Introduction
The third week of the month is often fairly quiet for US economic data. This week conforms to that trend, with scant pickings as traders have a dusting of housing data and Fed surveys to get through. It is quite the contrast for the UK, with this being the big week of the month for data. Sterling traders will be busy sifting through unemployment, inflation, and retail sales. In Asia, the Bank of Japan is unlikely to cause too much of a stir, whilst the focus is on inflation in Lat Am.
Watch for:
- North America – US housing data along with New York and Philly Fed surveys, in addition to Canadian inflation
- Europe & Asia – UK unemployment, CPI and retail sales; German ZEW and ECB minutes, along with the BoJ
- Lat Am – primary focus is on inflation in Brazil
North American data:
- Empire State Manufacturing Index (Tuesday 18th January, 1330GMT). A drop to 27.5 is expected in January (from 31.9 in December)
- US Building Permits & Housing Starts (Wednesday 19th January, 1330GMT). Both are expected to decline slightly in December to 1.710m (from 1.712m for BPs) and 1.660m (from 1.679m on HSs)
- Canada CPI (Wednesday 19th January, 1330GMT). December headline CPI is expected to increase to 5.5% (from 4.7% in November) with core CPI increasing to 3.7% (from 3.6%).
- US Weekly Jobless Claims (Thursday 20th January, 1330GMT). Claims are expected to fall back to 219,000 (after last week’s 230,000)
- Philly Fed Manufacturing (Thursday 20th January, 1330GMT). This is expected to improve to +18.5 (from +15.4 in December)
- US Existing Home Sales (Thursday 20th January, 1500GMT). Existing sales are expected to fall slightly to 6.44m in December (from 6.46m)
It is fairly quiet for US data this week. The housing data is not likely to cause much of a stir if the consensus is anything to go by. However, the regional Fed surveys will be worth watching. The New York Fed (Empire State) Manufacturing tends to be fairly steady but may drop slightly. However, the Philly Fed survey is historically one of the stronger readings and fell sharply last month. Consensus expects a recovery, but if this is not seen it may cause a bit of nervousness for USD.
Canadian inflation will also be important, certainly for CAD. Inflation is expected to continue to track higher. As is the case for many central banks, the Bank of Canada will certainly be keeping an eye on the level of inflation. Interest rate futures point to a 50% chance of a rate hike in January. This would go up if inflation surprised to the upside, and would strengthen CAD.
Market Reaction:
- USD price action may be a little more subdued this week around the lack of tier one data announcements.
- CAD will be volatile to the inflation data. Positive surprises would be CAD positive.
Europe & Asia:
- Bank of Japan monetary policy (Tuesday 18th January, 0300GMT). No change is expected to the rate of -0.10%
- UK Unemployment and Average Weekly Earnings (Tuesday 18th January, 0700GMT). November’s unemployment is expected to fall to 4.0% (from 4.2% in October). Earnings including bonuses are expected to fall to 4.1% (from 4.9% in October).
- German ZEW Economic Sentiment (Tuesday 18th January, 1000GMT). The ZEW is expected to increase to 30.9 in January (from 29.9 in December).
- UK CPI (Wednesday 19th January, 0700GMT). Headline inflation is expected to have increased to 5.7% in December (from 5.1%) however, core CPI is expected to remain steady at 4.0% (4.0% in November).
- Australian Unemployment (Thursday 20th January, 0030GMT) is expected to improve to 4.5% in December (from 4.6%)
- Eurozone final inflation (Thursday 20th January, 1000GMT). Final inflation is expected to be unrevised from the flash, with headline CPI at 5.0% and core CPI at 2.6%
- ECB meeting accounts (Thursday 20th January, 1230GMT)
- Japan CPI (Thursday 20th January, 2330GMT). Core CPI is expected to remain at +0.5% in December (+0.5% in November).
- UK Retail Sales (Friday 21st January, 0700GMT)
- Eurozone Consumer Confidence (Friday 21st January, 1500GMT)
News agency, Reuters, are suggesting that the Bank of Japan will begin to discuss the concept of higher rates soon. However, it may be a little soon this week, with core inflation currently just +0.5% and forecast to stay there. Subsequently, we are not expecting too much from the decision. However, any discussion around hikes may generate some interest in JPY.
A raft of tier one UK data will give GBP traders plenty to get their teeth into. Unemployment is falling but wages are also expected to drop back. The action will crank up on Wednesday with the inflation data. Headline inflation is expected to continue higher, but with core CPI expected flat, this could be where the action comes. Retail Sales have been improving month on month for the past four months. A continuation of this will continue to underpin a recovery in GBP.
Market Reaction:
- JPY reaction around the BoJ
- GBP is likely to see a volatile week, with any upside surprises to the CPI data driving GBP higher.
- EUR will be reactive to surprises around the ZEW.
Latin America:
- Colombia Industrial Output (Monday 17th January, 1500GMT)
- Colombia Retail Sales (Monday 17th January, 1500GMT)
- Mexican Unemployment (Thursday 20th January, 1200GMT)
- Brazil mid-month inflation (Friday 21st January, 1200GMT)
Brazilian inflation is amongst the highest of the G20 nations and in Latin America. The IPCA benchmark inflation was 10.07% in 2021, with the figure down from 10.74% in November. Therefore, the first look at January inflation will be keenly watched. Any hint of a continuation of rising prices will add to speculation that the Brazilian central bank will need to hike more than the current 9.25%. The expectation is currently that another +150 basis points of rate hikes will be seen in February.
Market Reaction
- BRL has recovered some losses with a weakening USD in 2022, but will be negative on any sign of increasing inflation
