Inflation data from the US, the UK and Switzerland, Q4 GDP from the UK and Japan as well as employment data from the UK and Australia coupled with consumption data from the US will highlight a very busy week ahead of us.
USD
OECD has raised global growth forecast based on the very strong data coming from the US. Global growth for 2024 is now seen coming at 2.9% vs 2.7% previously while US GDP for 2024 is seen at 2.1% vs 1.5% previously. US GDP for 2025 is unchanged at 1.7%. Eurozone growth was lowered for both 2024 and 2025 while UK and China GDP were left unchanged for both years. OECD issued a warning stating that if problems around Red Sea persist it can add 0.4% to the CPI reading in a year’s time.
ISM services PMI for the month of January printed 53.4 vs 52 as expected and up from 50.5 the previous month. Employment showed a significant jump and returned into expansion with a 50.5 reading. As a reminder it plunged to 43.8 in December. There was also an improvement in new orders which moved further into expansion. One concerning factor is jump in prices paid category which printed 64! If price pressures prove to be more sticky than Fed and markets expect we could see higher rates for longer.
Fed’s Senior Loan Officer Opinion Survey (SLOOS) reported that banks further tightened their lending standards in the Q4, but the pace of tightening was slower than in previous quarters. Banks also reported weaker demand for commercial and industrial loans and that weaker demand is coming from companies of all sizes. Tightening of lending standards was also seen in loans to the household sector. Higher rates are dampening demand for credit which in turn will have impact on economic growth. That is not yet seen in the economic data, but if this trend persists we can see it becoming a problem for the economy from Q2.
Headline December CPI was revised down to 0.2% m/m from 0.3% m/m as preliminary reported. Powell has highlighted that he will be closely watching this revision and incorporate this information into his decision. He wants to see that progress on inflation is being made, that inflation is falling as fast as reported, and he got a confirmation in the revised reading.
The yield on a 10y Treasury started the week at 4.02%, rose to 4.18% and finished the week at around 4.14%. The yield on 2y Treasury started the week at 4.37% and reached the high of 4.49%. Spread between 2y and 10y Treasuries started the week at -36bp then tightened to -30bp as curve steepened. The 2y10y is inverted for over eighteen months. We had very positive 10y and 30y auctions that were dominated by surge in indirect demand. FedWatchTool sees the probability of no change at March meeting at 80% while probability of a 25bp rate cut is at 20%. Probability of a May rate cut is around 68%.
This week we will have January inflation and consumption data.
Important news for USD:
Tuesday:
CPI
Thursday:
Retail Sales
EUR
Final January services for the Eurozone were unchanged at 48.4, down from 48.8 in December with composite coming in at 47.9, up from 47.6 the previous month on the back of stronger manufacturing sector. There were no significant revisions to the preliminary reading, although it is notable that French readings were revised up.
GBP
Final services reading was revised up in January to 54.3 from 53.8 as preliminary reported and up from 53.4 in December. Services sector is holding the UK economy and it is doing better than expected job. The reading is an eight month high. Strong output growth and rebounding new orders are stated in the report as well as declining price pressures which will be warmly accepted by the BoE. Composite reading was also revised up and printed 52.9 vs 52.1 the previous month.
This week we will have employment, inflation and preliminary Q4 GDP data.
Important news for GBP:
Tuesday:
Payrolls Change
Unemployment Rate
Wednesday:
CPI
Thursday:
GDP
AUD
RBA has decided to leave cash rate at 4.35% as expected. The board acknowledged recent encouraging data on inflation but stated that it will take some time yet before inflation is sustainably in the targeted range of 2-3%. Goods inflation dropped faster than expected while services inflation declined slower than expected. The statement clearly says “The Board needs to be confident that inflation is moving sustainably towards the target range.” similar as the other central banks. The outlook remains uncertain. New projections see GDP in 2024 at 1.8% and in 2025 at 2.8% wlth CPI in 2024 at 3.2% and in 2025 at 2.8%. Both are lower than previously at 2% and 3.5% for 2024 and 2.4% and 2.9% for 2025 respectively. During the press conference RBA governor Bullock stated that there is still “little way to go” to bring inflation down. She also said that recent inflation data are good, but there is still number 4 in front of the CPI data. Risks remain balanced and she did not rule out anything regarding monetary policy leaving the door open for both hikes and cuts.
Caxin services PMI for the month of January declined to 52.7 from 52.9 in December and pulled down composite with it to 52.5 from 52.6. Those numbers are still well in the expansion territory so they are not causing concern. RRP 50bp cut took effect on February 5. The main goal of the cut is to increase liquidity by increasing the amount banks can lend and thus help stimulate the economy. January CPI came in at -0.8% y/y for a fourth consecutive month of deflationary readings. The reading is the lowest since 2009. Food prices, pork prices mainly, showed biggest decline and it has been in deflation for seven months. It is possible that they will revert back as demand for pork jumps during Lunar New Year, the period right in front of us.
This week we will have employment data.
Important news for AUD:
Thursday:
Employment Change
Unemployment Rate
NZD
Employment report for Q4 showed the unemployment rate ticking up to 4% from 3.9% in Q3 while an increase to 4.2% was expected. Participation rate ticked down to 71.9% while employment change increased by 0.4% q/q. Labor cost index slipped to 3.9% y/y from 4.1% y/y in the previous quarter but less than expected 3.8% y/y. A combination of smaller than expected increase in the unemployment rate and smaller than expected drop in labor cost index speaks of still tight labor market and it gave Kiwi a boost. ANZ has stated on Friday that recent data surprised to the upside and that it can lead to RBNZ hiking rates to 6% from current 5.5% at incoming meetings in February and April. Kiwi accepted the news and ran away with it higher.
CAD
Building permits fell off a cliff in December as they recorded a 14% m/m plunge. November reading saw negative revision and now shows a drop of 5% m/m compared to a drop of -3.9% m/m as previously reported. The declines were seen in both residential and non-residential sectors. Although this series is a very volatile and sharp cold weather in December is to blame, same blame has to go towards high rates and it has to be acknowledged that this is a rather bad data point. BoC meeting minutes showed concern regarding inflation, more precisely regarding “persistent inflation and lowering rates ‘prematurely’ in Jan policy-setting meetings”.
January employment report was mixed. Employment change came in at 37.3k vs 15k as expected. Additionally, the unemployment rate ticked down to 5.7% from 5.8% in December while markets were expecting an increase to 5.9%. However, good news stop there. Participation rate ticked down to 65.3% from 65.4% the previous month. More concerning is that full-time jobs declined by 11.6k and entire increase in employment came in from part-time jobs (48.9k). Wages declined significantly and printed 5.3%, down from 5.7% in December.
JPY
Final services reading for January was revised up to 53.1 from 52.7 as preliminary reported and up from 51.5 in December. The report shows big increase in business confidence. Composite was lifted to 51.5 from 50 the previous month. December average wages managed to rise 1% y/y, more than expected, but when taking inflation into account, real wages are still deeply negative. That is reflected in household spending which dropped again in December 2.5% y/y. Household spending has not had a positive reading since February of 2023. BoJ will wait for the results of Spring wage negotiations (Shunto) before deciding whether to normalize monetary policy.
This week we will have preliminary Q4 GDP data.
Important news for JPY:
Thursday:
GDP
CHF
SNB total sight deposits for the week ending February 2 came in at CHF481.2bn vs CHF472.2bn the previous week. Some noticeable jump, but still within well established range.
This week we will have inflation data.
Important news for CHF:
Tuesday:
CPI
