Weekly Market Outlook (20-24 January)

UPCOMING
EVENTS:

• Monday: PBoC LPR,US Presidential Inauguration
  Day, BoC Business Outlook Survey, New Zealand Services PMI.
• Tuesday: UK Employment report, German ZEW, Canada CPI, New
  Zealand Q4 CPI.
• Thursday: Canada Retail Sales, US Jobless Claims.
• Friday: Japan CPI, BoJ Policy Decision,
  Australia/Japan/Eurozone/UK/US Flash PMIs.

Monday

The PBoC is
expected to keep the LPR rates unchanged at 3.1% for the 1 year and 3.6% for
the 5 year. Chinese officials pledged strong monetary and fiscal support in
2025, but we have yet to see that. Deflationary forces are still in place and
real rates remain too high for the economy to recover.

Tuesday

The UK Employment
report is expected to show 35K jobs added in the three months to November vs.
173K to October and the Unemployment Rate to remain unchanged at 4.3%. The
Average Earnings including Bonus is expected to pick up to 5.6% vs. 5.2% prior,
while the ex-Bonus measure is seen at 5.5% vs. 5.2% prior.

Wage growth
remains too high and that’s something that’s been keeping the BoE more cautious
but the central bank officials continue to see four rate cuts by the end of the
year. The market sees an 82% probability of a 25 bps cut at the upcoming
meeting and a total of 65 bps of easing by year end.

The Canadian CPI
Y/Y is expected at 1.8% vs. 1.9% prior, while the M/M measure is seen at -0.4%
vs. 0.0% prior. The Trimmed Mean CPI Y/Y is expected at 2.4% vs. 2.7% prior,
while the Median CPI Y/Y is seen at 2.4% vs. 2.6% prior.

As a reminder, the
BoC cut interest rates by 50 bps at the last policy meeting but dropped the line saying “if the economy evolves broadly in line with
our latest forecast, we expect to reduce the policy rate further”, which
suggests that we reached the peak in “dovishness” and the central
bank will now switch to 25 bps cuts and will slow the pace of easing.

The market sees an
81% chance of a 25 bps cut at the upcoming meeting and a total of 58 bps of
easing by year end.

The New Zealand Q4
CPI Y/Y is expected at 2.1% vs. 2.2% prior, while the Q/Q measure is seen at
0.4% vs. 0.6% prior. As a reminder, the RBNZ cut interest rates by 50 bps as expected at the last
meeting. The market is pricing a 61% chance of a 50 bps cut in February and a
total of 103 bps of easing by year end.

Thursday

The US Jobless
Claims continue to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
continue to hover around cycle highs although we’ve seen some easing recently.

This week Initial
Claims are expected at 218K vs. 217K prior, while Continuing Claims are seen at
1861K vs. 1859K prior.

Friday

The Japanese Core
CPI Y/Y is expected at 3.0% vs. 2.7% prior. The data will be released before
the BoJ decision, so the market might not react to it too much given that the
focus will be on the central bank decision.

The BoJ is
expected to hike interest rates by 25 bps. We had a quick turnaround in
expectations in the last couple of weeks following some usual “leaks” and
especially Governor Ueda’s comments which suggested that a rate hike was in
serious consideration. The market responded by pricing in the rate hike and
bidding the JPY into the decision which also raised the risk of a
disappointment in case the BoJ were to keep rates steady.