Week Ahead – Highlights include: US PCE & GDP, BoC, Flash PMIs, Aus & NZ CPI | Forexlive


  • MON: BoJ Minutes (Dec); Australian Flash PMIs (Jan).
  • TUE: Australian NAB Business Confidence (Dec), German GfK (Feb), EZ, UK
    & US Flash PMIs (Jan), New Zealand CPI (Q4), UK CBI Trends (Jan).
  • WED: BoC Policy Announcement; Australian CPI (Dec/Q4), German Ifo (Jan).
  • THU: CBRT Minutes & Inflation Report (Jan), US Durable Goods (Dec), GDP
    Advance (Q4), PCE Prices Advance (Q4), IJC (w/e 16th Jan), National Activity
    Index (Dec), New Home Sales (Dec).
  • FRI: Australian PPI (Q4), Export/Import Prices (Q4), Chinese Industrial
    Profit (Dec), EZ M3 (Dec), US PCE Price Index (Dec), University of Michigan
    Final (Jan), Pending Home Sales (Dec), German CPI Prelim. (Jan).

NOTE: Previews are listed in day-order

EZ Flash PMI (Tue):

Expectations are for the Eurozone-wide manufacturing PMI to rise to 48.5
from 47.8, and for the Services PMI to move back into expansionary territory at
50.2 from the previous 49.8; that would leave the composite gauge at 49.8 (vs.
prev. 49.3). The prior report stated that “the Eurozone economy continued to
deteriorate, but the strength of the downturn moderated for a second successive
month, tentatively pointing to a contraction in the economy that may be milder
than was initially anticipated.” For the upcoming release, Capital
Economics agrees with the consensus view for the composite reading, noting that
“the ZEW and Sentix measures of investor sentiment rose strongly in January,
and they have sometimes been good leading indicators of the PMI in the past.”
The consultancy adds that the recent declines in energy prices will have
provided a boost to activity, particularly in energy-intensive industrial
sectors, and it therefore looks for a bigger advance in manufacturing measure
vs the services. From a policy perspective, the upcoming release is unlikely to
have much bearing on the February ECB meeting, which is essentially locked in
for a 50bps rate hike. Moving forward, if PMI releases surprise to the upside,
this could give policymakers confidence to proceed with a more aggressive path
for rates, and therefore dispel speculation that the ECB could step down to a
25bps hike by March; however, the upcoming report may come too early to have
any meaningful impact on that debate.

UK Flash PMI (Tue):

Expectations are for UK services PMI to hold steady at 49.9,
manufacturing to tick higher to 45.7 from 45.3, leaving the composite at 49.3
(prev. 49.3). The prior report was characterised by both services and
manufacturing recording falls in new business, resulting in a fifth successive
monthly reduction in new work, whilst costs and output prices continued to
increase at elevated rates. This time around, analysts at Investec view it as
“reasonable” for the improvement in supply chains to have carried over into
January, whilst more clarity on energy costs via the Energy Bill Relief Scheme
for businesses may also have helped. Accordingly, Investec forecasts that both
the manufacturing and services indices will increase, leaving the composite
reading just below the 50 mark. That said, Investec cautions that business will
still be in a difficult environment with the UK economy in a recession for the
whole of this year. From a policy perspective, the latest jobs and inflation
metrics from the UK saw expectations for the February meeting swing further
towards a 50bps move. A stronger-than-forecast release will likely cement these
calls, whilst a miss on expectations will be unlikely to swing pricing in
favour of a smaller 25bps move.

New Zealand CPI (Tue):

The street sees Q4 CPI cooling to 6.6% Y/Y from 7.2%, while the monthly
measure is expected to ease to 1.6% M/M from 2.2%. Analysts at ASB are going
against market consensus, and say that their research “suggests inflation ended
2022 at a 7.4% annual rate, the highest since 1990” – in line with the RBNZ’s
target. The bank posits that inflation would be closer to 8% were it not for
the sharp decline in retail fuel prices. “Q4 inflation data should also
highlight a changing in the baton for the inflation process, with easing annual
tradable inflation, but rising annual non-tradable inflation”, ASB says. Its
analysts are sceptical about whether the return to the RBNZ’s 1-3% target is
assured, highlighting the higher housing costs, a Q4 rise in food prices
despite a sharp fall in petrol prices, and easing supply chain issues. ASB sees
another 125bps of total OCR hikes in the coming months – including 75bps at the
Feb 22nd meeting.

