US earnings season gathers pace and investors also keep an eye on a possible government shutdown. The Bank of Canada delivers an interest-rate decision, and across the pond, all eyes are on inflation data.
Here’s what to watch in the coming days.
Bank of Canada and central banks
The Bank of Canada is expected to lift interest rates to 1.25 per cent, from 1 per cent on Wednesday, although recent headlines about Nafta talks could inject some uncertainty.
“Look for [Stephen] Poloz’s data dependence to outweigh his risk management framework as further gains in CPI and the labour market will give reason to sound upbeat,” said strategists at TD Securities.
Next week also brings monetary policy decisions from Indonesia, Turkey and South Africa. Investors will also parse the Beige Book, the Federal Reserve’s report, which gathers anecdotal evidence on current economic conditions through interviews with business contacts and economists from each of the Fed’s 12 districts.
Updates are expected on inflation in both the UK and the euro-area. UK headline inflation is predicted to have eased to 3 per cent from a year ago, marginally lower than the 3.1 per cent reading in November. Core CPI, which strips out more volatile items, is also expected to cool to 2.6 per cent year-on-year.
Meanwhile, the final reading for core CPI in the eurozone is expected to slip back down to 0.9 per cent.
“The minutes of the ECB’s December meeting discussed the weakness of underlying inflation at length and concluded that the current weakness may be due to one-off factors and thus temporary,” strategists at RBC Capital Markets said. “Our view is that it was the earlier rise that was temporary and that the fall-back in the core measure to where it has been for most of the past two and a half years simply reflects the underlying trend in services inflation which, in turn, is a product of still muted wage inflation which will take some time to pick up.”
Data next week is expected to show the Chinese economy grew 6.7 per cent in the final three months of 2017, a touch slower than the 6.8 per cent growth the previous quarter. China is expected to exceed its full-year target of growth around 6.5 per cent. Separately, industrial production is expected to have increased 6 per cent in December.
US government shutdown
Congress has until January 19 to pass a spending bill or face a government shutdown. Both parties have tied an agreement on the spending plan to the passage of other measures, and while Republican are seeking to increase military spending, Democrats want any such increase to be matched by an equal rise in domestic spending.
“A can-kick puts the next deadline dangerously close to the debt limit, which could increase dislocations in the bill market as last summer,” analysts at TD Securities said.
Twenty-eight companies listed on the S&P 500 are slated to report results next week. Banks will continue to post updates next week, with reports due from Goldman Sachs, Bank of America, Citi and Morgan Stanley. Other companies on the roster include CSX, IBM, American Express and Schlumberger.
US markets will close on Monday in observance of Martin Luther King Day.