Macroeconomics: The Day Ahead for 5 January

A busier schedule ends this first week of 2024, with Eurozone CPI and US labour market data dominating, accompanied by the overnight German Retail Sales, Philippine and Thai CPI, with UK auto sales and Construction PMI and Canada’s Unemployment also ahead. The events schedule is sparse with Fed’s Barkin the sole central bank speaker. Next week sees rather more in the way of major economic data, with the US and China both looking to CPI and PPI, as China also awaits Trade and Credit aggregates, while the UK has monthly GFP and activity indicators along with BRC Retail Sales, and Japan looks to Tokyo CPI, Household Spending and Labor Cash Earnings. There will be rather more in the way of central bank speakers, the US Q4 corporate earnings season kicks off next Friday with the usual run of financials, while in the commodity/energy space, there are the EIA’s Short-Term Energy Outlook STEO) and USDA’s monthly WASDE report. The week ends with the presidential and parliamentary elections in Taiwan.

** Eurozone – December CPI **

Given the modest undershoots relative to forecasts in France, Germany & the Netherlands, and expectations of a 0.2% m/m 0.5% y/y HICP print in Italy, headline Eurozone CPI should come in a tad lower than the forecast of 0.2% m/m 3.0% y/y vs. November’s 2.4%, with core CPI seen dipping again to 3.4% y/y from 3.6%. underlining that the headline rise will all be about household energy and road fuel price base effects, though offset by continued falls in food prices. Services inflation will be important to watch, having been a key driver of the drop in core CPI in recent months, dropping to 4.0% y/y in November from 5.5% in August, in no small part due to travel-related services, above all in November, which are likely to partially unwind in December. On current trend, and despite base effect noise, Eurozone inflation still looks as though it will be back at target faster than ECB staff forecasts are assuming.

** U.S.A. – December Labour Market Report **

Given that the Dec FOMC minutes signalled a shift in emphasis away from a near exclusive focus on the inflation fight, to putting as much weight on the Employment part of its dual mandate, labour data require a good deal more attention in coming months. Headline Payrolls growth is seen edging down to 175K vs. Nov 199K, while Private Payrolls are expected at 130K vs. 150K, a modest setback that fits with a low 202K in survey week, some unwind of the boost from the end of the UAW strike (Manufacturing Payrolls seen at 5K vs. 28K), and a boost from seasonal hiring. The Unemployment Rate is expected to edge up to 3.8% from 3.7%, primarily due to more people joining or re-joining the labour force; all of which suggesting little change to labour demand dynamics. This leaves the focus on Average Hourly Earnings, which are forecast to post a 0.3% m/m gain, edging down the y/y rate down to 3.9%, but keeping the 3-mth annualized rate at 3.6%, per se implying very limited wage pressures. Annual revisions to the Household survey (which produces the Unemployment Rate) are also due. If data net of revisions are relatively close to expectations, this would certainly not suggest policy rates are overly restrictive, even if labour market indicators are very much a lagging indicator.