Q4 GDP from China, inflation data from the UK and Canada, employment data from the UK and Australia will highlight the week ahead of us.
USD
December CPI report came in hotter. Headline number came in at 3.4% y/y vs 3.2% y/y as expected and up from 3.1% y/y in November. Monthly reading showed an increase of 0.3% compared to 0.2% as expected. Energy component declined 2% y/y but rose 0.4% m/m. Core reading slid but not as much as expected as it printed 3.9% y/y vs 3.8% y/y as expected and down from 4% y/y the previous month. Shelter was the biggest contributor to price increases as it rose 0.4% m/m but rose 6.2% y/y compared to 6.5% y/y increase the previous month. Prices of used cars increased 0.5% m/m. The so called “super-core” measure, core services CPI ex housing, Fed pays close attention to it, rose 0.4% m/m. Real wages were crushed by high inflation as they declined by 0.2% m/m compared to them increasing by 0.5% m/m the previous month. Overall it is a hawkish report for the USD as markets will need to recalculate their cut bets.
The yield on a 10y Treasury started the week at 4.05%, rose to 4.10% and finished the week at around 3.96%. The yield on 2y Treasury started the week at 4.40% and reached the high of 4.48% only to collapse post CPI and finish the week at around 4.14%. Spread between 2y and 10y Treasuries started the week at -34bp then tightened to -18bp as curve started to steepen again. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 93% while probability of a 25bp rate cut is 7%. Probability of a March rate cut is at 83%.
This week we will have consumption data.
Important news for USD:
Wednesday:
Retail Sales
EUR
November volume of retail sales came in at -0.3% m/m as expected while there was a positive revision to October reading (0.4% m/m vs 0.1% m/m as previously reported). Consumers in the Eurozone are still struggling with higher prices and detailed report shows that only automative fuel saw increase of 1.4% m/m while food, drink and tobacco and non-food products recorded declines of 0.1% m/m and 0.4% m/m respectively.
December sentiment data for the Eurozone points to strengthening of economic activity. Sentiment indicator jumped to 96.4 from 94 in November making it a third consecutive month of improvements. Services sentiment made a big jump improving to 8.4 from 5.5 the previous month. Consumer confidence is still at very low levels but it also showed an improvement coming in at -15 compared to -16.9 in November. It reflects better current conditions but also improved expectations for the period of next 12 months. ECB Governing Council member Isabel Schnabel stated that it is too early to discuss rate cuts and that although inflation is coming down additional data confirming that will be needed for any changes in monetary policy to occur.
GBP
November GDP printed an increase of 0.3% m/m compared to 0.2% m/m as expected. Services output rose by 0.4% m/m and was the main contributor to the GDP reading while construction output declined by 0.2% m/m and was the biggest drag. Chances of a recession have declined and BoE may wait a bit further before beginning with rate cuts.
This week we will have employment and inflation data.
Important news for GBP:
Tuesday:
Payrolls Change
Unemployment Rate
Wednesday:
CPI
AUD
November monthly inflation reading came in at 4.3% y/y vs 4.4% y/y as expected and down from 4.9% y/y in October. Monthly reading comprises of around 70% of the weight of the quarterly CPI basket, so although it does not show a full picture it could be used as a good approximation. The next Q4 quarterly reading will come on January 31 and it will have a big impact on RBA thinking process. Retail sales for the same month increased 2% m/m compared to 0.2% m/m increase the previous month.
December inflation data from China saw CPI decline by -0.3% y/y vs -0.4% y/y as expected. This makes it a third consecutive month of outright deflation. Big declines in pork prices are pushing CPI into negative territory. Trade data showed widening of surplus to $75.34bn, more than expected, as both exports (2.3% y/y vs 0.5% y/y in November) and imports (0.2y/y vs -0.6% y/y in November) increased.
This week we will get employment data from Australia as well as Q4 GDP, production and consumption data from China.
Important news for AUD:
Wednesday:
GDP (China)
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
The ANZ World Commodity Price Index rose 2.4% m/m in December. It tracks 17 major commodity exports from New Zealand. Increase in dairy prices had the most impact on the rise of the overall index. This is a positive impact for Kiwi and the economy.
CAD
November building permits declined 3.9% m/m, much more than expected 1.7% m/m decline. CAD has been struggling throughout the week but managed to gain some momentum against the USD after the US CPI report.
This week we will have inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Tokyo are inflation for December saw headline number come down to 2.4% y/y from 2.6% y/y in November. Ex fresh food category also declined as it came in at 2.1% y/y, down from 2.3% y/y the previous month. However, ex fresh food, energy category, the “core core”, was unchanged at 3.6% y/y, almost double the BoJ’s target of 2%. Household spending for November recorded further declines as it fell by 2.9% y/y while a decline of 2.3% y/y was expected. Higher costs are weighing on consumption and will have negative impact on Q4 GDP. Nominal wages have managed to eek a positive reading increasing 0.2% y/y in November but when we take into account the inflation then we get a decline of 3% y/y in real wages. BoJ is paying close attention to wages and it is expected for wages to increase significantly after the Spring wage negotiations which will then lead to BoJ adjusting their ultra loose monetary policy.
CHF
Swiss inflation turned higher in December. Headline CPI came in at 1.7% y/y vs 1.5% y/y as expected and up from 1.4% y/y in November. Core CPI came in at 1.5% y/y, a tick up from 1.4% y/y the previous month. Numbers should deter any talk about easing coming from SNB. As they are still way below 2% there is no need for them to change the course of their policy and will remain firm in the pause mode. SNB total sight deposits for the week ending January 5 came in at CHF468.8bn vs CHF462.9bn the previous week. Total sight deposits are in a narrow range between CHF462bn and CHF476bn for the past two months.
