The week will kick off with the print of U.S. new home sales data on Monday. Tuesday will bring additional data releases in the U.S. including durable goods orders m/m, core durable goods orders m/m, CB consumer confidence and the Richmond manufacturing index.
On Wednesday Australia will publish its CPI y/y data, New Zealand will make its monetary policy announcement and the U.S. will get the preliminary GDP q/q.
Thursday’s highlights will include Switzerland’s KOF economic barometer, the U.S. Core PCE price index, personal income m/m, personal spending m/m, unemployment claims and pending home sales, as well as Canada’s GDP annualized for Q4, as well as GDP m/m and GDP q/q.
The week will wrap up Friday with the U.S.’s ISM manufacturing PMI, revised UoM consumer sentiment and revised UoM inflation expectations. Throughout the week some FOMC members are scheduled to release their remarks.
The consensus for U.S. durable goods orders is a drop from 0.0% to -4.7%. The manufacturing sector was under pressure last year and the recovery was slow, but durables showed improvements in November and December if we exclude transportation which is a volatile sector that still needs a few months to recover. Analysts at Wells Fargo forecast a 6.3% decrease in overall goods orders for January, but a 0.2% rise if transportation is excluded.
Inflation in Australia is likely to show an increase for January after the December decline. The consensus for the y/y figure is a rise from 3.4% to 3.6%. The RBA will monitor the data in order to decide its next monetary policy steps so the discussion could shift from when the Bank will start cutting rates to whether the tightening cycle has even peaked.
Meanwhile the RBNZ is expected to maintain its official cash rate unchanged at the current level of 5.50%. Some analysts argue that a rate hike might not be completely off the table especially after the latest hawkish message from the Bank, but it’s likely that the Bank will wait to see more data before making such a decision. ANZ Bank forecasts a rate hike in April that will take the official cash rate to 6.00%. While the economy is slowing and the current monetary policy appears to be working, inflation remains high in New Zealand compared to RBNZ’s target with risks tilted to the upside.
In Canada, the GDP m/m is expected to increase by 0.2% with Q4 GDP likely to reflect a rebound in economic activity after the contraction in Q3. That said, domestic spending could remain on the weak side and, together with other factors such as the loosening labor market conditions and a restrained business sentiment, could indicate a softening in the economy, Wells Fargo analysts said. This would be relevant to the BoC’s consideration on whether to start lowering interest rates. The market currently expects rate cuts to start in June, but April could also be a possibility.
In the U.S., the consensus for the core PCE deflator m/m, the Fed’s favorite inflation gauge, is a 0.4% increase vs 0.2% prior. Personal income m/m is also expected to rise by 0.4% from 0.3% while personal spending is likely to drop from 0.7% to 0.2%.
A rise by 0.4% for the core PCE price index will be worrisome for the Fed especially after they made it clear that they need to see clear signs inflation is cooling down before considering rate cuts. The PCE m/m needs to print consistently below 0.2% in order to bring annual inflation to the 2% target. Recent data continued to show a strong jobs market and economic growth above expectations, suggesting rate cuts are unlikely in the short term. The market changed its expectations for rate cuts this year from 150-175 bps to 75-100 bps.
Inflation data for the eurozone will be very important to monitor on Friday as the following week we will get the ECB monetary policy announcement. The market expects the ECB to start cutting interest rates in April, but policymakers have been sending mixed messages lately with some arguing that rates should be lowered sooner while others warning against rushed decisions. Inflation in the eurozone has dropped and economic growth is stagnant, but elevated wages are still causing inflationary pressures.
This week’s data is likely to show an inflation cooldown with the y/y figure expected to print 2.5% while core inflation is also likely to slow to 2.9%. If the decrease will be even higher, April could be on the table for rate cuts, but a surprise to the upside will push rate cut expectations to June.