Weekly Market Outlook (13-17 January)

UPCOMING
EVENTS:

• Monday: NY Fed Inflation Expectations.
• Tuesday: US NFIB Small Business Optimism Index, US PPI.
• Wednesday: UK CPI, US CPI.
• Thursday: Japan PPI, Australia Employment report, UK GDP,
  US Retail Sales, US Jobless Claims, US Import Prices, US NAHB Housing
  Market Index, New Zealand Manufacturing PMI.
• Friday: China activity data, UK Retail Sales, US
  Housing Starts and Building Permits, US Industrial Production and Capacity
  Utilization.

Tuesday

The US PPI Y/Y is
expected at 3.0% vs. 3.0% prior, while the M/M measure is seen at 0.3% vs. 0.4%
prior. The Core PPI Y/Y is expected at 3.2% vs. 3.4% prior, while the M/M
measure is seen at 0.2% vs. 0.2% prior. The CPI coming the day after will be
more important, but the PPI might set the sentiment going into the CPI.

Wednesday

The UK CPI Y/Y is
expected at 2.7% vs. 2.6% prior, while the Core CPI Y/Y is seen at 3.4% vs.
3.5% prior. The market is pricing a 65% chance of a 25 bps cut at the
upcoming meeting and a total of 47 bps of easing by year-end. Higher than
expected data will likely take the rate cut off the table for now, while a soft
report should increase the probabilities in favour of a cut.

The US CPI Y/Y is
expected at 2.8% vs. 2.7% prior, while the M/M measure is seen at 0.3% vs. 0.3%
prior. The Core CPI Y/Y is expected at 3.3% vs. 3.3% prior, while the M/M
reading is seen at 0.2% vs. 0.3% prior.

This is the most
important release of the month, and another hot report will likely cause
some trouble in the markets with the stock market looking as the most
vulnerable right now. Following the strong NFP report, the expectations are
now for just one rate cut this year, which is below the Fed’s projection of two
cuts.

The repricing has
been pretty aggressive in the last few months and the data definitely made the
50 bps cut look like a big mistake. Nonetheless, the Fed has paused the easing
cycle and switched its focus back to inflation with several members citing inflation
progress as a key factor for the next rate cut.

The best
outcome would be a soft report given the overstretched moves in the markets caused by the repricing in
rate cuts expectations. That would likely reverse most of the recent trends
and trigger a rally in bonds, risk assets like stocks and bitcoin and lead to a
selloff in the US Dollar.

Thursday

The Australian
Employment report is expected to show 10.0K jobs added in December vs. 35.6K in
November and the Unemployment Rate to tick higher to 4.0% vs. 3.9% prior. As a
reminder, the RBA softened further its stance at the last policy decision as it nears
the first rate cut.

The market is
seeing a 62% chance of a 25 bps cut in February following the soft monthly
inflation data, although the first fully priced in cut is seen in April. A soft
report could see the market strengthening the
case for a cut in
February.

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 214K vs. 201K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior release saw an
increase to 1867K vs. 1834K prior.

The US Retail
Sales M/M is expected at 0.5% vs. 0.7% prior, while the ex-Autos M/M measure is
seen at 0.4% vs. 0.2% prior. The focus will be on the Control Group figure
which is expected at 0.4% vs. 0.4% prior.

Consumer spending
has been stable which is something you would expect given the positive real
wage growth and resilient labour market. We’ve also been seeing a steady pickup
in consumer sentiment which suggests that consumers’ financial situation is
stable/improving.