Retail sales from the US and the UK, coupled with inflation data from the UK, China, Canada and Japan along with employment data from the UK and Australia will be the high points of the week.
USD
Inflation numbers for the start of the year saw headline number jump to 7.5% y/y for a 40-year high. Additionally disturbing is that on a monthly basis inflation continued to increase (0.6% m/m vs 0.5% m/m in December). Core reading now rose to 6% y/y while a nasty surprise was seen in the real weekly earnings which came in at -0.5%, after last month’s reading was revised down to -0.3% from 0.1% as previously reported. All categories except for lodging away from home and gasoline saw increases in prices. This report will put pressure on Fed to hike by 50bp at March meeting and probability of a 50bp rate hike at March meeting according to FedWatch Tool jumped to 44.3%, rose to almost 95% and finished the week at around 65%. Yield on a 10y treasury bond briefly touched 2% after the inflation report came out. St Louis Fed president Bullard, most hawkish member, stated that Fed should hike by 100bp at the next three meetings and teased with the idea that rate hikes can come in between meetings. Late on Friday report came out that Russia will attack Ukraine within 48 hours which brought risk off mood in the markets and caused USD to rally. Oil, gold and VIX also rallied but the biggest winner was JPY.
This week we will have consumption data.
Important news for USD:
Wednesday:
Retail Sales
EUR
Dutch central bank president and member of the ECB Governing Council Klaus Knot said in an interview that he expects first rate hikes in Q4 of 2022. That would mean an end to bond purchases by September. He is a well known hawk and currently they are having an upper hand in the ECB. ECB president Lagarde stated that inflation will remain high in the short term, but current price pressures will likely subside before becoming entrenched. She added “any adjustment to our policy will be gradual.” Her comments were assessed as “damage control” after market interpreted her press conference last week as very hawkish.
European Commission published latest forecasts and they project inflation to be at 3.5% in 2022 vs 2.2% as projected before, however they see 2023 inflation to fall to 1.7%, below their target of 2%. Inflation is expected to reach its peak at 5% in Q1 and the fall from there, it will stay above 3% until Q4. Growth was reduced to 4% from 4.3% for 2022, but it is expected to rise to 2.7% in 2023 from 2.4% as previously expected.
GBP
Preliminary Q4 GDP data came in at 1% q/q same as the downward revised Q3 reading and 6.5% y/y vs 7% y/y in the previous quarter. Personal consumption rose 1.2% q/q, business investment improved and rose 0.9% q/q vs -0.8% q/q in Q3. Government spending was also a big contributor to the reading by rising 1.9% q/q. Finally, net exports also contributed to the Q4 reading. UK’s economy finished the year on a down note as December’s GDP slipped -0.2% m/m due to the Omicron related constraints. A bigger drop was expected but it was mitigated by the higher health spending.
This week we will have employment, inflation and consumption data.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
Wednesday:
CPI
Friday:
Retail Sales
AUD
Retail sales data for the Q4 showed a record high of 8.2% q/q rise. Lifting of covid restrictions in two biggest states coupled with holiday shopping sent the reading to new record levels. RBA governor Lowe continued to preach patience. He stated that they need to wait and see how data develops while acknowledging the a risk to waiting, to which he added the counter risk of acting to soon. GDP is estimated to be around 4.25% in 2022 and 2% in 2023. Gradual pick up in wages is expected. It is acceptable to have inflation running above 3% for some time and it is plausible to have rate hikes later in the year if the data supports it. So far their main concern was wage growth and it continues to be. Wages will need to move north of 3% in order for rate hikes to occur.
Caixin services PMI for the month of January came in at 51.4, down from 53 in December. The report shows slower increases in business activity as well as new orders while export sales fell at quickest rate for 15 months. Additionally, inflation pressures were up compared to the previous month. Composite reading came in at 50.1, barely in the expansion territory as Omicron related restrictions led to drops in production, transportation and sales of goods.
This week we will have employment data from Australia as well as inflation data from China.
Important news for AUD:
Wednesday:
CPI (China)
Thursday:
Employment Change
Unemployment Rate
NZD
Electronic card retail sales in January showed an improvement to 3% m/m and 5.7% y/y from 0.4% m/m and 4.2% y/y the previous month. RBNZ inflation expectation data showed inflation in one-year ahead rising to 4.4% which would be a 31-year high. Expectations in the previous quarter were for them to be at 3.7%. RBNZ target for inflation is 1-3% and new inflation projection moved further away from their target. Rate hike on February 23 is imminent and priced in and from a technical standpoint NZDUSD is posed to go down due to the USD strength.
CAD
BOCanada Governor Macklem reiterated that they are on the rate hike path. He sounded hawkishly stating that the policy rate may need to go to neutral level (2.25%) in order to address the price pressures.
This week we will have inflation data.
Important news for CAD:
Wednesday:
CPI
JPY
December wages and spending data were a downer. Real wages fell -2.2% y/y for the highest drop in 18 months. Nominal wages came in at -0.2% y/y, thus falling for the first time since January of 2021. Household consumption was down -0.2% y/y thus making it a fifth consecutive month of falling personal consumption. Declines were led by fuel, light and water charges while there was an increase in consumption of education. BOJ has decided to keep the yields on 10y JGB capped at 0.25%. Starting February 14 they will buy unlimited amount of bonds at fixed rate of 0.25%.
This week we will have a preliminary Q4 GDP reading. Expectations are for it to go into contraction of almost 1%.
Important news for JPY:
Tuesday:
GDP
CHF
SNB total sight deposits for the week ending February 4 came in at CHF725bn vs CHF724.9bn the previous week. With ECB president Lagarde sounding so hawkish at the press conference SNB did not need to do anything. They just let the markets drag EURCHF pair toward the 1.06 level. Labour market continues to tighten even further with the unemployment rate in January slipping down to 2.3% from 2.4% in December. Inflation data in January showed a small tick in headline number (1.6% y/y vs 1.5% y/y in December) while core reading stayed unchanged at 0.8% y/y.
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Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.
