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Central Bank Meetings In Focus, U.S. NFP Draws Attention

Jan, 29th 19:50

U.S. stocks closed mostly lower on Friday as investors weighed disappointing fourth-quarter data on domestic economic growth but recorded a gain for the whole week with the Dow Jones Industrial Average above 20,000 for the first time.

At the close in NYSE, while the Dow Jones fell 0.04%, and the S&P 500 index declined 0.09%, the NASDAQ Composite index gained 0.10%. For the week, the Dow Jones rose 1.3%, the S&P 500 index added 1% and the Nasdaq Composite Index was up 1.9%.

On the contrary, the U.S. dollar rose Friday but continued to finish the week lower. The U.S. dollar index, which compares the dollar with a half-dozen currencies, rose 0.2% to 100.58, paring the weekly loss to 0.2%. Last week’s decline extended the index’s January slide to a loss of 1.6%.

In the latest economic data, the Commerce Department reported that the U.S. economy expanded at a slower-than-expected speed in the fourth quarter which witnessed annual growth below 3% for an 11th straight year. Gross domestic product’s expansion reached 1.9% in the three-month period to December. The reading was much lower than a 3.5% growth rate in the third quarter and a 2.2% estimated by analysts.

In the week ahead, markets will be paying close attention to Wednesday’s FOMC meeting and Friday’s U.S. nonfarm payrolls report for January, as well as ISM Non-Manufacturing PMI for the last month.

The Federal Reserve is widely expected to keep its rates unchanged at its two-day policy meeting on Wednesday. According to Reuters data, Fed fund futures show bets on a 96-percent chance the Fed will not take action on interest rates when it ends its meeting, and the borrowing costs may remain on hold until the second quarter.

On Friday, the U.S. Labor Department is expected to report 171,000 new non-farm jobs were created in January, up from 156,000 in December. The unemployment rate is forecast to hold steady at 4.7%, while average hourly earnings are expected to rise 0.3% after gaining 0.4% a month earlier.

The U.S. economic calendar will be rounded up by factory orders and the non-farm payrolls report for January, and the ISM’s services PMI.

Sterling was one of the best-performing currencies against the U.S. dollar last week even the British Pound lost ground versus its American counterpart on Friday.

The UK will see a trio of PMI releases from Markit/CIPS next week – the manufacturing PMI on Tuesday, the services PMI on Wednesday and the construction PMI on Thursday. All three indices are forecast to remain comfortably above 50, which indicates an expansion but to show a marginal decline in activity in January compared to the previous month.

The Bank of England will announce its rate decision on Thursday, with no change in policy expected. A quarterly Inflation Report will also be published by the British central bank.

Like the FED and the BOE, Bank of Japan’s latest rate decision and monetary policy statement which are due during Asian hours on Tuesday is also anticipated to witness no changes to current policies. BOJ Governor Haruhiko Kuroda will hold a press conference afterward to discuss the decision. According to a Reuters poll showed on Friday, the BOJ will hold its short-term policy interest rate at minus 0.1% and the 10-year government bond yield target at around 0%, while maintaining the net amount of Japanese government bonds it buys annually at around 80 trillion yen.

 Next week will be a quiet one for the Euro. There will be no important data for the single currency until the preliminary fourth-quarter growth and the flash inflation figures for January come out on Tuesday. The report is forecast to show consumer prices rose 1.5%, rising back toward the European Central Bank’s 2% target and accelerating from a gain of 1.1% in December. Core prices are expected to increase 0.9%, unchanged from the prior month.

Besides speeches by ECB President Mario Draghi throughout the week, investors will also focus on the European Commission which is scheduled to publish updated economic forecasts for the region on Wednesday.

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