Ahead of the game: 15 January 2024

Sticky inflation print could see rate cut delayed

If we see another sticky inflation print next month, expectations of a March rate cut will likely be pushed back until May or June. In Australia, a softer-than-expected inflation print for November supported the local market. However, with many investors still away enjoying the summer holidays, activity and movement were reasonably light.

• US headline inflation hit 3.4% YoY in December, up from November's 3.1%
• Core CPI in the US dipped to 3.9% YoY, slightly above the 3.8% forecast
• German industrial figures disappointed, lagging behind expectations
• Aussie retail sales outperformed in November, surging 2% thanks to Black Friday
• Australia's November CPI dropped more than forecast, to 4.3% YoY from October's 4.9%
• Crude oil slid 2.5% to $72.02, as supply increases countered Middle East tensions
• Gold dipped 0.96% to $2,026, reflecting a shift in risk sentiment
• The VIX, Wall Street's fear barometer, eased to 12.4, signalling calmer markets.

• AU: Westpac Consumer Confidence (Tuesday, 16 January 2024 at 10.30am AEDT)
• AU: Employment (Thursday, 18 January at 11.30am AEDT)

• CN: Gross domestic product (GDP), fixed asset investment, retail sales, and IP (Wednesday, 17 January at 1pm AEDT)
• JP: Inflation (Friday, 19 January at 10.30am AEDT)

• US: Retail sales (Thursday, 18 January at 12.30am AEDT)
• US: Building permits (Friday, 19 January at 12.30am AEDT)
• US: Michigan Consumer Sentiment (Saturday, 20 January at 2am AEDT)

• GE: Full-year GDP (Monday, 15 January at 8pm AEDT)
• UK: Unemployment (Tuesday, 16 January at 6pm AEDT)
• GE: ZEW business survey (Tuesday, 16 January at 9pm AEDT)
• UK: Inflation (Wednesday, 17 January at 6pm AEDT)
• UK: Retail sales (Friday, 19 January at 6pm AEDT)

• US

Q4 earnings season

Date: Wednesday, 17 January at 1pm AEDT

The earnings season will continue with results from Morgan Stanley, Goldman Sachs, Interactive Brokers and Charles Schwab.

• CN

4Q GDP, fixed asset investment, industrial production, retail sales

Date: Wednesday, 17 January 2023, 1pm AEDT

This week, declining prices in December continue to reflect weak domestic demand in the world’s second-largest economy, as soft labour conditions and a property market slump continue to keep consumer confidence at bay.

Despite a ramp-up in liquidity injections from the People's Bank of China (PBoC), alongside supportive measures for its property sector, the trend of weak economic data suggests that the accommodative policy environment has yet to translate into a sustained turnaround in economic conditions.

Looking ahead, broad expectations are for China’s growth headwinds to persist into 2024. The consensus is for December retail sales to firm to 11.0% from the previous 10.1%, but this may be contributed to by a low-base effect from the previous year.

Industrial production may ease to 6.3% from the previous 6.6%, while fixed asset investment may remain muted at 3%. Any downside surprises in the data may reinforce the trend of weak growth conditions for China, amplifying calls for more to be done by authorities in the coming months

China's economic data YoY chart

• UK

Inflation rate

Date: Wednesday, 17 January 2023 at 6pm AEDT

In the UK, annual inflation fell to 3.9% in November, its lowest rate in two years and below expectations of 4.4%. Core inflation also fell for a fourth consecutive month to 5.1% in November, down from 5.7% in October.

The larger-than-expected falls in inflation are evidence that the Bank of England's (BoE's) aggressive rate hiking cycle is bringing inflation under control, fostering expectations of six BoE 25 basis point (bp) rate cuts in 2024.

This month (December), the market is anticipating headline inflation to remain at 3.9%, a monumental achievement given that 12 months ago, inflation was at 10.5%!

UK inflation rate chart

• AU

Employment data

Date: Thursday, 18 January at 11.30am AEDT

he Australian economy added 61.5k jobs in November, versus the 11.5k expected. The unemployment rate rose to 3.9% from 3.8%, as the participation rate surged to a record high of 67.2% from 67%.

Bjorn Jarvis, ABS head of labour statistics, said, 'With employment increasing by 61,000 people, and the number of unemployed people rising by 19,000, the unemployment rate rose to 3.9% in November.'

For December, the market is expecting a +15k rise in employment and for the unemployment rate to remain unchanged at 3.9%. The participation rate is also anticipated to stay steady at 67.2%.

Ahead of the jobs report, two Reserve Bank of Australia (RBA) rate cuts are priced into the Australian rates market, with a first-rate cut expected in June and a second by December. This would take the cash rate back to 3.60% by year-end. If the unemployment rate ticks up to 4% or above, it may trigger expectations of a third rate cut being priced into the rates curve for 2024.

Australian employment data chart

• JP

Inflation rate

Date: Friday, 19 January 2023 at 10.30am AEDT

The Bank of Japan (BoJ) remains on the lookout for sustained wage increases and stable 2% inflation as conditions for a pivot away from its ultra-accommodative policies. But with the downside surprises in Japan’s November household spending and wage growth this week, recent data suggest that the BoJ still has room to exercise more patience in its policy normalisation process for now.

The upcoming inflation data will play an important role in swaying market expectations around the timing of exit for Japan’s negative-interest-rate policy. With Tokyo’s headline and core consumer price index (CPI) data easing to their lowest levels since June 2022, it suggests that a similar disinflationary trend may play out for nationwide inflation as well.

Expectations are for Japan’s December headline inflation rate to ease to 2.6% year-on-year from the previous 2.8%, while the core aspect may ease to 2.3% from the previous 2.5%. The data may still fall short of the BoJ’s condition of a ‘stable’ 2% inflation, which may prompt more wait-and-see from the central bank at the upcoming January meeting.

Japan’s inflation rate chart