Has enterprise exercise picked up in Europe? | USAEMALL.com

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Data on Friday will offer a snapshot of business activity in Europe ahead of this month’s European Central Bank meeting to set interest rates.

The January reading for the IHS Markit composite purchasing managers’ index — which combines manufacturing and services activity — will be closely watched, analysts said, as it comes before the inauguration of Donald Trump. The incoming president has promised sweeping tariffs, which may damp sentiment in coming months.

Many of the bloc’s largest economies, including Germany and France, are already battling an economic slowdown. A consensus of analysts expects a reading of 49.7, below the 50 mark that separates growth from contraction. Even so, that would mark a slight improvement on December’s reading of 49.6.

The data is likely to be an important input for policymakers at the ECB meeting at the end of the month. In December its governing council members became more vocal over the outlook for growth in the bloc, in addition to the uncertainty over the trade policies of the incoming Trump administration. With inflation slowing, the central bank is widely expected to cut rates by 0.25 percentage points from its present rate of 3 per cent.

Consumer demand remains soft and there are growing signs of “cracks” in the labour market, leaving the ECB “increasingly behind the curve with its slow loosening cycle”, according to Tomas Dvorak, an economist at Oxford Economics. Mari Novik

Will UK wage growth continue to rise?

Investors will be hoping that UK wage data on Tuesday will provide some clues about the path of interest rates following a tumultuous period for the gilt market.

Economists polled by Reuters expect regular annual earning growth to have accelerated to 5.5 per cent in the three months to November, from 5.2 per cent in the three months to October, which would raise the pressure on policymakers who have concerns about the return of domestic price pressures.

The Bank of England mentioned wages 15 times in its monetary policy summary last month and is also grappling with impact on earnings of the rise in the National Living Wage, and the increase in employers’ National Contributions from April.

The labour market numbers will come after data this week showed an unexpected decline in inflation to 2.5 per cent in December and an economy that barely grew in the three months to November. Gilt yields, which rose sharply earlier this month, dropped this week as traders bet that the central bank will cut interest rates more aggressively to kick-start growth.

Philip Shaw, economist at Investec, also forecast a 5.5 per cent rise for earnings, but said that wage increases were unlikely to derail the BoE from making another rate cut in February, from its current level of 4.75 per cent. “Gradually dialling back policy restraint seems warranted given subpar growth and receding inflation,” he noted.

Furthermore the Bank has also shown signs that it might play down the expected rise in wages in the official data. In December, it acknowledged the pick-up in wage growth but said that official earning growth “had tended to be more volatile than other wage indicators”. Valentina Romei

Are US companies still optimistic for the future?

January has already proved to be a rollercoaster month for US markets, as investors flipped back and forth in their expectations for interest rate cuts by the Federal Reserve this year.

In a week starting with Donald Trump’s presidential inauguration, traders will look at measures of business activity in the world’s biggest economy — searching for clues about the Fed’s likely course of action.

On Friday the S&P Global will publish its monthly “flash” purchasing managers’ index, which will give traders insights into manufacturing and services activity. In recent months the number has underscored the robustness of the US economy. Last month the “flash” PMI estimates rose to 56.6, a 33-month high, although it was later revised to 55.4. A reading above 50 signals growth.

But another strong reading in January would probably deepen concerns among traders that the Fed will cool on planned rate cuts.

Earlier this month, better than expected December payrolls figures sent Treasury yields lurching higher, as traders trimmed their bets on the number of rate cuts this year. Days later, weaker-than-anticipated inflation data prompted a rethink — sparking a rally in government debt and stocks, as rate cut bets were cranked up again.

“The market is still wary of the incoming administration’s policies especially around tariffs and tax cuts which could help to stoke inflation,” said John Kerschner, head of US securitised products and portfolio manager at Janus Henderson Investors, shortly after that consumer price index reading.

However, the latest “inflation numbers go a long way to giving the market confidence that Fed policy is on target”, he added. “Perhaps most importantly, the market is relieved that potential nosebleed interest rates are, for now, taken off the table.” Harriet Clarfelt