Markets face a crucial US CPI report Thursday, expected to show headline inflation at 6.6% down from 7.1%, with energy and used-car prices driving the decline. China's reopening and PBOC stimulus are boosting sentiment, while the Fed is priced at 76% odds for a 25-basis-point hike in February.
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Okay, happy New Year! Good to be back. I hope you had a good one. And let's take a look at the week ahead. And it's pretty quiet in terms of, uh, over-the-weekend news flow, but there's quite a few things to do with China that have moved some of the Middle Eastern markets, which of course do open and trade on a Sunday and act as a bit of a bellwether to how markets might open in the futures space shortly, because I'm recording this on Sunday night for the look ahead for the week. But let's kick it off and talk about picture here, which is the People's Bank of China, the PBOC, where China's economic growth will return to what's quote normal path as Beijing provides more financial support to households and private companies to help them recover after the nation has ended its zero-COVID policy. This came out of the party secretary of the People's Bank of China in the People's Daily. And the reason why that is significant, those comments on Sunday, the People's Daily is the state-backed newspaper this is pretty much coming from the horse's mouth, so to speak. Doesn't really come as too much of a surprise, the comments. But that in tandem with images like this, which is travelers have streamed into China by air, land, and sea on Sunday and are eager to have these reunions because Beijing has opened its borders that have been shut for pretty much the last 3 years. So some of those Middle Eastern markets, as I mentioned, so the likes of Saudi, the Qatari stock markets, they all actually traded up on the back of this news on the world's largest economies fully reopening. They are going through the surge in COVID at the moment, but is this a necessary step that needs to be taken in order to get over that worst-case situation at the moment they're facing to move on to the next step? But from a global perspective, certainly that could be met with some degree of optimism at this point in time. Otherwise, like I said, it's pretty quiet for major weekend news on a macro front. So I'm going to jump straight in and talk about the main event of the week, which you're going to have to wait until Thursday. That's because that's when we get the release of the US CPI reading. It's the last CPI report that Fed officials will have before their meeting at the beginning of February. Now, what are we to expect here? Well, the headline figure year over year in December is expected at 6.6%, down from an increase of 7.1% in November. And if that were to be the case, that would mark the slowest pace since October of 2021. The drop— why is it expected to fall once again? Well, it's likely to be driven in part by fallen energy prices, which included gasoline, which was down around 13% lower in the month of December. Also, analysts are expecting another big drop in used car prices given the steep decline in new vehicle sales as consumers are pulling away from any major purchases and lending criteria becomes a little bit stricter at the moment in the, in the US. The core number, which of course will be very important, strips out the volatile components like like food and energy. That's expected to have risen 5.7% year over year, but that's versus the 6% that we saw in the prior November report. So also coming down somewhat. And the report will come pretty much nearly a week after we ended last week, which was Nonfarm Payrolls, and particularly that wage data that came out, which showed them that as a key factor in the inflation outlook, it cooled somewhat in December. And that's what really shot the stock market higher to close the week first trading week of the year in 2023 in positive fashion. So all eyes will be on that report. That will be the main thing on Thursday. Federal funds rate futures, what are they pricing at the moment ahead of the 1st of Feb FOMC meeting? Well, as you can see here, 76% probability priced at this moment in time for a 25 basis point rate hike, which is very much the consensus at this point. All right, jumping elsewhere and looking at the calendar for the week ahead, there are a couple of other things perhaps to just be aware of, and mainly really coming towards the back end of the week. So you've got the CPI report, as I said, on, on Thursday. It's super quiet on Wednesday, doesn't even get mentioned here on the calendar, but Friday really is the other key day. Economists polled by Reuters, they expect overall eurozone industrial production to have fallen 0.2%. When those figures are released on Friday. Earlier in the week, we'll get the national figures from the other big hitters like Germany, France, and Italy, which will really shape that opinion for the end-of-week figure, given that's the bloc's three largest economies. They are expected to reveal slight contractions in industrial output. The UK economy, that also comes out as well, as you can see here on Friday. The latest there being they're expected to continue to struggle at the end of last year in terms of growth in GDP under the weight of high inflation and rising borrowing costs. Economists at Reuters forecast UK GDP to have slipped by about 0.3% between October and November when that data gets released at the end of the week. Not on here listed, but worth bearing in mind, going out to the Far East and Down Under, Australia is set to report retail sales and CPI numbers this week, with inflation is expected to continue to gain. Chinese inflation data also comes on Thursday, expected to show PPI remaining close to deflation in December, while consumer inflation is likely to have ticked up slightly. The People's Bank of China is also due to publish its monthly credit data. That's going to be closely watched to access whether monetary stimulus is flowing through into the economy, particularly in context as well what we just heard from that press report over the weekend in China. Then from a speaker's perspective, Talking of central banks, the Fed chief, none other than Jerome Powell, and his peers from the UK, Canada, Netherlands, and Spain, they are all expected to speak throughout the week. ECB executive board member Schnabel is also scheduled to appear as one to keep an eye on as well. But that is it for the week ahead. Final thing is, if you're not already subscribed to it, please do check out the link in this video. To the Market Maker Daily Newsletter. It goes out from myself and the team, contains a couple of segments of key market-related insights to be aware of day to day, including career hacks and job opportunities. If you're a student looking to get into financial markets, that's definitely what this is aimed for. So do check that out. All right, that's it. Take care and I'll see you next time.
