Weekly Outlook, 2-6 January

The year starts with NFP

Happy New Year. We are in IFC Markets wish you a great year ahead. This trading week starts on Tuesday, as Monday is the New Year holiday in most parts of the world. After disappointing data in the last months of last year, investors hope to start 2023 with more optimistic data, especially with upbeat nonfarm payrolls on Friday. Ahead of the Fed January meeting, that will be one of the most important data to watch.

China Caixin PMI - Monday

While most economies are spending the New Year holiday, China will release its Manufacturing Purchasing Managers Index (PMI) data. For December, we expect to see the Caixin PMI under 50 for the fifth consecutive month. In the last months of 2022, China's economy showed some signs of weakening, with PMIs under 50 extension level for the fourth last month. Lifting the Covid restrictions increased the hopes for better economic growth in 2023, but at the same time, concerns about the global spread of the coronavirus increased.

ISM Manufacturing Index - Wednesday

The ISM manufacturing index declined below the demarcation line between expansion and contraction at 50 in November, which is expected to repeat in December as well, as new orders decreased sharply in the year's second half. Even if this number means lower prices, as Fed expects, it can confirm a weaker economy, which would not be a good signal for the stock markets at the beginning of the year.

Germany CPI- Tuesday

The German Consumer Price Index (CPI) will be watched closely this week, as it says what we have to expect from the biggest European economy. In November, inflation eased 0.4% to 10%, and it is expected to be even lower in December, around 9% annually. However, since it is still so high, there needs to be a convincing reason for the European Central Bank to ease its tightening measures. These expected data can pressure European stock markets but cannot help the Euro.

European PMIs - Across the week

2022 was not a good year for the global economy, especially in the Eurozone and the year's second half. PMI numbers in Eurozone and its members, mainly under the 50-expansion level, can confirm this weakness. Weakness was in more than just one sector. All sectors, including construction, Service, and Manufacturing, got weaker last year, and it is expected to reflect in December numbers as well, which will be out this week. These desired data, while inflation is still so high, will confirm the continuation of the recession in Europe to hold the Euro weakness against its crosses.

Nonfarm Payrolls - Friday

Besides Inflation numbers which will be out a week later, this Friday's employment data will be watched closely by policymakers in the Federal Reserve, as they are getting together on the last day of January to set monetary policies. In November, data confirmed the labor market's strength, while average hourly earnings with a 5.8% annual raise had no positive sign for softer inflation. Another strong NFP reading should keep the central bank in tightening mode, increase the pressures on the stock markets, help the USD bulls, and vice-versa.