Weekly Market Outlook (15-19 January)

UPCOMING EVENTS:

• Monday: PBoC
  MLF, US Markets closed for MLK Day, BoC Business Outlook Survey.
• Tuesday: UK
  Labour Market report, Canada CPI, Fed’s Waller.
• Wednesday: China
  Industrial Production and Retail Sales, UK CPI, US Retail Sales, US
  Industrial Production, US NAHB Housing Market Index.
• Thursday:
  Australian Labour Market report, ECB Minutes, US Building Permits and
  Housing Starts, US Jobless Claims, New Zealand Manufacturing PMI.
• Friday: Japan
  CPI, UK Retail Sales, Canada Retail Sales, US University of Michigan
  Consumer Sentiment.

Monday

The PBoC will conduct the MLF operation on
Monday and we will see if they decide to lower the rate or keep it unchanged at
2.50%. There are some
expectations for a 10 bps cut
tomorrow which would set the stage for a cut for the LPR rates as well.
The latest Chinese
inflation data continues to show
deflationary pressures which gives the PBoC ample room to ease their policy
further.

Tuesday

The UK Unemployment Rate is expected to
tick higher to 4.3% vs. 4.2% prior.
The average earnings excluding bonus are seen at 6.6% vs. 7.3% prior, while
those including bonus are seen at 6.8% vs. 7.2% prior. This report is unlikely
to change anything for the BoE as the central bank continues to support a “wait
and see” approach, but the market’s pricing will certainly be influenced by
the data with more to come the following day with the release of the UK CPI
report.

The Canadian CPI Y/Y is expected at 3.3%
vs. 3.1% while the M/M measure is seen at -0.3% vs. 0.1% prior. The BoC is
focused on the underlying inflation measures (common, median and trimmed-mean)
and although the rates are getting closer to the 1-3% target range, Governor
Macklem said that they want to see more progress both on inflation and wage
growth fronts. As a reminder, the last reports went in the opposite
direction with underlying inflation
measures ticking higher and wage
growth accelerating.

Given the recent aggressive easing in
financial conditions, it’s worth noting that Fed’s Waller will give a speech at
Brookings on the economy and monetary policy with a Q&A session to follow. Waller
is a key FOMC member because he’s been a “leading indicator” for changes in
Fed’s policy. He was the first one talking about QT in December 2021 and
the first one mentioning rate cuts in November 2023.

Wednesday

The UK CPI Y/Y is expected at 3.8% vs.
3.9% prior,
while the M/M measure is seen at 0.2% vs. -0.2% prior. The Core CPI Y/Y is
expected at 4.9% vs. 5.1% prior, with no consensus for the M/M figure although
the prior release showed a -0.3% fall. Again, this report will have no
bearing on the February BoE meeting but will certainly affect the market’s
pricing with the first cut expected in May and a total of 125 bps of cuts
seen by year-end.

The US Retail Sales M/M are expected at
0.4% vs. 0.3% prior,
while the ex-autos measure is seen at 0.2% vs. 0.2% prior. Also watch the
Control Group as it’s regarded as a better gauge of consumer spending, and it’s
been beating expectations consistently for several months.

Thursday

The Australian Unemployment Rate is
expected to remain unchanged at 3.9% with 18K jobs added in December compared
to 61.5K seen in November.
This report will have no bearing on the February RBA meeting, but it will
influence the market’s pricing, with a weak report likely increasing rate cuts
expectations after the recent miss in the Monthly
Australian CPI data.

The US Jobless Claims
continue to be one of the most important releases every week as it’s a timelier
indicator on the state of the labour market. Initial Claims keep on hovering
around cycle lows, while Continuing Claims after reaching a new cycle high
started to trend lower. This week the consensus sees Initial Claims at 207K
vs. 202K prior, while there’s no estimate at the
time of writing for Continuing Claims, although the last week’s number was 1834K
vs. 1868K prior.

Friday

The Japanese Core CPI Y/Y is expected at
2.3% vs. 2.5% prior.
The headline inflation measure has been easing steadily in Japan thanks to
energy deflation but the Core-Core measure, which excludes food and energy
prices, has been doing so at a slower pace. The Tokyo
CPI, which is seen as a leading indicator for
National CPI, decreased further recently and the Average
Cash Earnings showed a much slower
than expected growth rate. This has pushed expectations for a normalisation
of monetary policy further away as the conditions the BoJ is looking for are
not materialising.