Weekly Economic Outlook, 13-17 February

Light, but very important!

We will have a light week, but our little data will be essential. As I mentioned in the monthly outlook, in February market will be driven by inflation and rates. This week's focus will be on the US, UK, and New Zealand inflation numbers to guess the central banks' reaction in their next meetings. We should also follow the British and Australian labor market data.

Japan GDP - Tuesday

The consensus forecast for Q4 GDP is to rise 0.5% quarterly and 2% annually. Expected data should show some growth compared to the previous quarter and the effectiveness of BoJ's ultra-dovish policies. However, the underlying details of the Q4 GDP could be mixed, reflective of an economy that did not improve with the same shape in all sectors. The main driver of this quarter's GDP could be retail sales and export. That must help the Japanese Yen to gain some strength against its crosses.

UK Labor Market - Tuesday

Ahead of Wednesday's consumer price Index, UK labor market data will be very important. Identical to US and Eurozone, we expect a strong labor market in the United Kingdom as well, with the unemployment rate unchanged at 3.7% and 40K newly employed in December, while Average Earnings, including bonuses, are expected to increase by 6.2%. These expected data will favor Pound Sterling.

US Inflation (CPI) - Wednesday

After several months of decreasing, considering rising gasoline prices and a pause in the downward trend of used car prices, we expect to see price growth in January compared to last December. Market participants can take it as a signal of a new wave of inflation rising, which can increase the chance of another rate hike in the next two FOMC meetings. That would not favor the US stock market.

UK Inflation (CPI) - Wednesday

Though UK Consumer Price Index and Core inflation are expected to ease for January and UK seems that has escaped recession in 2022, inflation is still so high and expected to stay above 10.2% annually. Since in the February meeting, the Bank of England (BoE) raised its policy rate 50 bps to 4.00%, mentioning that evidence of persistent price pressures will require further monetary tightening, we can expect continuing the rate hike policies, which will hold the pressure on the UK stock markets.

US Retail Sales and Industrial Production - Wednesday

Another sign of acceptable economic condition in the US could be the January retail sales and Industrial Production numbers. After December Decline, we can expect a recovery in January. Since retail sales are a nominal series, with expected increasing inflation in January, retail sales increase must be more obvious. With signs of positive sales and production activity in January, we can count on continuing hawkish tones from Fed, which will lift the US dollar and pressure the stock markets.

Australian Employment - Thursday

Despite some apparent softness in previous activities and labor market numbers, RBA raised the rates in last week's meeting and signaled more rate hikes in the future. Given the reopening of China's economy, we can expect positive numbers in labor market data, with 20,000 hiring in January and a steady unemployment rate of 3.5%. Expected data supports the Central Bank's outlook, which means the current AU200 uptrend can continue.