The preliminary PMIs for February will take centre stage next week as they will provide the first insight into the possible impact of the coronavirus on the global economy. The flash releases in the Eurozone, Japan, the United Kingdom and the United States should reveal how businesses outside of China have been affected by the outbreak with the risk that runaway equity markets may be handed a tough reality check. In other data, Australian employment and Canadian and UK retail sales will be watched closely, while in Japan, fourth quarter GDP numbers are likely to renew pressure on policymakers for additional stimulus measures.
Australian labour market under spotlight
Australia’s labour market will be scrutinized over the next week as quarterly wage growth figures are due on Wednesday and the latest employment report is out on Thursday. With the Reserve Bank of Australia looking increasingly reluctant to make deeper cuts to interest rates, the labour market indicators will test policymakers’ questionable economic optimism.
Apart from the devastating bushfires that so far do not appear to have notably dented growth, Australian businesses have also had to grapple with the coronavirus epidemic, which is bound to disrupt trade with China – Australia’s biggest trading partner. The Australian dollar has bounced off 11-year lows on hopes that the outbreak may be slowing but any evidence that the spread is far from receding could pull the currency to fresh lows.
Investors will also be keeping an eye on the manufacturing and services PMIs for February due on Friday to get a better sense of how the various headwinds may be affecting the Australian economy, as well as on the minutes of the RBA’s February meeting to be published on Tuesday.
Japan’s economy likely contracted in Q4
Despite a year-long slump in exports, Japan posted impressive growth rates for the first three quarters of 2019. However, growth is expected to have taken a huge hit in the final three months of 2019 as consumer spending, which had been supporting the economy until the October sales tax hike, crumbled, while the protracted trade war continued to wreak havoc for exporters.
The GDP report on Monday is expected to show the economy shrunk by 0.9% on a quarterly basis and by 3.7% on an annualized basis, which would mark the biggest fall in output since the second quarter of 2014 when the sales tax was last raised. Revised industrial production figures for December are also due on Monday and next to come under the radar will be December machinery orders and export numbers for January on Wednesday. The flurry of data will continue on Friday with the consumer price index for January and the Jibun flash manufacturing PMI for February.