US CPI will be the most watched data point in the coming week. We will also get inflation from the UK and Switzerland, Q4 GDP data from the Eurozone and Japan, consumption data from the US and the UK as well as employment data from Australia and the UK.
USD
Atlanta Fed President Bostic stated that the tight labour market seen in latest NFP data might mean that the peak in rates could be higher than where the market is currently pricing. Minneapolis Fed President Kashkari stated that the peak in the Fed funds rate is most likely to be around 5.4%. Fed Chairman Powell stated that he was surprised by the strong jobs report and that there is still ground to cover so further rate increases will likely be needed. He added that disinflation is seen in goods inflation and in manufacturing sector which constitutes around a quarter of economy. Core services ex housing remains the metric to be watched. Additionally, he believes that inflation will fall sharply in 2023 but it will get close to 2% target only in 2024.
The yield on a 10y Treasury started the week and year at around 3.54%, rose to 3.68% and finished the week at around 3.54% thanks to the strong NFP number. The yield on 2y Treasury reached 4.48% during the week and fell below 4.18%, then rebounded and finished the week at around 4.22% post NFP. Spread between 2y and 10y Treasuries started the week at -82bp and widened to -87bp which is a record low. FedWatchTool sees the probability of a 25bp rate hike in March at 93.7% while probability of a 50bp rate hike is at 6.3%.
This week we will have inflation and consumption data. Inflation is expected to continue falling, but with used car prices printing a surprising increase in January the risks to the CPI number are on the upside.
Important news for USD:
Tuesday:
CPI
Wednesday:
Retail Sales
EUR
Retail sales for the Eurozone in the month of December came in weaker than expected -2.7% m/m and -2.8% y/y, but when we take into account positive revisions to the November reading, December data came in line with expectations. Retail sales for food, drinks and tobacco showed biggest decline while automotive fuels were positive. Delayed preliminary German CPI for the month of January ticked up to 8.7% y/y from 8.6% y/y in December but still came in below market expectations of 8.9% y/y.
ECB policymakers were reiterating last week’s decision to raise rate hikes by 50bp in March stating that risk of doing too little is much greater than the risk of overtightening. ECB Executive Board member Isabel Schnabel stated that inflation is coming down due to drops in energy prices, not because of the ECB’s rate hikes and that she is in favour of another 50bp rate hike in March as tackling inflation is their priority. ECB policymakers Klaas Knot and Joachim Nagel talked about stopping the reinvestments of the asset purchase programme portfolio as the ultimate goal, adding that the reductions would need to pick up speed.
This week we will have a second reading of Q4 GDP.
Important news for EUR:
Tuesday:
GDP
GBP
BOE Governor Bailey spoke in the Parliament and stated that inflation is expected to come down sharply in 2023. Chief Economist Pill added that there is substantial monetary tightening yet to come and that they expect a prolonged period of weak economic growth in the UK. He warned that there is a danger of overtightening on rates given how monetary policy acts with a lag. Markets are pricing another 25bp rate hike in March and these comments add more certainty to that expectation.
Preliminary Q4 GDP reading saw UK economy come in flat while December GDP number was -0.5% m/m vs -0.3% m/m as expected. In the fourth quarter services output was flat, production was down -0.2% while construction was up 0.3%. Real household consumption grew 0.1% q/q with government expenditure rising 0.8% q/q. The bulk of gains came in from business investment that was particularly strong with a rise of 4.8% q/q.
This week we will have employment and inflation data.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
Wednesday:
CPI
AUD
RBA proceeded as expected and delivered a 25bp rate hike thus lifting the cash rate to 3.35%. Board members expect further rate hikes will be necessary to return inflation to target. Inflation is seen falling down this year due to combination of lower global growth and slower domestic demand. Inflation is seen at 4.75% in 2023 and around 3% by mid-2025. Growth will slow down and print around 1,5% in both 2023 and 2024. The unemployment rate should increase to 3.75% by the end of 2023 and 4.5% by mid-2025. The board will continue monitoring developments in labour market as well as with inflation. There are no hints that RBA is closing to the peak interest rates or that it plans to cut interest rates so their hawkish stance should keep AUD supported. Statement of Monetary Policy showed that inflation has likely peaked at the end of 2022 and forecasts for core inflation were revised higher (4.3% y/y at the end of 2023 and 3.1%y/y at the end of 2024) while GDP and the unemployment rate remained unchanged. All of the forecasts were made assuming that rate hike will peak at 3.75% and ease to 3% by June of 2025.
CPI in China rose 2.1% y/y in January vs 2.2% y/y as expected, but up from 1.8% y/y in December. PPI, on the other hand, continued to trend down as it fell by -0.8% y/y vs -0.7% y/y the previous month.
This week we will have employment data and a speech from RBA Governor Lowe.
Important news for AUD:
Thursday:
Employment Change
Unemployment Rate
RBA Governor Lowe Speech
NZD
January manufacturing PMI returned to expansion with 50.8 print after three consecutive months in restrictive territory and 47.2 print in December. Electronic retail card spending, which covers around 70% of retail sales in New Zealand, started the year strongly with 2.6% m/m and 2.7% y/y increases.
CAD
BOC Governor Macklem stated in his speech that if economy and inflation continue to develop as forecasted there will be no need for more rate hikes. GDP is expected to be 0% in first three quarters of 2023. He says inflation turning the corner and he sees that as result of monetary policy. Inflation is still way to high and it will take time to bring it down to the targeted 2% level. If wage growth does not subside along with inflation expectations more rate hikes will be needed. He added that one of the main reasons for pausing is the debt load. According to him, central bank will need time to assess the impact of higher interest rates on households and businesses before they make further rate hikes.
January employment report was another stellar one. Employment change came in at 150k vs 15k as expected! The unemployment rate stayed at 5% while participation rate returned to pre-pandemic level of 65.7%. Wages rose 4.5% y/y, slower increase than 4.7% y/y seen in December. Full-time employment was staggering with 121.1k while part-time employment rose by 18.9k. BOC is firmly set on pausing rate hikes, but this employment report is impressive and paints a picture of red hot labour market.
JPY
Nikkei newspaper has reported before markets opened on February 6 that deputy Governor Amamiya has the biggest chances to succeed Kuroda on April 8. Amamiya is seen as more dovish than any of the potential candidates and JPY gapped lower on market open. Japanese government will present nominees for new BOJ Governor next week on Valentine’s Day, February 14. Kazuo Ueda seems to have biggest chances to be Kuroda’s successor. He is a professor and has previously served as a BOJ board member. He is more hawkish than Amamiya who refused to take the post.
Total labour cash earnings for the month of December printed a 25-year high coming in at 4.8% y/y. When including inflation, real wages rose 0.1% y/y. BOJ has pointed that wage increases are main component of achieving sustainable inflation. This data print can nudge BOJ to reconsider their loose monetary policy, however it should be note that the bulk of wage increases came from increase in overtime pay which printed 3% y/y. Wage increases did not transfer directly into household spending in December as latter fell by -2.1% m/m and -1.3% y/y.
This week we will have preliminary Q4 GDP reading.
Important news for JPY:
Tuesday:
GDP
CHF
SNB total sight deposits for the week ending February 3 came in at CHF528.1bn vs CHF528bn the previous week. Virtually no change as SNB continues with adjusting its monetary policy with rate hikes from previous year. Seasonally adjusted unemployment rate in January remained at 1.9% showcasing incredible tightness of Swiss labour market.
This week we will have inflation data.
Important news for CHF:
Monday:
CPI
