With annual corporate earnings releases no longer a theme, macroeconomic indicators may take on even more importance in the upcoming week.
Monday 06.03. 09:30 GMT, UK Construction Purchasing Managers Index (PMI) February
The UK Purchasing Managers' Index provides insight into the construction industry's activity level as reported by purchasing managers. This measure provides an understanding of the state of the UK construction industry, as it is assumed that purchasing managers have access to first-hand data on the performance of their companies.
A reading above 50 indicates expansion, while a reading below 50 indicates contraction in the construction industry. UK construction activity has been showing signs of slowing, with worse-than-expected figures for the past 3 months. February's reading is expected to be 48.5 - a potential improvement from the previous month's 48.4.
A higher-than-expected reading could be bullish for the GBP, while a lower-than-expected reading could be bearish for the GBP.
Impact: GBP
Tuesday 07.03. 03:30 GMT, Australia Interest Rate Decision
Two major central banks will announce their interest rate decisions next week. The Reserve Bank of Australia began raising interest rates from 0.10% in May 2022 - now at 3.35% - to combat inflation caused by a surge in consumer spending after the Covid-19 pandemic that suppliers could not fully satisfy.
After 9 consecutive rate hikes, the RBA is expected to decide to keep rates on hold. Such a decision could be seen as a turning point for the current monetary policy. Meanwhile, rising interest rates may have a depressing effect on domestic stocks and indices.
A higher-than-expected reading could be bullish for the AUD, while a lower-than-expected reading could be bearish for the AUD.
Impact: AUD, S&P/ASX 200
Wednesday 08.03 15:00 GMT, BoC Interest Rate Decision
A similar scenario awaits Canadian markets on Wednesday. Bank of Canada started increasing interest rates in March 2022, which have now reached 4.50%. Like RBA, the Bank of Canada is expected to keep the interest rate at a current level – the first time since March 2022. Despite above-target inflation, the BoC may be reluctant to raise interest rates further as the low-interest rate environment of the past 10 years appears to have fuelled a housing boom in Canada. In addition to putting pressure on household spending through mortgage rates, rising interest rates are negatively correlated with house prices, which could lead to a significant drop in house prices (think of the 2008 real estate bubble burst).
A higher-than-expected reading may have a bullish effect on the CAD and a bearish effect on the stock market, while a lower-than-expected reading could be bearish for the CAD and a bullish effect on the stock market.
Impact: CAD, TXCX
Friday 10.03 13:30 GMT, US Non-farm Payrolls & Unemployment Rate, February
Non-farm payrolls measure the change in the number of people employed during the reporting period, aside from the farming industry. The number of jobs created is considered among the most important consumer spending indicators, making up the largest part of economic activity. Non-farm Payrolls have been reported better than expected since April 2022, with the largest surprise last month (517K versus forecast 185K). February's data is expected at 200K.
The unemployment rate measures the proportion of the labour force that is unemployed and actively seeking work in the previous month. Together with non-farm payrolls, the unemployment rate indicates the labour market's health. The US unemployment rate has fully recovered from the Covid-19 pandemic and was reported at 3.4% last month, the lowest in 54 years.
Higher non-farm payrolls and the lower unemployment rate might signal that the US Federal Reserve tightening monetary policy is yet to realize itself, and further interest rate increases may be expected. Therefore, although typically considered a positive sign of economic expansion, better-than-expected results may result in an adverse reaction in the stock market.
The higher-than-expected non-farm payroll and lower-than-expected unemployment rate readings may have a bullish effect on the USD. In contrast, a lower-than-expected non-farm payroll and higher-than-expected unemployment rate readings could be bearish for the USD.
Impact: USD, S&P500
Stocks to watch
Crowdstrike Holdings (CRWD) announcing its earnings results for the quarter ending on 01/2023. Forecast: 0.4302. Positive earnings surprise in 10 out of the last 10 reports. Time: Tuesday, March 7, 10:00 GMT.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or 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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