Week Ahead: US CPI and UK Data in the spotlight

As US exceptionalism and the strength of the world’s biggest economy continues to confound many, focus this week will be on the US inflation data. Numerous upside surprises in many of the recent economic releases have seen Fed officials pour cold water on early rate cuts. This has lifted Treasury yields and boosted the dollar, with the chances of even a May reduction now also being questioned. Any signs that price pressures are exceeding expectations and gaining momentum would push these bets further into the second half of the year.

Strength in the US economy generally results in strength in the greenback. That means we have has seen four consecutive weeks of gains and three-month highs. It seems logical that Fed officials do not want to loosen policy too soon, as this would potentially inflame price pressures. Its favoured measure of inflation, the core PCE deflator, is much closer to target, but it wants to see CPI more consistent with a return to 2%.

Interestingly, investors are still not holding a net bullish position in USD, which means continued economic strength could get a fresh tailwind from position adjustment. The most recent weekly candlestick pattern looked quite bearish with a long wick and prices closing nears its lows. But prices on the DXY remain above its 200-day simple moving average at 103.61.

It’s the middle of the month so that means we get a deluge of UK data. The two most important releases will be the wage growth figures on Tuesday and inflation numbers the following day, and especially services inflation. The Bank of England reckons CPI will return to its 2% target this year but has warned the road will be bumpy and could rise in the third quarter. Sticky price data this week would boost GBP which has held up relatively well this year against the dollar.

In Brief: major data releases of the week

13 February 2024, Tuesday

– UK Jobs: Wage growth is one of two key metrics for the MPC. The headline is seen falling to 5.8% from 6.5% and ex-bonus to 6% from 6.6%. This remains elevated and a worry for policymakers.

-US CPI: Consensus expects the headline to tick one-tenth lower to 0.2%. The core is forecast to match the December print at 0.3%. Used car prices may act as a drag, while shelter continues to grow above trend. Focus will be on whether recent upside data surprises result in higher price pressures.

14 February 2024, Wednesday

-UK CPI: Expectations are for the headline to rise two-tenths to 4.2% and the core to ease to 5.0% from 5.1%. Base effects will likely cause the uptick, pushing services inflation higher to 6.9% from 6.4%. The first rate cut this year has been pushed out to June.

15 February 2024, Thursday

–Australia Jobs: Job gains of 27.5k are forecast, down from 65.1k in December. Economists say that January is the most seasonal time of year for the labour market. The underlying trend is pointing to a cooling in demand. 

–UK GDP: A flat reading is predicted but a technical recession remains a key risk and will grab the headlines. Going forward, most economists believe the economy is improving so the decline will be shallow.

–US Retail Sales: Sales are forecast to rise 0.2% m/m, down from the 0.6% December print. Bad weather will be a factor in the decline, with high borrowing costs and lower savings cited as long- term headwinds.

16 February 2024, Friday

–UK Retail Sales: Analysts expect the headline to rise 1% m/m in January from December’s 3.2% contraction. More normal shopping habits are expected after the holiday season.