Macroeconomics: The Day Ahead for 15 January

There is a very busy schedule of data and events for markets to contend with today, and while UK and US CPI along with German 2024 GDP data top the statistical agenda, there are also the unexpected Bank Indonesia rate cut, the first batch of major US bank & financials earnings (Blackrock, BoNY Mellon, Citi, Goldman Sachs, JP Morgan Chase & Wells Fargo), the Fed’s Beige Book, a barrage of Fed, ECB & BoE speakers, as well as the IEA and OPEC monthly Oil Market Reports. Govt bond supply take the form of UK 9-yr, German 28 & 29-yr and Canadian 5-yr. Throw in the risk of further pronouncements on the incoming Trump regime’s policy implementation agenda, and the scope for further volatility is writ quite large. Overnight BoJ’s Ueda was perhaps a little more forceful in putting a rate hike discussion for the BoJ policy meeting at the end of next week, and implicitly comments from Finance Minister Kato warning of intervention on the JPY suggest a green light for a further hike from the BoJ’s political masters.

** U.K. – December CPI, PPI **

Finally some better news for the UK, with CPI up 0.3% m/m, dipping 0.1 ppt to 2.5% y/y, and more importantly larger drops recorded for core CPI to 3.2% y/y from 3.5%, and Services posting a 0.6 ppt fall to 4.4%, its lowest level since March 2022. In the detail, the biggest drags came from Clothing & Footwear, Recreation, Restaurants & Hotels, along with a base effect driven drag from airfares (up just 16.2% m/m vs. December 2023 rise of 57.1%). That said, outside of the latter leisure / travel elements of Services CPI, the drop was only around 0.1 ppt, and as such there may be a rebound in Q1 2025. PPI was again benign and continues to suggest little in the way of pipeline pressures, though the rise in oil and gas prices, and the weakness of the GBP imply some upward pressure going forward. Depending to some extent on the run of activity data later on this week, the inflation data leave the door open for February rate cut.

** U.S.A. – December CPI, Fed Beige Book **

While yesterday’s PPI came in well below forecasts, largely due to an unexpected dip (-0.1% m/m) in Food prices (not that well correlated to Food in CPI or PCE deflator), there were other elements, which will exercise upward pressure on CPI, most notably the jump in airfares (7.2% m/m), and more modestly healthcare services. Be that as it may, CPI is forecast to rise 0.3% m/m, which would push the y/y rate up 0.2 ppt to 2.9%, while core CPI is seen up 0.2% m/m to leave the y/y rate elevated but unchanged at 3.3%. Housing (OER) should continue to ease, but that will likely be offset by upward pressure on goods and other services prices. December’s Beige Book noted that ‘Economic activity rose slightly in most Districts. Three regions exhibited modest or moderate growth that offset flat or slightly declining activity in two others. Though growth in economic activity was generally small, expectations for growth rose moderately across most geographies and sectors.’ The latter was very evident in a further jump higher in yesterday’s Small Business Optimism, and today’s edition should see a modest upgrade to the growth assessment, with the focus also on labour demand (Dec: ‘Contacts indicated they expected employment to remain steady or rise slightly over the next year, but many were cautious in their optimism about any pickup in hiring activity’) and prices (Dec: ‘Contacts indicated they expect the current pace of price growth to persist, but businesses in several Districts indicated tariffs pose a significant upside risk to inflation.’)  Given the strength of the latest labour data, and expected strength in this week’s activity data, the data will likely the Fed’s resolve to pause its rate cutting cycle.