Weekly Market Outlook (06-10 January)

UPCOMING
EVENTS:

• Monday: China Caixin Services PMI, German CPI, Canada
  Services PMI.
• Tuesday: Switzerland CPI, French CPI, Eurozone CPI, US ISM
  Services PMI, US Job Openings.
• Wednesday: Australia Monthly CPI, Eurozone PPI, US ADP,
  FOMC Minutes.
• Thursday: Japan Average Cash Earnings, Eurozone Retail
  Sales, US NFIB Small Business Optimism Index, US Jobless Claims.
• Friday: Switzerland Unemployment Rate, Canada
  Employment Report, US NFP, US University of Michigan Consumer Sentiment.

Tuesday

The Swiss CPI Y/Y
is expected at 0.6% vs. 0.7% prior, while the M/M measure is seen at -0.1% vs.
-0.1% prior. As a reminder, the SNB cut its policy rate by 50 bps at the last decision bringing it to 0.50%
and dropped the language signalling further cuts in the coming quarters.

This suggests that
the central bank will likely slow the pace of easing which is something that
the market was already expecting with two 25 bps cuts priced in for this year.
The SNB has projected inflation to average 0.3% in Q1 2025, so this is going to
be the baseline for the next meeting in March.

The Eurozone CPI
Y/Y is expected at 2.4% vs. 2.2% prior, while the Core CPI Y/Y is seen at 2.7%
vs. 2.7% prior. As a reminder, the ECB cut the policy rate by 25 bps at the last decision bringing it to 3.00%.

The central bank
removed the passage saying that “it will keep policy rates sufficiently
restrictive for as long as necessary” implying that upside inflation risks have
faded. The market sees a 92% probability of a rate cut at the upcoming meeting
and a total of 102 bps of easing by year end.

The US ISM
Services PMI is expected at 53.0 vs. 52.1 prior. The S&P Global US Services PMI showed once again an acceleration in services
activity rising to a 38-month high. New orders rose at a rate not seen since
March 2022 and inflation remained subdued with prices rising at the slowest
pace since June 2020. Definitely a very good picture for the services sector.

The US Job
Openings are expected at 7.700M vs. 7.744M prior. The last report beat expectations with the quits rate rebounding but
the hiring rate falling back to the cycle lows. It’s a labour market where at
the moment it’s hard to find a job but there’s also low risk of losing one.
There’s a decent chance that things will improve this year though and there
have been some positive signs already.

Wednesday

The Australian
Monthly CPI Y/Y is expected at 2.3% vs. 2.1% prior. As a reminder, the RBA softened further its stance at the last policy decision as it nears
the first rate cut. The market is seeing a 52% chance of a 25 bps cut in
February although the first fully priced in cut is seen in April. We get the Q4
CPI and the Employment data before the February meeting which could see the
market strengthening the case for an earlier cut.

Thursday

The Japanese
Average Cash Earnings Y/Y is expected at 2.7% vs. 2.6% prior. As a reminder, the
BoJ left interest rates unchanged as expected at the last policy decision, but
Governor Ueda delivered a less hawkish than expected presser.

In fact, he placed
a great deal on wage data to decide on the timing of the next rate hike and
added that the trend will become clearer in March or April. This made the
market to price out the probabilities for a hike in January and push back once again to the next meeting which is
scheduled for March.

The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
continue to hover around the cycle highs.

This week Initial
Claims are expected at 217K vs. 211K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior release saw a
decrease to 1844K vs. 1910K prior.

Friday

The Canadian
Employment report is expected to show 25.0K jobs added in December vs. 50.5K in
November and the Unemployment Rate to rise further to 6.9% vs. 6.8% prior. The
last report saw a strong headline number, but the details were negative pretty
much across the board.

CIBC
cited large public sector job gains, highest unemployment rate since 2016 and
private sector employment growth being less than half than labour force growth. In fact, the rise in unemployment since early 2023 has been mainly due to
increased difficulty finding a job. Layoffs have not played a large
role as it’s usually the case in a recession.

As a reminder, the
BoC cut the policy rate by 50 bps as expected at the last decision but
dropped the language indicating further rate cuts. This suggests that the
central bank has reached the peak in its dovish stance, and it will now slow
the pace of cuts conditional to the data. The market expects at least two more
25 bps cuts this year with a 71% probability of one coming already this month.

The US NFP report
is expected to show 160K jobs added in December vs. 227K in November and the
Unemployment Rate to remain unchanged at 4.2%. The Average Hourly Earnings Y/Y
is expected at 4.0% vs. 4.0% prior, while the M/M measure is seen at 0.3% vs.
0.4% prior.

The Fed projected
the unemployment rate to average 4.3% this year. They will likely tolerate
overshoots of 10 or 20 bps if inflation doesn’t cooperate. Nonetheless, the
focus switched back to inflation, so the next CPI report is going to have a
bigger influence than the NFP report.

This article was written by Giuseppe Dellamotta at www.forexlive.com.