It’s a relatively quiet week ahead, as is typically the case following the NFP release.
Monday starts slowly, with no significant economic events scheduled for the FX market. On Tuesday, the U.S. will release the core PPI m/m and PPI m/m data and Wednesday will feature inflation data releases for both the U.K. and the U.S.
Thursday will bring Australia's employment change and unemployment rate figures. In the U.S., we’ll see the release of retail sales m/m, unemployment claims, and the Philly Fed manufacturing index.
On Friday, the U.K. will publish its retail sales data, while the U.S. will release reports on building permits and housing starts.
In the U.K., the consensus for CPI y/y is 2.6% compared to 2.6% prior, while core inflation is expected to print at 3.4%.
Market participants will closely watch this week's data for insights into the BoE's next steps on monetary policy. As a reminder, the BoE reduced the rate by a total of 50bps last year with cuts in August and November.
Analysts anticipate the GDP data coming this week to show a slight improvement of 0.2% m/m, breaking the contraction trend seen over the previous two prints.
The BoE is likely not finished with rate cuts and will continue with once per quarter easing. However, if inflation data drops more than expected and economic growth is too slow, the Bank may accelerate its pace.
In the U.S., the consensus for core CPI m/m is 0.2%, compared to the prior 0.3%. The forecast for CPI m/m is 0.3% vs 0.3% prior, while CPI y/y is expected to rise to 2.9% from the prior 2.7%.
The m/m increase was primarily driven by rising energy and food prices, which will also contribute to lifting the headline inflation.
While both headline and core inflation are currently under their December 2023 values, much of the progress happened during the first half of 2024. The slow progress since the summer indicates that the Fed still has work to do in order to achieve its 2% target.
In Australia, the consensus for employment change is 14.5K, down from the previous 35.6K, with the unemployment rate expected to rise from 3.9% to 4.0%.
The RBA has not yet joined other G10 central banks in beginning an easing cycle, instead maintaining a hawkish stance.
This week’s employment data will be closely watched, particularly if the unemployment rate rises to 4.0%. Such an outcome would align with the RBA's outlook, indicating that while the labor market remains tight, it is gradually cooling.
The market anticipates a 25bps rate cut during the first half of the year, which would bring the rate to 4.10%. However, if the data surprises with a deteriorating labor market and a more significant drop in inflation, the first cut could occur as early as February.
In the U.S., the consensus for core retail sales m/m is 0.5%, up from the previous 0.2%, while retail sales m/m are expected to rise by 0.6%, slightly below the prior 0.7%.
Over the past six months, U.S. retail sales data have consistently surprised to the upside. Analysts from Wells Fargo anticipate a moderation in growth, forecasting a still-solid 0.4% gain for December. If achieved, retail sales would close the year with an approximate 3.4% increase.
Separate high-frequency data from Bloomberg suggest some upside risk to the forecast, as non-store retailers and restaurants reported their largest monthly transaction increases since the first half of 2023 during December, the analysis said.
In the U.S., the consensus for building permits is 1.46M, down from the previous 1.49M, while housing starts are expected to increase to 1.33M from the prior 1.29M.
Wells Fargo analysts note that residential construction remains mixed. Single-family housing starts have risen 7.2% year-to-date through November, while multifamily starts have dropped by 27%, primarily due to an oversupply of new apartments. This weakness in the multifamily sector is expected to persist, as declining apartment building permit filings suggest continued subdued activity in the near term.
Meanwhile, the single-family market is showing resilience despite higher mortgage rates as builders are using price cuts and other incentives to address affordability issues. This contributed to a three-point rise in the National Association of Home Builders' future sales index, now at 66—the highest level since 2022. For December, housing starts are projected to rise by 2.4%, reaching an annual pace of 1.32M units.
