Market Outlook for the Week of 8-12 January

<p dir="ltr">Last week the U.S. jobs report surprised to the upside which could indicate the Fed won't be in a hurry to cut rates. The U.S. economy added 216K jobs in December compared with the 175K analyst expectation. The unemployment rate remained unchanged and the average hourly earnings rose slightly by 0.4%.</p><p dir="ltr">However, the JOLTS report for November was not so rosy with job openings falling further, yet still above pre-pandemic levels. The continuing jobless claims also registered a slight increase last year indicating that those who get laid-off find it harder to secure new employment. Overall, while the labor market remains tight, there are signs that it is cooling down. </p><p dir="ltr">The minutes from the last FOMC meeting in December showed the Fed's intention to remain restrictive for now but is open to cutting rates if there's continuing progress in lowering inflation. Analysts from Wells Fargo currently expect rate cuts to begin in June.</p><p dir="ltr">The week ahead will be fairly quiet but there are some notable events on the calendar. FOMC members Bostic, Barr and Williams are expected to deliver his remarks.</p><p dir="ltr">On Tuesday we have the Tokyo Core CPI y/y and the retail sales m/m for Australia. Wednesday the market's attention will be on the Australian CPI figures which are anticipated to register a decrease. ING analysts point out that last year's surge in energy and food prices was partially a result of unusually cold and wet weather that is not likely to repeat to the same extent. However, the recent flooding in Queensland could push up prices in certain areas. Overall, compared to last year, inflation is expected to see a significant decline.</p><p dir="ltr">Later in the day BoE Gov Bailey and BoE Deputy Governor Sarah Breeden will testify on the Financial Stability Report before the Treasury Select Committee in London. In general this type of event shouldn't create volatility in the market, but it's worth monitoring if they mention something about future monetary policy decisions. Analysts currently anticipate rate cuts of 120bps until the end of the year.</p><p dir="ltr">Thursday the U.S. will get the inflation and the Unemployment Claims data with the consensus for unemployment claims being 211K from the prior 202K.</p><p dir="ltr">Inflation is expected to slow down slightly with the consensus for the rise in Core CPI m/m being 0.2% from prior 0.3%. However, year-over-year inflation is anticipated to increase from 3.1% to 3.2%.</p><p dir="ltr">ING analysts point out that the Core CPI will fall under 4% y/y for the first time since May 2021, giving the Fed confidence that inflation is on the path to reach the 2% target by mid-2024.Energy prices were a little more stable last month so the declines in inflation data won't be as big as those in October and November, Wells Fargo analysts said. However, the disinflationary trend in core goods in particular will continue amid a normalization in demand.</p><p dir="ltr">On Friday, the Core PPI m/m and PPI m/m prints are expected. The consensus is a slight increase by 0.2% from 0.0% for Core PPI m/m and by 0.1% from 0.0% for PPI m/m. Mike Wilson from Morgan Stanley pointed out last month that the Producer Price Index is a good leading indicator for sales growth and whether prices are stabilizing or decelerating can be used as confirmation of inflation trends.</p><p dir="ltr">This article was written by Gina Constantin.</p>

This article was written by FL Contributors at www.forexlive.com.