UPCOMING EVENTS:
- Monday: PBoC MLF, US Markets closed for MLK Day, BoC Business Outlook Survey.
- Tuesday: UK Labour Market report, Canada CPI, Fed’s Waller.
- Wednesday: China Industrial Production and Retail Sales, UK CPI, US Retail Sales, US Industrial Production, US NAHB Housing Market Index.
- Thursday: Australian Labour Market report, ECB Minutes, US Building Permits and Housing Starts, US Jobless Claims, New Zealand Manufacturing PMI.
- Friday: Japan CPI, UK Retail Sales, Canada Retail Sales, US University of Michigan Consumer Sentiment.
Monday
The PBoC will conduct the MLF operation on Monday and we will see if they decide to lower the rate or keep it unchanged at 2.50%. There are some expectations for a 10 bps cut tomorrow which would set the stage for a cut for the LPR rates as well. The latest Chinese inflation data continues to show deflationary pressures which gives the PBoC ample room to ease their policy further.
Tuesday
The UK Unemployment Rate is expected to tick higher to 4.3% vs. 4.2% prior. The average earnings excluding bonus are seen at 6.6% vs. 7.3% prior, while those including bonus are seen at 6.8% vs. 7.2% prior. This report is unlikely to change anything for the BoE as the central bank continues to support a “wait and see” approach, but the market’s pricing will certainly be influenced by the data with more to come the following day with the release of the UK CPI report.
The Canadian CPI Y/Y is expected at 3.3% vs. 3.1% while the M/M measure is seen at -0.3% vs. 0.1% prior. The BoC is focused on the underlying inflation measures (common, median and trimmed-mean) and although the rates are getting closer to the 1-3% target range, Governor Macklem said that they want to see more progress both on inflation and wage growth fronts. As a reminder, the last reports went in the opposite direction with underlying inflation measures ticking higher and wage growth accelerating.
Given the recent aggressive easing in financial conditions, it’s worth noting that Fed’s Waller will give a speech at Brookings on the economy and monetary policy with a Q&A session to follow. Waller is a key FOMC member because he’s been a “leading indicator” for changes in Fed’s policy. He was the first one talking about QT in December 2021 and the first one mentioning rate cuts in November 2023.
Wednesday
The UK CPI Y/Y is expected at 3.8% vs. 3.9% prior, while the M/M measure is seen at 0.2% vs. -0.2% prior. The Core CPI Y/Y is expected at 4.9% vs. 5.1% prior, with no consensus for the M/M figure although the prior release showed a -0.3% fall. Again, this report will have no bearing on the February BoE meeting but will certainly affect the market’s pricing with the first cut expected in May and a total of 125 bps of cuts seen by year-end.
The US Retail Sales M/M are expected at 0.4% vs. 0.3% prior, while the ex-autos measure is seen at 0.2% vs. 0.2% prior. Also watch the Control Group as it’s regarded as a better gauge of consumer spending, and it’s been beating expectations consistently for several months.
Thursday
The Australian Unemployment Rate is expected to remain unchanged at 3.9% with 18K jobs added in December compared to 61.5K seen in November. This report will have no bearing on the February RBA meeting, but it will influence the market’s pricing, with a weak report likely increasing rate cuts expectations after the recent miss in the Monthly Australian CPI data.
The US Jobless Claims continue to be one of the most important releases every week as it’s a timelier indicator on the state of the labour market. Initial Claims keep on hovering around cycle lows, while Continuing Claims after reaching a new cycle high started to trend lower. This week the consensus sees Initial Claims at 207K vs. 202K prior, while there’s no estimate at the time of writing for Continuing Claims, although the last week’s number was 1834K vs. 1868K prior.
Friday
The Japanese Core CPI Y/Y is expected at 2.3% vs. 2.5% prior. The headline inflation measure has been easing steadily in Japan thanks to energy deflation but the Core-Core measure, which excludes food and energy prices, has been doing so at a slower pace. The Tokyo CPI, which is seen as a leading indicator for National CPI, decreased further recently and the Average Cash Earnings showed a much slower than expected growth rate. This has pushed expectations for a normalisation of monetary policy further away as the conditions the BoJ is looking for are not materialising.
