Macroeconomics: The Week Ahead: 13 to 17 January 2025

This week brings a deluge of major data from China (Q4 GDP, Trade, Retail Sales, Industrial Production, Credit Aggregates), USA (CPI, PPI, Retail Sales, Industrial Production, NAHB & Housing Starts) and the UK (CPI, PPI, monthly GDP, Retail Sales, Industrial Production, RICS). There are also Indian CPI, Australian labour data and final Eurozone CPI, as well as the official kick-off for the US (and many other countries) Q4 earnings season, with financials getting things underway in the US. Central Bank speakers will be plentiful and accompanied by the December ECB minutes, with energy markets looking to the EIA, IEA and OPEC monthly Oil Market Reports, as tighter US sanctions on Russian oil shipments appear to have forced a rethink on Indian and Chinese oil imports, while Brazil’s CONAB publishes its Corn & Soybean monthly S&D report. Rio Tinto’s operational review, Abu Dhabi Sustainability Week and the Saudi ‘Future Minerals Forum’ will other commodity sector points of interest.

– U.S.A.: following on from Friday’s robust labour data, the focal points will likely be CPI and Retail Sales. 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 (health, airfares, portfolio management fees), and per se reinforce the Fed view that the down trend in prices has stalled. Headline PPI is expected to rise 0.4% m/m, bumping the y/y rate sharply higher to 3.5% from 3.0%, with core PPI seen up 0.3% m/m to push the y/y rate up to 3.8% from 3.5%, which would serve to heighten Fed concerns about emerging pipeline pressures. Activity data is also likely to bolster the case for the Fed to pause, with Retail Sales seen up 0.6% m/m headline thanks to the rise in Auto Sales, with core measures seen up a solid 0.4% m/m, on the back of holiday season purchases. Industrial Production is forecast to rise 0.3% m/m, after a modest setback in November, with Manufacturing seen posting another modest gain of 0.2% m/m, both predicated on the unexpected pick-up in the Manufacturing ISM, with a pick-up in extractive industries (above all NatGas) likely to be offset by a dip in Utilities due to above seasonally average temperatures. NY and Philly Fed surveys for January are also expected to improve on December readings, while the NAHB Housing Market Index is expected to dip slightly as headwinds from higher mortgage rates offset home builder optimism that the incoming Trump regime will ease regulatory burdens. Housing Starts are expected to rebound 2.8% m/m to a still rather sluggish 1.325 Mln SAAR pace. While these would attest to the ongoing underlying strength of the US economy, it is the sequencing of policy changes by the new Trump administration which will be critical in establishing whether this will be sustained into 2025.

– China: Monday’s Trade data proved to be a good deal stronger than expected, as exports jumped 10.7% y/y vs. expected 7.5%, with strength in exports to ASEAN, EU and South Korea, and to a lesser extent (in m/m terms) to the US, with continued strength in Auto exports and a boost from those looking to pre-empt tariffs accounting for much of the strength, while a 1.3% m/m rebound in imports only partially reversed the -4.7% fall in November. Eminently China’s record $1.0 Trillion 2024 trade surplus will only more grist to the mill for President Tariffs. That strength in external demand should help to bolster Friday’s Q4 GDP, which is expected to accelerate to 1.6% q/q after two relatively sluggish quarters of 0.9% and 0.5%, and also push the y/y rate up to the authorities’ 5.0% target (even if many will doubt the veracity of the data). Accompanying monthly activity data are forecast to show Industrial Production steady at a solid 5.4% y/y (or 5.7% y.t.d.), while Retail Sales are expected to remain sluggish at 3.5% y/y, though improving on November’s 3.0%, but still a far cry from the pre-pandemic pace of around 8.0%. Fixed Asset Investment is also expected to remain muted at an unchanged 3.3% y.t.d., with the millstone that is Property Investment also unchanged at -10.4%. That said, if New and Used Home Prices were to see a further moderation in their m/m decline from November’s -0.2% and -0.35%, then some may argue that there has been some benefit from the array of piecemeal stimulus measures. Credit aggregates are also due for release, and a is typical in the final month of the quarter, set to show New Yuan Loans up a modest CNY 771 Bln, and Aggregate Social Financing up CNY 1.662 Trln despite sizable new local govt ‘special’ bond issuance, underlining weak corporate and consumer credit demand. Overall the impression that stimulus measures are doing little more than steady the economic ship, rather than giving it a meaningful boost.

– U.K.: Doubts about the Labour government’s management of the economy are unlikely to be dispelled by this week’s barrage of statistics. CPI is expected to see a fuel price related rise of 0.4% m/m, which would leave the y/y unchanged at 2.6%, but there should be slightly better news on both core CPI expected to dip 0.1 ppt to 3.4% y/y, and Services to moderate further to 4.8% y/y from 5.0%, as stickier elements such as recreation, airfares and hotels/restaurants continue to decelerate. That deceleration would likely be a lot more significant over the course of H1 2025 were it not for the rise in Employer NI contributions. PPI is expected to show little in the way of pipeline pressures with Input seen up 0.2% m/m but down -1.3% y/y, with PPI Output forecast at 0.1% m/m flat y/y, but with oil and gas prices rebounding, and the recent GBP decline, some pressure on PPI may well emerge in coming months. The run of November activity data should be less challenging for Chancellor Reeves, with monthly GDP seen up 0.2% m/m after falling -0.1% in October, aided by a 0.1% m/m rise in the Index of Services and Industrial Production (the latter mostly due to a weather related boost to utilities output, and Manufacturing expected to dip -0.2% m/m), while Construction Output is expected to rebound 0.4% m/m. Friday’s December Retail Sales are also expected to pick up to 0.4% m/m after November’s 0.2% m/m, but effectively be flat for the quarter given October’s -0.7%. On balance, if the data run is broadly in line with expectations, then market expectations of just two rate cuts from the BoE in 2025 continue to look overly pessimistic.

– There are 20 S&P 500 companies reporting this week, as the Q4 earnings season gets underway. Overall S&P 500 earnings are expected to be up a very solid 9.5%, with increasing breadth outside of the tech sector anticipated, with many looking for strength in Healthcare, and a rebound in the Industrial, Material and Energy sectors. Results will be parsed for comments about the incoming Trump regime’s policies, and the run of money centre banks this week above all for a) the implications of higher for longer Fed rates, and b) anticipation of financial sector deregulation. As previously noted, AI related spending and investments will also be scrutinised, though whether this will be the year that investors start to demand to see the results from AI projects, for proof of increased productivity, profits, efficiency and returns on capital remains an open question. Worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Asian Paints, Avenue Supermarts, Bank of America, Bank of New York Mellon, Blackrock, Citigroup, Fastenal, Goldman Sachs Group, HCL Technologies, Infosys, JPMorgan Chase, M&T Bank, Morgan Stanley, PNC Financial Services Group, Reliance, Schlumberger, State Street, Taiwan Semiconductor Manufacturing, Truist Financial, UnitedHealth, US Bancorp, Wells Fargo.