Fed to shed light on frozen U.S. economy

Sun Feb 16, 2014 4:37pm EST
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By Philip Blenkinsop

BRUSSELS (Reuters) - 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 latter.

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 new year.

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 Australia.

"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.   Continued...

A general view of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst