UPCOMING EVENTS:
- Monday: NY Fed Inflation Expectations.
- Tuesday: US NFIB Small Business Optimism Index, US PPI.
- Wednesday: UK CPI, US CPI.
- Thursday: Japan PPI, Australia Employment report, UK GDP, US Retail Sales, US Jobless Claims, US Import Prices, US NAHB Housing Market Index, New Zealand Manufacturing PMI.
- Friday: China activity data, UK Retail Sales, US Housing Starts and Building Permits, US Industrial Production and Capacity Utilization.
Tuesday
The US PPI Y/Y is expected at 3.0% vs. 3.0% prior, while the M/M measure is seen at 0.3% vs. 0.4% prior. The Core PPI Y/Y is expected at 3.2% vs. 3.4% prior, while the M/M measure is seen at 0.2% vs. 0.2% prior. The CPI coming the day after will be more important, but the PPI might set the sentiment going into the CPI.
Wednesday
The UK CPI Y/Y is expected at 2.7% vs. 2.6% prior, while the Core CPI Y/Y is seen at 3.4% vs. 3.5% prior. The market is pricing a 65% chance of a 25 bps cut at the upcoming meeting and a total of 47 bps of easing by year-end. Higher than expected data will likely take the rate cut off the table for now, while a soft report should increase the probabilities in favour of a cut.
The US CPI Y/Y is expected at 2.8% vs. 2.7% prior, while the M/M measure is seen at 0.3% vs. 0.3% prior. The Core CPI Y/Y is expected at 3.3% vs. 3.3% prior, while the M/M reading is seen at 0.2% vs. 0.3% prior.
This is the most important release of the month, and another hot report will likely cause some trouble in the markets with the stock market looking as the most vulnerable right now. Following the strong NFP report, the expectations are now for just one rate cut this year, which is below the Fed’s projection of two cuts.
The repricing has been pretty aggressive in the last few months and the data definitely made the 50 bps cut look like a big mistake. Nonetheless, the Fed has paused the easing cycle and switched its focus back to inflation with several members citing inflation progress as a key factor for the next rate cut.
The best outcome would be a soft report given the overstretched moves in the markets caused by the repricing in rate cuts expectations. That would likely reverse most of the recent trends and trigger a rally in bonds, risk assets like stocks and bitcoin and lead to a selloff in the US Dollar.
Thursday
The Australian Employment report is expected to show 10.0K jobs added in December vs. 35.6K in November and the Unemployment Rate to tick higher to 4.0% vs. 3.9% 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 62% chance of a 25 bps cut in February following the soft monthly inflation data, although the first fully priced in cut is seen in April. A soft report could see the market strengthening the case for a cut in February.
The US Jobless Claims continue 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 cycle highs although we’ve seen some easing recently.
This week Initial Claims are expected at 214K vs. 201K prior, while there’s no consensus for Continuing Claims at the time of writing although the prior release saw an increase to 1867K vs. 1834K prior.
The US Retail Sales M/M is expected at 0.5% vs. 0.7% prior, while the ex-Autos M/M measure is seen at 0.4% vs. 0.2% prior. The focus will be on the Control Group figure which is expected at 0.4% vs. 0.4% prior.
Consumer spending has been stable which is something you would expect given the positive real wage growth and resilient labour market. We’ve also been seeing a steady pickup in consumer sentiment which suggests that consumers’ financial situation is stable/improving.
