Weekly Market Outlook (10-14 February)

UPCOMING
EVENTS:

• Monday: NYFed Inflation Expectations.
• Tuesday: US NFIB Small Business Optimism Index, Fed Chair
  Powell Testimony.
• Wednesday: US CPI, Fed Chair Powell Testimony, BoC Meeting
  Minutes.
• Thursday: Japan PPI, UK GDP, Switzerland CPI, US PPI, US
  Jobless Claims, New Zealand Manufacturing PMI.
• Friday: US Retail Sales, US Industrial Production and
  Capacity Utilization.

Wednesday

The US CPI Y/Y is
expected at 2.9% vs. 2.9% prior, while the M/M figure is seen at 0.3% vs. 0.4%
prior. The Core CPI Y/Y is expected at 3.1% vs. 3.2% prior, while the M/M
reading is seen at 0.3% vs. 0.2% prior. The Fed is focused mainly on
inflation progress at the moment and these readings wouldn’t be bad, although
lower than expected figures will be much more welcomed.

Nonetheless, the
projection for two rate cuts by the end of the year still holds even though the
market leant on a more hawkish side on Friday following the NFP report and especially the inflation expectations data in the
University of Michigan consumer sentiment survey.

The NFP report was
good and the increase in average hourly earnings isn’t worrying yet given
the drop in weekly hours worked. The jump in inflation expectations, on the
other hand, has been entirely due to the tariffs news, so that should
ease going forward as the fears around trade wars fade (barring of course
actual trade wars).

Thursday

The Switzerland
CPI Y/Y is expected at 0.4% vs. 0.6% prior, while the M/M figure is seen at
-0.1% vs. -0.1% prior. The market is currently pricing a 92% probability of
a 25 bps cut in March and a total of 40 bps by year end which is basically
two rate cuts that would take the policy rate back to 0%.

Inflation in
Switzerland has been falling markedly for years due to a strong Swiss Franc
which saw the central bank threatening interventions and negative rates at
different times. SNB’s Chairman Schlegel repeated recently that despite
being reluctant to reintroduce negative rates, they will do that if the
conditions call for it.

The US PPI Y/Y is
expected at 3.2% vs. 3.3% prior, while the M/M figure is seen at 0.3% vs. 0.2%
prior. The Core PPI Y/Y is expected at 3.3% vs. 3.5% prior, while the M/M
reading is seen at 0.3% vs. 0.0% prior. As long as we don’t get huge deviations
here, the trend will likely be set by the US CPI the day before.

The US Jobless
Claims continue to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial
Claims remain inside the 200K-260K range created since 2022, while Continuing Claims continue to hover around
cycle highs although we’ve seen some easing recently.

This week Initial
Claims are expected at 216K vs. 219K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior release showed an increase
to 1886K vs. 1850K prior.

Friday

The US Retail
Sales M/M is expected at -0.1% vs. 0.4% prior, while the ex-Autos figure is
seen at 0.3% vs. 0.4% prior. The focus will be on the Control Group figure
which is expected at 0.3% vs. 0.7% prior.

Consumer
spending has been stable
which is something you would expect given the positive real wage growth and
resilient labour market. More recently, we’ve been seeing some easing in
consumer sentiment though which might also lead to some softening in
consumer spending.

If the data indeed
softens, it shouldn’t be worrying just yet but could help alleviate some
more inflation worries and keep the market pricing around two rate cuts in
2025.