Market outlook for the week of 2nd-6th March

Monday begins with the release of manufacturing PMI data for the Eurozone, the U.K., and the U.S. On Tuesday, the euro area will publish flash estimates for CPI y/y and core CPI y/y, while in the U.K., attention will focus on the annual budget release. Wednesday brings GDP q/q data from Australia and the CPI m/m from Switzerland. In the U.S., the ADP non-farm employment change and the ISM services PMI will be released. On Thursday, the U.S. will follow up with the weekly unemployment claims data. Friday will be busy in the U.S., with releases including average hourly earnings m/m, non-farm employment change, the unemployment rate, and the retail sales m/m figures. Throughout the week, several FOMC members are also expected to deliver their remarks. In the U.S., the consensus for the ISM manufacturing PMI is 51.7, down from 52.6 previously. Last month’s improvement in manufacturing figures was driven by a broadening recovery in durable goods orders, solid capital spending and inventory restocking following last year’s tariff increases. For this week’s release, expectations are less optimistic, though the index is still projected to remain in expansionary territory. Rising oil prices are adding pressure, particularly amid the Iran military operation. As a result, the prices paid component of upcoming manufacturing surveys is likely to remain elevated, reflecting persistent cost pressures rather than a meaningful easing in input inflation. The consensus for the core CPI flash estimate y/y is 2.2% and for the CPI flash estimate y/y is 1.7%, unchanged from the previous prints. That said, analysts from Wells Fargo expect the euro headline CPI to soften to 1.6% and the core inflation to stabilize. A stronger euro, weak global demand, and easing wage growth contribute to reduced price pressures. The ECB is expected to keep rates unchanged for now, with the next move tilted towards a cut, especially if inflation undershoots further or growth and credit conditions weaken. In Australia, the consensus for GDP q/q is 0.7% versus 0.4% previously. The Australian economy is expected to show improvement after a softer Q3, though the rebound may not be as strong as some anticipate. Westpac analysts note that the expected Q4 outperformance is largely a consumer-driven story, with household spending accelerating on the back of improving incomes. There are also signs of firmer business activity and construction. A key implication of “trend-like” quarterly growth is that the economy may be operating close to its long-run potential. This reduces the risk of a sharp growth slowdown but keeps the inflation debate in focus. Westpac highlights that nominal unit labour costs are still rising by around 1.2% q/q. With productivity growth running at roughly 1.0% y/y, this dynamic could keep the RBA alert to upside inflation risks. From a monetary policy perspective, the RBA is expected to deliver a rate hike at its May meeting, reflecting still-sticky inflation. However, if Q4 growth disappoints, it could be enough to reduce the likelihood of further hikes later in the year. In the U.S., the consensus for the ISM services PMI is 53.5, slightly down from 53.8 previously. Compared with manufacturing, the outlook for the services sector is somewhat more positive and continues to reflect resilient business activity, even as companies adopt a more cautious approach to hiring. The consensus for average hourly earnings m/m is 0.3% vs. 0.4% previously. Nonfarm payrolls are expected to rise by 58K, compared with 130K prior, while the unemployment rate is projected to remain unchanged at 4.3%. This week’s jobs report is expected to be modest. While hiring demand has stopped deteriorating, broader indicators such as job openings data and consumer perceptions of job availability continue to point to a gradual cooling rather than a rebound, according to Wells Fargo analysts. Payroll growth is seen slowing sharply, with weather-sensitive sectors like construction and leisure weighing on the headline figure. Some pullback is also expected following January’s outsized gains in healthcare. The unemployment rate is expected to hold steady, though risks are two-sided. Recent strength in the household survey leaves room for softer employment that could push joblessness slightly higher, while population adjustments tied to changing immigration trends could exert some downward pressure. Overall, labor market conditions appear balanced, consistent with steady wage growth that remains contained rather than inflationary. The consensus for U.S. retail sales m/m is -0.3% compared with 0.0% previously. The January retail sales are expected to show a modest decline, weighed down by severe winter weather, softer auto sales, and lower gasoline prices. However, underlying demand remains relatively intact, with spending excluding autos showing firmer momentum. Looking ahead, tax refunds and a stabilizing labor market are expected to provide support to discretionary consumer spending, Wells Fargo analysts said.