Insight’s Global economic outlook for the week – as at 30 January, 2017

Steve Waddington

The following are thoughts on the week ahead from Steve Waddington, portfolio manager in the multi-asset team at Insight Investment a leading global investment manager.

FOMC meeting: a key focus but don’t expect much to change

1. The key event of the week ahead is, fairly obviously, the meeting of the Federal Open Market Committee (FOMC) – with any decisions made announced on Wednesday evening.

The newly confirmed chair (Jerome Powell) and his colleagues will have the December core personal consumption expenditure inflation outturn to aid their policy discussion, but that’s unlikely to have a material impact as it’s expected to edge up only slightly.

We are in line with markets, expecting the next rise in the policy rate to come in March, when the FOMC’s next economic forecasts are produced (the probability of a March hike is currently priced in at 95%).

2. US payroll and ISM outturns will be released after the FOMC has made its decision, so they will play into subsequent policy decisions. In our view, hourly earnings are the key.

For private earnings, the risk is that there will be an increase in the annual rate of growth, as the monthly change seen last January was relatively weak (at four cents).

Nonetheless, the annual rate of growth is only likely to edge up to 2.6% from 2.5%.

The ISM balance should point to a month of strong, but moderating, activity growth. On Friday, the latest University of Michigan survey of consumers will be released.

We’ll be looking closely for any change in the inflation expectations balances. Last time round, inflation expected one-year out ticked up to 2.8%.

This is also a busy week for US earnings reports, with 35% of the S&P 500 Index’s total market capitalisation making announcements.

The technology sector will be a particular focus, given its importance to earnings growth in previous quarters. •

3) Away from the US, provisional January consumer price index numbers for Germany, France, Italy and Spain should reinforce the view that inflation pressures around the globe remain fairly limited. Purchasing manager indices in the UK, Italy and China should point to strong but slightly moderating growth.

In Australia, the key quarterly inflation release is expected to edge slightly higher. Any significant surprise there will obviously have a material impact on short Australian rate expectations.