January 2017 Outlook

January 4, 2017


If you’re looking to get a head start into trading for the new year, here’s a look at the upcoming market catalysts lined up for January 2017. Even though New Year’s Day falls on a Sunday, it looks like financial market action will be off to a roaring start as China has top-tier releases lined up on the very first day of the year.

On January 1, China will print its official manufacturing and non-manufacturing PMIs, indicating whether these industries performed better or worse in December. These figures may set the tone for market sentiment when trading resumes the following day, as strong readings that indicate a faster pace of expansion may allow higher-yielding assets to kick the year off on a positive note. On the other hand, downbeat results or dips from earlier readings may keep market participants in a cautious stance.

Week 1

Several global markets are still closed for January 2 (Monday), giving traders enough time to recover from their post-holiday feasts and turn their focus back on market events. Japanese banks are closed until January 3 (Tuesday) but European markets will reopen and will get a round of final manufacturing PMI readings from Spain, France, Italy, Germany, and Switzerland. The United Kingdom will print its construction and manufacturing PMIs in one go may leading to sharp moves for pound pairs and the FTSE 100 as soon as trading resumes. The US economy will also release its ISM manufacturing PMI, which typically drops some hints about the non-farm payrolls report due later in the week.

The action could continue to pick up midweek, with the release of UK services PMI and the US ISM non-manufacturing PMI. The ADP non-farm employment change report is also lined up, adding to pre-NFP positioning for Friday. Also, the FOMC meeting minutes are due and this might shed more light on what the US central bank has in mind for the rest of the year in terms of policy adjustments.

As always, the US NFP report may ensure that the week won’t go by without any fireworks. After all, much of the Fed decision to increase interest rates has hinged on the economy approaching full employment so it will be interesting to see if this trend was sustained in December.

Week 2

Price action is expected to take a breather as the month settles in, with barely any major reports up for release in the second week of the year. Japanese banks are closed for the holiday again on Monday (January 9) so the thin volatility may give rise to more volatile action then.

The major reports, namely US PPI and retail sales, aren’t due until the end of the week so this gives financial headlines a stronger chance at pushing equities and currencies around throughout those days. Keep in mind that the Supreme Court ruling on the parliament’s role in marking the official start of Brexit negotiations is due sometime during the month so traders are likely to pay extra close attention to updates on this issue. This may set the tone for pound price action in the next few months, as any delays in invoking Article 50 could expose the UK economy to a longer period of uncertainty.

Week 3

The spotlight  may still be on the British pound and the UK economy the following week, as several top-tier reports are lined up. This includes the December CPI, claimant count change, average earnings index, and retail sales. Continued improvements in the UK economy could reassure investors that it can stay afloat even with all the Brexit-related concerns.

Apart from that, a couple of central banks are set to announce their monetary policy decisions in this week. The Bank of Canada will make its policy decision on January 18 (Wednesday) while the European Central Bank will have its interest rate statement on January 19 (Thursday). No actual policy changes are expected for the time being, although the BOC could highlight improvements stemming from the pickup in crude oil prices and the energy sector while the ECB could provide more details on its revised quantitative easing program.

Also lined up for the week is New Zealand’s quarterly CPI, which may provide more guidance on whether or not the Reserve Bank of New Zealand is likely to cut interest rates again. A strong reading  may remind traders that RBNZ head Wheeler previously stated that they plan to keep rates unchanged for much longer and that the Kiwi’s appreciation is no longer such a huge downer to inflation recently.

Another event worth watching in the third week of January is the presidential inauguration of Donald Trump, which is likely to do a number on overall market sentiment. Recall that his election win was followed by a stellar rally in equities, mostly due to his relatively somber and respectable victory speech, so his demeanor and statement during his official first day in the White House could be closely watched.

Week 4

It’s all about GDP readings for the final week of January 2017, with the UK and the US set to print their preliminary readings for Q4 2016. Both economies have actually done quite well in the past few months so it will be interesting to see how consumer activity, business investment, and government spending factored in the bottom line figures for the previous quarter.

In particular, the US advanced GDP reading could set a benchmark for the Trump administration and the Fed’s economic standards. Future growth figures may be compared to this GDP reading since those would also indicate whether or not the Fed hiked rates too soon and how likely they are to tighten monetary policy again. Meanwhile, the UK preliminary GDP reading should give an idea of where the economy stands before Brexit negotiations take over.

The top euro zone economies are also scheduled to print their initial GDP readings for Q4 2016, also providing an idea of how growth has fared before major leadership changes happen in France and Germany. The euro zone’s GDP estimates and CPI figures are up for release on January 31 (Tuesday), along with quarterly jobs data from New Zealand.

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