Inflation data from the Eurozone and Canada coupled with PMIs from the Eurozone and the UK along with FOMC minutes will be highlights of the week ahead of us. NVDA will report earnings on Wednesday. Please be mindful that Monday is President’s day. Stock market will be closed so there will be lower liquidity in the markets which may cause increased volatility.
USD
January CPI saw inflation declining slower than expected with headline number printing 3.1% y/y vs 3.4% y/y in December, but expectation was for a drop to 2.9% y/y. CPI rose 0.3% m/m vs 0.2% m/m as expected with shelter rising 0.6% m/m vs 0.4% m/m in December. Services ex shelter, “super core”, rose 0.85% m/m. Core CPI came in at 3.9% y/y, unchanged from December reading while markets were bracing for a 3.7% y/y reading. Additionally, there was a 0.4% m/m increase in core reading vs 0.3% m/m as expected. The report indicates that inflation is proving to be stickier than market expected. This report will dissuade Fed from cutting rates prematurely and USD surged on the back of it.
Retail sales came in negative across all categories in January. Headline number fell 0.8% m/m with ex autos declining by 0.6% m/m. Control group, it is used for GDP calculation as it excludes all of the volatile measures, declined by 0.4% m/m. It seems that pandemic savings are running out and it is putting pressure on consumers that have to contend with higher prices. Additionally, note that retail sales amount to around 45% of total private consumption.
The yield on a 10y Treasury started the week at 4.17%, rose to 4.34% post-CPI and finished the week at around 4.29%. The yield on 2y Treasury started the week at 4.48% and reached the high of 4.73%. Spread between 2y and 10y Treasuries started the week at -32bp then widened to -37bp as curve inverted further. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 92% while probability of a 25bp rate cut is at 8%. Probability of a May rate cut is around 32%.
This week we will get January meeting minutes.
Important news for USD:
Wednesday:
FOMC Minutes
EUR
Second reading of Q4 GDP was unchanged and showed that economy was flat on the quarter. The economy grew by measly 0.1% y/y. December industrial production helped Eurozone economy to avoid negative growth as it grew by 2.6% m/m and 1.2% y/y. The yearly figure printed negative readings since April of 2023.
ECB President Lagarde reiterated that they will follow data-dependent approach and added that although recent data showed subdued activity they were broadly in line with ECB’s projections. Importance of bringing inflation down to 2% was emphasized as Madame Lagarde stated that they do not want to make hasty decisions on inflation as currently there are not enough evidence that point to inflation returning to the 2% target. ECB policymaker Schnabel, a well-known hawk, warned about premature adjusting of monetary policy. She also warned that in an environment of low growth there is a danger that companies will pass costs to consumers thus rekindling inflation.
This week we will get preliminary PMI and inflation data for the month of February.
Important news for EUR:
Thursday:
S&P Global Manufacturing PMI (Eurozone, Germany, France)
S&P Global Services PMI (Eurozone, Germany, France)
S&P Global Composite PMI (Eurozone, Germany, France)
CPI
GBP
The employment report showed payrolls change increasing by 48k in January. December ILO unemployment rate dropped to 3.8% from 4.2% in November. It has been at 4.2% since August and economists were expecting a decline to 4%. Wages declined at a smaller pace than expected with average weekly earnings coming in at 5.8% 3m/y vs 5.6% 3m/y as expected and down from 6.7% 3m/y in November. Ex bonus wages came in at 6.2% 3m/y vs 6% 3m/y as expected, down from 6.7% 3m/y the previous month.
January CPI data was unchanged with headline number printing 4% y/y and core number printing 5.1% y/y. Numbers came in below what was expected (4.2% y/y for headline and 5.2% y/y for core). Digging into the details of the report goods inflation ticked down to 1.8% y/y from 1.9% y/y in December but services inflation ticked up to 6.5% y/y from 6.4% y/y the previous month. Inflation remains incredibly high and BoE will not feel pressured to act and cut rates. We expect first rate cuts to come in August.
Preliminary Q4 GDP reading surprised to the downside and came in at -0.3% q/q vs -0.1% q/q as expected. UK dipped into technical recession as Q3 GDP printed -0.1% q/q thus making this a second consecutive quarter of negative growth. The report shows that “…there were falls in all three main sectors in the latest quarter with declines of 0.2% in services, 1.0% in production, and 1.3% in construction output.” Real household consumption fell 0.1%, while government spending fell by 0.3%. Business investment increased by 1.5% while net trade detracted from the GDP as exports fell by more than imports. Although economy slipped into technical recession there are signs that the only move from here is up as evidenced by January PMI numbers. Retail sales posted a great rebound in January with headline number rising 3.4% m/m and and ex autos rising 3.2% m/m.
This week we will get preliminary PMI and inflation data for the month of February.
Important news for GBP:
Thursday:
S&P Global Manufacturing PMI
S&P Global Services PMI
S&P Global Composite PMI
AUD
January employment report showed that the entire country added 0.5k jobs (500!) vs 30k as expected. The unemployment rate rose to 4.1% from 3.9% in December while participation rate remained at 66.8%. One positive in the report is that all of the jobs added were full-time jobs (11.1k). Part-time jobs fell by 10.6k. RBA will not be comfortable with this report and will take off from the table any future considerations of a rate hike.
NZD
RBNZ survey data for the Q1 of 2024 showed 1 year inflation expectations at 3.22% vs 3.6% previously and 2 year at 2.5% vs 2.76% previously. This is the lowest reading in over two years and it will significantly lower the chances of another rate hike. As of now it seems that there will be no changes to rate in 2024.
CAD
Wholesale trade in December rose by 0.3% m/m vs 0.8% as expected. It rose 0.9% m/m in November. Manufacturing sales dropped 0.7% m/m but from the upwardly revised 1.5% m/m increase in the previous month. CAD has managed to make some gains against USD this week but it was the weakest of commodity currencies as it lost ground against both AUD and NZD.
This week we will have February inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Preliminary Q4 GDP report came in at -0.1% q/q vs -0.7% q/q in the previous quarter thus plunging Japan’s economy into technical recession, meaning two consecutive quarters of negative growth. Private consumption has declined 0.2% q/q while business investment fell by 0.1% q/q. Net trade added 0.2pp to the GDP reading as exports led by exports of services outpaced imports. GDP deflator, a measure of inflation, came in at 3.8%. High inflation and low growth may deter BoJ from hiking and move first hikes into June. Still, expectations are for Q1 GDP to rebound led by exports and improvement in private consumption.
CHF
SNB total sight deposits for the week ending February 9 came in at CHF482.3bn vs CHF481.2bn the previous week. Just a small change pushing the sight deposits toward the upper bound of multi month range. CPI plunged in January with headline printing 1.3% y/y, down from 1.7% y/y in December and core printing 1.2% y/y, down from 1.5% y/y the previous month. SNB should be comfortable since inflation is positioned nicely so they have a green light if they decide to ease and cut rates.
