BRUSSELS Feb 16 The Federal Reserve's stimulus
taper and China's slowdown, twin factors behind this year's
emerging market sell-off, will come firmly into view in the week
ahead with minutes from the former and a leading survey on the
After reassuring European growth on Friday
and weak U.S. retail sales on Thursday, major
data will be in short supply.
Moreover in the United States, where the impact of severe
weather is still being determined, the Presidents Day holiday on
Monday will shorten the working week.
The stand-out indicator may prove to be the flash
Markit/HSBC Purchasing Managers' Index (PMI) for China, with the
February number due for release on Thursday.
Last month's report showed activity in China's factories
contracted in January for the first time in six months,
suggesting a slowdown at the end of 2013 had continued into the
The index sent a chill through growth-sensitive markets in
Asia, depressing shares, commodities and the Australian dollar
. China is the biggest export market of resource-rich
"If we get an intensification of China slowdown fears
through these PMI numbers then that could set another unsettling
tone to market sentiment," said James Knightley, senior
economist at ING.
Economists are expecting another reading below the 50-level
which denotes falling activity, although the survey covers the
period of the lunar New Year holiday, meaning it may offer a
less reliable view.
"If we do get another sub-50 reading you will see more
stories about the China slowdown coming through. That may in
itself lead to more concern about the prospects for global
growth and emerging market activity in general," Knightley said.
Conversely, purchasing manager indices for the euro zone for
both manufacturing and services, also due on Thursday, are seen
stable to slightly higher.
They could provide a first indicator of whether an emerging
market slowdown is weighing on Europe. January's survey showed
the private sector in the single currency bloc started the year
in much better shape than expected.
However, that survey was mainly conducted before currencies
from the rand to the rouble tumbled on concerns about reduced
growth and a shrinking of cheap money due to U.S. monetary
Germany's ZEW index of analyst and investor sentiment, due
on Tuesday, should also add to picture. It is seen remaining at
its highest level in nearly eight years.
FED VIEW ON FROZEN ECONOMY
In the United States, indicators are proving hard to
interpret with large swathes of the country gripped by the polar
vortex or the latest dump of fresh snow late on Thursday that
wreaked havoc from Georgia to Maine.
Housing starts and existing home sales data due next week
are likely to be no exception.
Are poor numbers a real sign of weakening demand or purely a
product of the bad weather?
It is a key question for the Federal Reserve as it reduces
its monthly purchases of Treasuries and mortgage-backed
Janet Yellen, newly installed at the helm of the Fed, said
last Tuesday that the central bank was on track to keep reducing
stimulus even though the labour market recovery was far from
Markets received a jolt last month with data showing U.S.
employers hired the fewest number of workers in almost three
years in December, while hiring in January was also muted.
The December numbers were likely central to the Fed's
deliberations at its last meeting at the end of January. Minutes
to that meeting are due to be released on Wednesday and should
show how solid sentiment was within the committee behind
tapering monthly bond purchases.
"My sense is that they may well look through the weak job
numbers and remain optimistic," said Laura Rosner, economist at
One set of figures relatively immune to bad weather is
inflation. There have as yet been few signs of a broad pick-up
of prices even as the economy gathers steam.
U.S. consumer prices grew by 1.5 percent in December from a
year earlier, a rate seen inching up to 1.6 percent in January,
although core inflation, stripping out volatile energy and food
components, is seen easing to 1.6 from 1.7 percent.
The Fed targets 2 percent inflation, although it tracks a
gauge that tends to run a bit below CPI.
Persistently low inflation is expected to lead the Fed to
hold interest rates near zero for a long time, although some
economists believe higher home prices should gradually feed
through into rents, driving up the basket of prices by the year