A week of important economic data releases and political events could see a tumultuous time for the markets, but bolster risk assets if positive signals emerge, says Brewin Dolphin, a UK-listed firm.
In the US, Friday’s non-farm payroll data, along with two Institute for Supply Management surveys, will indicate whether the fourth quarter uptick in economic activity is carrying on into this year or losing momentum.
The Bureau of Economic Analysis estimated that GDP growth hit 2.8 per cent for the fourth quarter on an annualized quarter-over-quarter basis – which marks the fastest growth since Q2 2010 – according to the Centre for Economics and Business Research.
However, the world’s largest economy is “not totally out of the danger zone yet,” says the research firm, as restocking provided a significant boost to fourth quarter figures and a “subsequent winding down of inventories over the coming months could act as a brake.”
“[This] Friday’s non-farm payrolls may confirm that the momentum behind the economy is still gathering steam. We expect it will,” says Mike Lenhoff, chief strategist at Brewin Dolphin.
In Europe, meanwhile, “the week is action packed beginning with bond auctions,” says Lenhoff – notably the €8 billion of five- and ten-year debt for Italy today. Meanwhile, Greece’s finance minister indicated last week that a deal on the debt swap is close. The UK firm predicts this week could be “deal week.” Greece’s private creditors have accepted a lower coupon rate, and a bailout now depends on the government agreeing various structural reforms.
European leaders are also meeting to review a “final” draft of the fiscal compact, says Brewin Dolphin, with the goal of a binding fiscal framework that will provide a path to sovereign debt sustainability. Crucially, the continent’s leaders “might indicate their readiness to sign up to a fiscal compact,” says Lenhoff. “Anything that takes the eurozone closer to resolving its crisis will boost risk assets,” he added.