The global economic landscape faces a week of pivotal developments as markets brace for significant announcements and shifts. In the United States, the ISM manufacturing index rose to 50.9 from 49.3, marking its highest level since September. Meanwhile, the Bank of England lowered its policy rate by 25 basis points to 4.50%, aligning with market expectations. The week is further highlighted by the anticipated release of US Consumer Price Index (CPI) rates for January on Wednesday, a move that could significantly impact market dynamics.
The services sector in the US showed signs of slowing, with the services PMI and ISM both falling in January. The ISM index dropped to 52.8 from 54.0, reflecting a contraction in growth. Additionally, data on US productivity for the fourth quarter revealed weakened productivity growth, raising concerns about future economic performance.
In a bold move, former President Donald Trump announced steep tariffs on Canada, Mexico, and China, set to take effect on February 4th. This announcement led to a rise in the broad USD and a subsequent fall in equities, as markets reacted to the potential trade implications.
Danske Bank provided a forecast for US inflation, predicting headline inflation at 2.9% year-on-year and core inflation at 3.1% year-on-year. This comes as Federal Reserve Chair Jerome Powell prepares to give congressional testimony on Wednesday, offering insights into the Federal Reserve's stance on monetary policy amidst these inflationary pressures.
Market participants are also keenly watching for the release of US retail sales data on Friday, which will provide further insights into consumer spending trends. In addition to domestic matters, international affairs are also at the forefront, as the US prepares to unveil Trump's plan to end the war in Ukraine at the Munich Peace Conference beginning on Friday.
Across the Atlantic, French Prime Minister François Bayrou successfully passed the 2025 budget and survived a no-confidence vote, securing his government's position amid political challenges. In the euro area, HICP inflation increased to 2.5% year-on-year in January, slightly surpassing expectations and adding pressure on the European Central Bank's monetary policy.
Economists forecast that US Nonfarm Payrolls will rise by 170,000 in January, indicating continued labor market strength despite broader economic uncertainties. Currently, the pace of US inflation is nearing pre-pandemic trends of around 1%, a decline from over 3% observed during the second half of 2023.
The global economic landscape remains complex and fluid, with various factors influencing market movements. Central banks continue to navigate a challenging environment marked by inflationary pressures, shifting monetary policies, and geopolitical tensions.