UPCOMING EVENTS:
- Monday: China Caixin Services PMI, German CPI, Canada Services PMI.
- Tuesday: Switzerland CPI, French CPI, Eurozone CPI, US ISM Services PMI, US Job Openings.
- Wednesday: Australia Monthly CPI, Eurozone PPI, US ADP, FOMC Minutes.
- Thursday: Japan Average Cash Earnings, Eurozone Retail Sales, US NFIB Small Business Optimism Index, US Jobless Claims.
- Friday: Switzerland Unemployment Rate, Canada Employment Report, US NFP, US University of Michigan Consumer Sentiment.
Tuesday
The Swiss CPI Y/Y is expected at 0.6% vs. 0.7% prior, while the M/M measure is seen at -0.1% vs. -0.1% prior. As a reminder, the SNB cut its policy rate by 50 bps at the last decision bringing it to 0.50% and dropped the language signalling further cuts in the coming quarters.
This suggests that the central bank will likely slow the pace of easing which is something that the market was already expecting with two 25 bps cuts priced in for this year. The SNB has projected inflation to average 0.3% in Q1 2025, so this is going to be the baseline for the next meeting in March.
The Eurozone CPI Y/Y is expected at 2.4% vs. 2.2% prior, while the Core CPI Y/Y is seen at 2.7% vs. 2.7% prior. As a reminder, the ECB cut the policy rate by 25 bps at the last decision bringing it to 3.00%.
The central bank removed the passage saying that “it will keep policy rates sufficiently restrictive for as long as necessary” implying that upside inflation risks have faded. The market sees a 92% probability of a rate cut at the upcoming meeting and a total of 102 bps of easing by year end.
The US ISM Services PMI is expected at 53.0 vs. 52.1 prior. The S&P Global US Services PMI showed once again an acceleration in services activity rising to a 38-month high. New orders rose at a rate not seen since March 2022 and inflation remained subdued with prices rising at the slowest pace since June 2020. Definitely a very good picture for the services sector.
The US Job Openings are expected at 7.700M vs. 7.744M prior. The last report beat expectations with the quits rate rebounding but the hiring rate falling back to the cycle lows. It’s a labour market where at the moment it’s hard to find a job but there’s also low risk of losing one. There’s a decent chance that things will improve this year though and there have been some positive signs already.
Wednesday
The Australian Monthly CPI Y/Y is expected at 2.3% vs. 2.1% prior. As a reminder, the RBA softened further its stance at the last policy decision as it nears the first rate cut. The market is seeing a 52% chance of a 25 bps cut in February although the first fully priced in cut is seen in April. We get the Q4 CPI and the Employment data before the February meeting which could see the market strengthening the case for an earlier cut.
Thursday
The Japanese Average Cash Earnings Y/Y is expected at 2.7% vs. 2.6% prior. As a reminder, the BoJ left interest rates unchanged as expected at the last policy decision, but Governor Ueda delivered a less hawkish than expected presser.
In fact, he placed a great deal on wage data to decide on the timing of the next rate hike and added that the trend will become clearer in March or April. This made the market to price out the probabilities for a hike in January and push back once again to the next meeting which is scheduled for March.
The US Jobless Claims continues to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market.
Initial Claims remain inside the 200K-260K range created since 2022, while Continuing Claims continue to hover around the cycle highs.
This week Initial Claims are expected at 217K vs. 211K prior, while there’s no consensus for Continuing Claims at the time of writing although the prior release saw a decrease to 1844K vs. 1910K prior.
Friday
The Canadian Employment report is expected to show 25.0K jobs added in December vs. 50.5K in November and the Unemployment Rate to rise further to 6.9% vs. 6.8% prior. The last report saw a strong headline number, but the details were negative pretty much across the board.
CIBC cited large public sector job gains, highest unemployment rate since 2016 and private sector employment growth being less than half than labour force growth. In fact, the rise in unemployment since early 2023 has been mainly due to increased difficulty finding a job. Layoffs have not played a large role as it's usually the case in a recession.
As a reminder, the BoC cut the policy rate by 50 bps as expected at the last decision but dropped the language indicating further rate cuts. This suggests that the central bank has reached the peak in its dovish stance, and it will now slow the pace of cuts conditional to the data. The market expects at least two more 25 bps cuts this year with a 71% probability of one coming already this month.
The US NFP report is expected to show 160K jobs added in December vs. 227K in November and the Unemployment Rate to remain unchanged at 4.2%. The Average Hourly Earnings Y/Y is expected at 4.0% vs. 4.0% prior, while the M/M measure is seen at 0.3% vs. 0.4% prior.
The Fed projected the unemployment rate to average 4.3% this year. They will likely tolerate overshoots of 10 or 20 bps if inflation doesn’t cooperate. Nonetheless, the focus switched back to inflation, so the next CPI report is going to have a bigger influence than the NFP report.
