sector, which accounts for almost 90% of U.S. GDP and about 80% of the nation's working population.
Previous values: 56.5 in November, 54.4 in October, 56.7 in September, 56.9 in August, 56.7 in July, 55.3 in June, 55.9 in May, 57.1 in April, 58.3 in March, 56.5 in February, 59.9 in January.
Forecast for December: 55.5.
That's a high reading. A result above 50 indicates an increase in activity and is seen as positive for the USD. However, a stronger relative decline in the index could have a short-term negative impact on the USD.
The level of impact on markets is medium to high.
