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As we step into the first full week of February, the financial markets are poised for a relatively quieter tone compared to the previous week’s Fed-centric developments. However, key macro drivers and central bank decisions continue to capture the attention of traders globally. In the spotlight are the ISM Services PMI for the US and the Reserve Bank of Australia’s (RBA) rate decision, offering insights into the market week ahead.
Highlights:
- Market Week Ahead: Focus on data and central bank decisions after Fed hinted at potential rate cuts later in the year.
- Strong non-farm payrolls report (353k jobs added), unemployment at 3.7%, wage growth up 4.5%.
- ISM Services PMI: Expected to increase to 52.0 in January, but employment component needs watching.
- RBA Rate Decision: No change expected, cash rate to remain at 4.35%.
Market Week Ahead: Fed’s Message and Rate Dynamics
Last week, the Federal Reserve’s message was clear: forget about a March rate hike. Despite leaving the target rate unchanged, Fed Chairman Jerome Powell hinted at the possibility of rate cuts, albeit not in the upcoming policy meeting. The market responded with a rate repricing, favoring a 25bp cut in June rather than May, influenced by strong job data and an exceptional non-farm payrolls release that added 353,000 jobs in January.
US Labor Data Recap
Traders absorbed a slew of US jobs data, including increased job openings, weak ADP employment growth, and shifts in the ISM Manufacturing PMI employment component. Friday’s non-farm payrolls release exceeded all estimates, with 353,000 new jobs added in January. Unemployment remained at 3.7%, while year-on-year earnings surged to 4.5%, showcasing the strength of the US economy.
ISM Services PMI Preview
This week, the ISM Services PMI for January takes center stage in the US. The market anticipates an increase to 52.0 from December’s 50.6. The previous release revealed narrowing growth, particularly in the ISM Services employment index, which dropped significantly to 43.3. This makes the upcoming release a closely watched indicator, influencing market sentiments and the Dollar Index’s technical outlook.
RBA’s Rate Decision and Economic Outlook
In the Asia-Pacific region, the Reserve Bank of Australia (RBA) is scheduled to announce its rate decision. Expectations are for the cash rate to remain unchanged at 4.35%, maintaining the 12-year high. Alongside the rate decision, traders will delve into the Rate Statement, the quarterly Statement of Monetary Policy, and the Press Conference by RBA Governor Michelle Bullock. These provide a comprehensive view of economic conditions, inflation, and growth, impacting the AUD/USD, which experienced downward pressure following Friday’s developments.
Conclusion
As we navigate through the market week ahead, the ISM Services PMI and the RBA’s decisions stand as pivotal factors shaping investor sentiment. The Fed’s cautious stance and robust US labor data contribute to a complex landscape, influencing the trajectory of interest rates and currency movements. Traders will closely monitor these events, seeking valuable insights into the broader economic outlook and potential market trends.