BoC Policy Announcement (Wed):

After lifting its Bank Rate by 50bps in December, to 4.50%, the BoC said
it “will be considering whether the policy interest rate needs to rise
further” as it “continues to assess how tighter monetary policy is
working…” and “how inflation and inflation expectations are
responding.” Analysts have taken this as a sign that the central bank is on
the cusp of downshifting the pace of its hikes, with many now expecting a 25bps
move in January. That said, the central bank has kept its policy options open,
meaning that an unchanged outcome, 25bps hike and even another 50bps hike are
all possibilities. Canadian bank RBC is modelling a 70% chance that the BoC
raises by 25bps, a 20% probability of a larger 50bps move, and assigns a 10%
chance of an unchanged decision. Explaining its thinking behind 25bps, RBC
notes that recent data has been close to neutral; “we have seen some slowing
on the activity side, especially forward-looking activity in the Business
Outlook Survey, but underlying inflation is uncomfortably high and inflation
expectations remain lofty,” RBC writes, “the labour market remains
very tight,” and it adds that “this is not an environment where data
has softened enough to warrant a pause, nor has it been strong enough to
continue at a 50bps clip.” Indeed, Governor Macklem in December remarked
that elevated inflation means the BoC had to be more concerned about under-tightening.
Elsewhere, many are arguing that the BoC’s January rate hike could be the last
of the cycle. The question becomes how the BoC could communicate this. RBC
suggests that consistent with the optionality that the central bank has
retained in its communications, it looks for the January statement to use
similar language to the December version; RBC says “this means making it
clear that it could be the last hike, but not committing to it and leaving the
data to determine the near-term rate path.”

Australia CPI (Wed):

The annual measure of CPI is seen ticking higher in Q4 to 7.5% Y/Y from
7.3% in Q3; the quarterly measure is seen cooling to 1.6% Q/Q from 1.8%. In
terms of the accompanying metrics, the Trimmed Mean gauge is seen at 6.5% Y/Y
(prev. 6.1%), and at 1.5% Q/Q (prev. 1.8%), while the Weighted Mean measure is
expected at 5.5% Y/Y (prev. 5.0%), and 1.4% Q/Q (prev. 1.4%). In its November
projections, the RBA had pencilled in a 8.0% Y/Y rise in Q4, but analysts will
be looking out for a rise in the Trimmed Mean metric for signs of how much more
tightening the RBA has to do. Desks suggest that monthly CPI metrics showed
little change across October and November vs Q3, with the December metrics set
to be released alongside the quarterly figures. The government rebates in Q3
cushioned the +15% rise in electricity tariffs. Capital Economics is looking
for a 10% Q/Q rise in utility tariffs, whilst monthly indicators pointed to a
smaller rise in the Trimmed metric Q/Q, and forecasts a 1.6% Q/Q and a 7.4% Y/Y
increase in headline CPI for Q4.

US GDP (Thu):

Advanced GDP data for Q4 is expected to show growth of 2.8% (prev.
3.2%). That consensus view is more pessimistic than the Atlanta Fed’s GDPnow
forecast, which is tracking Q4 growth a 3.5%. Moody’s analysts are expecting
that growth will have remained strong in Q4, north of 3% on an annualised
basis, driven by the favourable trade balance, which continues to provide a
tailwind to growth. Ahead, the growth dynamic in the US is expected to worsen
significantly, with many analysts projecting the economy will enter a
recession. While policymakers have generally given constructive updates on the
prospects for growth this year, arguing that a recession can be averted, and
the US can achieve a soft landing, the Fed is still forecasting growth of just
0.5% in 2023.

US Personal Income, Spending (Fri):

Analysts expect personal income to have risen 0.2% M/M in December
(prev. +0.4%), while adjusted personal consumption is expected to decline by
0.1% M/M (prev. +0.1%). For colour, US retail sales disappointed expectations
in December, adding to survey evidence of the economy rapidly losing momentum
towards the end of last year, Capital Economics said. The decline was driven by
a further drop in vehicle sales, a sign that higher rates were weighing on
big-ticket spending. “The weakness of sales echoes the sharp deterioration
in the service-sector activity surveys over the past couple of months and the
ongoing weakness of consumer confidence and suggests that, despite the still-solid
labour market, the surge in interest rates over the past year is taking its
toll,” Capital Economics said, “strong gains back in September and
October mean that real consumption is still likely to have risen by close to
3.0% annualised in Q4 overall, but it looks to have fallen in December
specifically, which sets the stage for a marked slowdown in growth in Q1.”

US PCE (Fri):

Core PCE is expected to rise 0.2% M/M in December, matching the rate
seen in the November data. Analysts at Credit Suisse are looking for a rise of
0.3% M/M, which would still be enough to see the annual measure of core PCE
pare back to 4.5% Y/Y from 4.7% previously; if the bank is correct, then the
annual core measure will fall to the lowest since Q4 2021. “Core inflation
remained subdued in December,” CS writes, “there has been a broad
deceleration in core goods and services, with the main upward pressure on core
PCE from shelter, which is likely to show stubbornly high inflation for at
least the first half of 2023.” As a comparison, the consumer prices data
for December showed core CPI rising 0.3% M/M, picking up slightly from the 0.2%
pace in November; the annual rate pared back to 5.7% Y/Y from 6.0%, with the
largest contributions to the upside from rents and hospital services; on the
other side, used vehicle prices moderated strongly. It is worth noting that
these data will be released during the Fed’s blackout window ahead of the
January 31-February 1st FOMC meeting; the current base case implied by both
market pricing and analyst forecasts is that the central bank will lift rates
by 25bps. However, many have caveated that view around incoming data,
suggesting that if there is an upside surprise within the PCE data, then
pricing for 50bps could pick up once again.

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