The week kicks off with a U.S. holiday in observance of Martin Luther King Jr. Day.
On Tuesday, Australia will release the Westpac Consumer Sentiment data; the U.K. will print the Claimant Count Change, Average Earnings Index 3m/y and the unemployment rate; Canada will get inflation data and the U.S. will release the Empire State Manufacturing Index.
Moving to Wednesday, the U.S. is set to unveil data on Core Retail Sales m/m, Retail Sales m/m, and Industrial Production m/m.
Thursday brings key events such as Australia's Employment Change and unemployment rate data. In Switzerland, SNB Chairman Jordan will participate in a panel discussion titled “All Change: What Next for Monetary Policy?” at the World Economic Forum in Davos. Additionally, the U.S. will release the Unemployment Claims, building permits, and housing starts. ECB President Lagarde is also scheduled to speak in a panel titled “Uniting Europe’s Markets” at the World Economic Forum.
Finally, on Friday, Japan will reveal the National Core CPI y/y, the U.K. will share its retail sales data and the U.S. will release the Preliminary UoM Consumer Sentiment, the Preliminary UoM Inflation Expectations and the Existing Home Sales figures.
Canadian inflation is expected to cool down and this was also reflected in the latest December PMI prices which suggested further softening of inflationary pressure due to weakening business activity. The consensus for the m/m inflation data is a -0.3% drop from 0.1% and the y/y figures are expected to rise to 3.4% from 3.1%.
Analysts from Citi expect a 0.2% decline in m/m data as December prices typically fall at the end of the year, particularly energy prices while services prices should be mixed. The BoC will probably wait to see 3-month core inflation stabilizing around 2.5% before it starts to cut rates. If this happens at a slower pace than anticipated, the bank will likely push back rate cut expectations to April.
The U.K. Claimant Count Change is anticipated to increase from 16.0K to 18.1K. The Average Earnings Index 3m/y is expected to decrease from 7.2% to 6.9%, while the unemployment rate is projected to remain steady at 4.2%. The forthcoming labor market data, coupled with inflation figures, will play a pivotal role in guiding the BoE's decision-making. However, recent releases indicate that inflation is proving more persistent than initially expected, suggesting the likelihood of ongoing inflationary pressures in the near term. The BoE will also closely monitor employment trends and the latest KPMG/REC UK report on Jobs indicates a decline in recruitment activity towards the end of 2023.
The expected consensus for U.S. retail sales is a rise to 0.4% from the previous 0.3%, while core retail sales are anticipated to remain steady at 0.2%. Wells Fargo notes that real-time data on credit card usage from the Bureau of Economic Analysis indicates a strengthening in total retail and food services spending in December compared to the preceding month. Additionally, Adobe Analytics reports a 4.9% y/y increase in online holiday shopping.
Consumers appear to be keeping pace with inflation and the December retail sales data is projected to affirm this trend. However, the holiday sales growth will not be particularly robust compared to the significantly strong figures observed in the past few years.
There is an expected decline in industrial production in the U.S. from 0.2% to -0.1%. The outlook for the sector has been less optimistic recently, with activity deteriorating over the past year. Increased interest rates have adversely affected demand and production. The ISM Manufacturing index has been in contractionary territory for 14 consecutive months, and it is highly probable that this situation will persist for the foreseeable future.
In Australia, the anticipated consensus for the Employment Change figures is a decrease from 61.5K to 15.4K, while the unemployment rate is expected to remain unchanged at 3.9%. Additionally, the participation rate is likely to experience a decline from 67.2% to 67.0%. The RBA will monitor labor market data but so far it's been inflation trends and not the labor market that have triggered a hawkish tone from the Bank, especially unexpected inflation surprises to the upside.
In Japan, Citi's forecast for the National Core CPI y/y is a drop from 2.8% to 2.6% while Core CPI excluding fresh food is expected to decline to 2.3% from 2.5% driven by higher energy prices. Tokyo CPI data for December suggested food prices have moderated, but according to Citi prices for staple goods and some services likely picked up.
The consensus for the U.S. Prelim UoM Consumer Sentiment is a drop from 69.7 to 69.3. Consumer sentiment previously improved in December due to a resilient labor market, declining inflation expectations and lower gasoline prices. Because of this, some analysts actually expect a rise in consumer sentiment to be reflected in this week's print instead of a decline.
Recent data for inflation expectations was somewhat mixed as it dropped substantially in December after a sharp rise in November. However, the NY Fed survey on inflation expectations continues to indicate a downward trend providing some hope that inflation will return to the 2% desired target and supporting the possibility of rate cuts this year.
The U.S. housing sector was under significant pressure last year due to the elevated interest rates and this trend could continue in the near future. However, the consensus for the Existing Home Sales print this week is a rise from 3.82M to 3.83M. The previous November figure represented a 7% drop y/y, but pending home sales, which is a 1-2 month leading indicator, was flat, suggesting potential improvement to closed sales contracts in the coming months.
This article was written by Gina Constantin.
