Following the US CPI last week, we get more inflation numbers for December this week, with the most important ones perhaps being those from the UK and Canada. We also have a BoJ monetary policy decision, but we don’t expect any fireworks, while from Australia, we get the employment report for December.
On Monday, we already got China’s GDP for Q4, as well as the nation’s fixed-asset investment, industrial production, and retail sales for December. The GDP accelerated by more than anticipated, with industrial production and fixed asset investment also beating their own forecasts.
Only retail sales missed estimates, slowing by more than expected. In our view, this suggests that the world’s second-largest economy was not affected that much by the crisis in the property sector, the energy shock during the quarter, and the recent strict covid-related lockdowns across the country.
Combined with the PBOC’s unexpected decision to cut the borrowing costs of its medium-term loans for the first time since April 2020, this may allow some market participants to start the week by adding to their risk exposures.
There are no other significant indicators or releases on today’s calendar. Still, we do have some important economic events scheduled for the rest of the week, as well as several earnings releases. We will examine the macroeconomic events in detail every week, but it is also worth mentioning some of the big firms that report earnings.
Among commercial banks, we have Goldman Sachs (NYSE:GS) on Tuesday, followed by Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC) on Wednesday. Big non-financial firms include Procter & Gamble (NYSE:PG) on Wednesday and Netflix (NASDAQ:NFLX) on Thursday, the first of the closely watched “FAANG” group.
On Tuesday, during the Asian session, we have a central bank deciding on monetary policy, and this is the BoJ. Inflation has jumped out of the negative territory during the last months of 2021 and accelerated notably in November, but, in contrast with other major economies, it remains well below the bank’s objective of 2%.
Therefore, in our view, this bank still has a long way to go before it starts considering raising interest rates. That said, officials may decide to sound a bit more optimistic and perhaps upgrade their economic forecasts despite refraining from taking policy action due to some improvement in Japan’s economic data.
As for the yen, barring any major surprises, we don’t expect it to react much to the decision. We believe it will stay mainly driven by developments surrounding the broader market sentiment.
Later in the day, we have the UK employment report for November during the early European morning. The unemployment rate is expected to have held steady at 4.2%, while the net change in employment is forecast to show that the economy has added 128k jobs in the three months to November, compared to 149k in the three months to October.
As for wages, both the including and excluding bonuses rates are forecast to have declined. Although this could suggest that inflation may start easing in the months to come, we don’t expect this data set to alter expectations around the BoE’s policy plans.
After all, the rest of the numbers are expected to be decent, and what’s more, we get more recent data, concerning December, on Wednesday and Friday.
From Germany, we get the ZEW survey for January, with the current conditions index expected to have ticked down to -7.5 from -7.4. However, the economic sentiment one is anticipated to have increased to 32.7 from 26.8.
This means that analysts see improvement for Eurozone’s growth engine in the next six months, and thus, the euro may receive a slight boost at the time of the release. However, we don’t expect a massive reaction because such numbers are unlikely to prompt participants to massively add to bets over a rate hike by the ECB this year.
Remember that last week, ECB Chief Economist Philip Lane said that they do not see Eurozone inflation above 2% in the medium term, despite rising to 5% in December, which means that they are sticking to their view of no hikes this year.
On Wednesday, during the early European day, we have the UK CPIs for December. The headline rate is forecast to have ticked up to +5.2% from +5.1%, while the core one is expected to have held steady at 4.0%.
According to the UK OIS forward yield curve, market participants are nearly certain that the BoE will hit the hike button again at its upcoming gathering, and elevated inflation is likely to add more credence to that view and perhaps allow some more GBP buying.
We get more CPI data during the day. From Germany, we get the final print for December, which is expected to confirm their preliminary estimates, while later in the day, we have Canada’s rates for the month. Both the headline and core rates are forecast to have held steady at +4.7% yoy and +3.6% yoy, well above the upper end of the BoC’s target range of 1-3%.
The BoC kept interest rates untouched at 0.25% at its latest meeting. In the statement accompanying the decision, the language was more cautious than previously, with officials expressing concerns over the economic impact of the Omicron coronavirus variant.
That said, the Omicron strain proved to be milder than initially estimated, and with the economy improving notably, traders currently assign a strong chance for a rate increase this month. Thus, elevated inflation is likely to keep that probability high and perhaps support the already-strong Loonie.
On Thursday, during the Asian trading, Australia’s employment report for December will be released. The unemployment rate is expected to have ticked down to 4.5% from 4.6%, while the net change in employment is forecast to show that the economy has added much fewer jobs than it did in November. Specifically, it is expected to have added 30k jobs after adding 366.1k in November.
According to the ASX 30-day interbank cash rate futures yield curve, market participants are fully pricing in a rate hike by the RBA to be delivered in April, while they see the OCR exceeding 1.00% by the end of the year.
That said, at its December gathering, the RBA reiterated the view that they are unlikely to touch the hike button in 2022, hinting that this could happen in 2023. Thus, with market participants being overly optimistic, there is ample room for disappointment.
Therefore, weaker-than-expected numbers have the potential to result in a decent slide in the Aussie.
From the Eurozone, we get the final CPIs for December, which is expected to confirm their preliminary estimates and the minutes from the latest ECB gathering. At that meeting, the ECB announced ending the pandemic emergency purchase program (PEPP) in March.
However, they decided to extend the program’s reinvestment horizon and compensate by doubling the monthly pace of the asset purchase program (APP) for the second quarter. In our view, this revealed a willingness to stay accommodative for a while longer, and we expect the minutes to confirm just that.
That said, we don’t expect a major tumble by the euro. After all, ECB President Christine Lagarde said several times that they are unlikely to hit the hike button this year, with Philip Lane hinting that this may be the case last week by saying that they don’t see inflation above 2% in the medium term.
Thus, although inflation accelerated to 5% in December, we believe that if the minutes confirm the view of no hikes this year, it will not come as a surprise.
Finally, on Friday, Asian time, we have Japan’s National CPIs for December. No forecast is available for the headline rate, while the core one is anticipated to have ticked up to +0.6% YoY from +0.5%.
Later in the day, we get retail sales data from the UK and Canada. The numbers are for December in the UK, and the forecast declines. Still, conditional upon inflation accelerating further on Wednesday, we don’t believe that these numbers will force participants to remove their bets over a rate hike by the BoE in its upcoming gathering.
The Canadian data are for November. The headline rate is forecast to have declined, but the core one is to have held steady. Again, we don’t believe these numbers could prove game-changers for the BoC. After all, they are for November, and up until then, we will already have the CPIs for December in hand.