Weekly Market Outlook (15-19 January)

<p>UPCOMING EVENTS:</p><ul><li>Monday: PBoC
MLF, US Markets closed for MLK Day, BoC Business Outlook Survey.</li><li>Tuesday: UK
Labour Market report, Canada CPI, Fed’s Waller. </li><li>Wednesday: China
Industrial Production and Retail Sales, UK CPI, US Retail Sales, US
Industrial Production, US NAHB Housing Market Index.</li><li>Thursday:
Australian Labour Market report, ECB Minutes, US Building Permits and
Housing Starts, US Jobless Claims, New Zealand Manufacturing PMI. </li><li>Friday: Japan
CPI, UK Retail Sales, Canada Retail Sales, US University of Michigan
Consumer Sentiment.</li></ul><p>Monday</p><p>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 <a href="https://www.forexlive.com/centralbank/peoples-bank-of-china-rate-cut-coming-up-on-monday-preview-20240111/">some
expectations</a> for a 10 bps cut
tomorrow which would set the stage for a cut for the LPR rates as well.
The latest <a href="https://www.forexlive.com/news/china-december-cpi-03-expected-04-20240112/">Chinese
inflation data</a> continues to show
deflationary pressures which gives the PBoC ample room to ease their policy
further. </p><p>Tuesday</p><p>The UK Unemployment Rate is expected to
tick higher to 4.3% vs. 4.2% <a href="https://www.forexlive.com/news/uk-november-payrolls-change-12k-vs-33k-prior-20231212/">prior</a>.
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. </p><p>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 <a href="https://www.forexlive.com/news/canada-cpi-inflation-for-november-yoy-31-versus-29-estimate-20231219/">inflation
measures</a> ticking higher and <a href="https://www.forexlive.com/news/canada-december-employment-01k-versus-135-k-estimate-20240105/">wage
growth</a> accelerating. </p><p>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&amp;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. </p><p>Wednesday</p><p>The UK CPI Y/Y is expected at 3.8% vs.
3.9% <a href="https://www.forexlive.com/news/uk-november-cpi-39-vs-44-yy-expected-20231220/">prior</a>,
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. </p><p>The US Retail Sales M/M are expected at
0.4% vs. 0.3% <a href="https://www.forexlive.com/news/us-november-retail-sales-03-vs-01-expected-20231214/">prior</a>,
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. </p><p>Thursday</p><p>The Australian Unemployment Rate is
expected to remain unchanged at 3.9% with 18K jobs added in December compared
to 61.5K seen in <a href="https://www.forexlive.com/news/australia-nov-employment-change-615k-expected-11k-unemployment-rate-39-exp-38-20231214/">November</a>.
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 <a href="https://www.forexlive.com/news/australian-november-cpi-43-yy-expected-44-20240110/">Monthly
Australian CPI</a> data. </p><p>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 <a href="https://www.forexlive.com/news/us-initial-jobless-claims-202k-vs-210k-estimate-20240111/">prior</a>, while there’s no estimate at the
time of writing for Continuing Claims, although the last week’s number was 1834K
vs. 1868K prior.</p><p>Friday</p><p>The Japanese Core CPI Y/Y is expected at
2.3% vs. 2.5% <a href="https://www.forexlive.com/centralbank/japan-november-cpi-all-three-inflation-measures-remain-much-higher-than-the-boj-target-20231221/">prior</a>.
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 <a href="https://www.forexlive.com/news/tokyo-headline-cpi-for-december-24-yy-prior-26-20240108/">Tokyo
CPI</a>, which is seen as a leading indicator for
National CPI, decreased further recently and the <a href="https://www.forexlive.com/centralbank/japan-november-wages-data-shows-another-deep-fall-20240109/">Average
Cash Earnings</a> 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. </p>

This article was written by Giuseppe Dellamotta at www.forexlive.com.