Week Ahead: Tariff Man lingers amid US CPI

Tariffs, tariffs, tariffs; it seems that is all we are going to be talking about for the next few weeks and months and even beyond. The volatility we experienced last week was a joy for day traders and also many of us who are able to employ ‘hit and run’ type strategies. This will surely be the process and method going forward, as Trump’s “escalate to negotiate” or “fast announcements, slow implementation” theme, as two different investment banks have called it, endures.

In this environment, technical analysis can be hugely useful as it cuts out all the headline havoc to focus solely on important upside and downside price levels of resistance and support. It was notable that the dollar index and USDCNY didn’t make new cycle highs last Monday in Asian hours after the weekend tariff news. USDCAD and USDMXN did spike higher but at the moment those moves look like false breakouts and a rejection ultimately of dollar strength and a prolonged trade war.

China is the next country to grapple with Trump’s tariff plans which kick off on Monday, and we expect more volatility around headline deals, no deals and delays. Additionally, watch out for the unveiling of Trump’s ‘retaliatory tariffs’ during the week, and also his plan to end the war in Ukraine at the Munich Peace Conference starting on Friday. There could also be major advances in US budget negotiations.

The more ‘usual’ macro drivers on the calendar this week include the latest US inflation data, US retail sales and Fedspeak. We will also watch Fed Chair Powell’s two rounds of Congressional testimony that offer the chance to update his thinking with fresh data and developments. Highlighting the deep uncertainty to come will likely be the only way forward for the world’s most important central banker.

Tariffs are a one-time price effect and much of the cost increase will likely be passed onto US consumer, which has been one of the key drivers of the American Goldilocks economy. We said this last week and will get an update on that with US retail sales figures released on Friday. Remember that the Fed prioritised the risks to growth and to the labour market from tightening financial conditions over the moderate one-time price level increase in 2019. Is this time different?

In Brief: major data releases of the week

Tuesday, 11 February 2025

– Fed Chair Powell Testimony: Powell is likely to reiterate his comments from the most recent FOMC meeting. He said the Fed does not need to be in a hurry to adjust rates and there is no preset course. Regarding Trump’s tariff policies, Powell will likely repeat there is uncertainty ahead. 

Wednesday, 12 February 2025

– US CPI: Expectations are for the headline and core to rise 0.3% m/m. The annual core rate is likely to remain at 3.2%. Focus will be on cooling rent and shelter inflation. The Fed said at its most recent meeting that inflation remains “somewhat elevated”.

Thursday, 13 February 2025

– UK GDP: December growth is forecast to increase one-tenth to 0.2%. An inline print would mean flat GDP on the quarter. Manufacturing will likely remain muted while December retail sales were soft.

Friday, 14 February 2025

– US Retail Sales: After the solid end to activity in 2024, a flat reading is forecast for January spending. The labour market remains relatively strong while consumer confidence has tracked sideways for several months.

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