The opening of the market in China after a break related to the Chinese New Year, which was extended to prevent the rapid spread of the coronavirus, led to a massive slump both on stock indices and on commodity futures contracts traded in China. Expecting this, the People's Bank of China decided to act – it increased liquidity and cut interest rates.
This week, quotes may be shaped by information on progress in preventing the spread of the virus and the impact of the current situation on the slowdown in economic growth, the supply chain for the companies or corporate profits. The beginning of February is also a period where macroeconomic data will start appearing, which may show the scale of the impact of the epidemic on the economy. It is also important whether corporations decide to extend the closure of stores or factories in China. One of the dates is Sunday, February 9, so by Friday, it is possible that we will find out whether this date will be extended or whether the management boards of companies will state that the greatest threat has passed and that everything can return to normal.
With Chinese macroeconomic data, it is worth paying attention to PMI publications for services and trade balance for January. The first of them will be announced on Wednesday, February 5 at 2:45 and the other on Friday, February 7. Today, in turn (February 3), the PMI for the Chinese manufacturing sector was published for January, which fell to 51.1 points from 51.5 points a month earlier with market consensus at 51.3 points Consequently, this was the weakest reading since August.
Very important data will also come from the United States. Today, manufacturing PMI and ISM will be published, probably indicating a slower increase in activity in this sector in January. These indexes will also be published for services on Wednesday. Here, in turn, according to market consensus, the sector's activity was to increase in January. Nevertheless, this will only be an introduction to the most important data this week – NFP. At 14:30, as usually happens on the first Friday of the month, the data from the US labor market will be published, i.e. popular non-farm payrolls. Market consensus may indicate an increase in employment in January to 155 thousand from 145 thousand a month earlier. The US unemployment rate is expected to remain unchanged at 3.5 percent.
As for central banks, already on Tuesday, February 4 at 4:30 AM the Reserve Bank of Australia (RBA) decision will appear. Market consensus assumes that RBA might not lower interest rates yet and could leave the main interest rate at 0.75 percent. Investors will be looking for information on when interest rates in Australia may be reduced. There are many indications that this may be the first half of this year. The AUD/USD pair is in a key place, which is why the decision and statement can be so important for this market.
Also this week the decision on interest rates in Poland will be published. Thanks to this, we will also be able to find out what view the Monetary Policy Council has and whether more and more members are in favor of interest rate cuts. Press conference scheduled for 16:00 on Wednesday, February 5 can be very interesting because the chances of interest rate cuts in the eurozone or in the US have recently increased.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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