What To Watch in the Markets This Week – 8th January 2024

Last week was all about US labor market data. The report showed that the labor market is still strong and exceeding expectations. The US economy added 216,000 jobs, while unemployment rates stabilized at 3.7%. The news was first received favorably by the markets with stocks rising. However, concerns about continued wage inflation and the possibility of seeing higher-interest rates for longer caused some market volatility later on Friday,. The US dollar rose by 1% to see its best weekly rise since July 2023.

The final services PMI was also released.  By the end of 2023, the US service sector showed signs of a faster expansion in activity, even if it was slight overall. A better economic environment caused output to rise faster, as new orders rose at their quickest rate since June. Businesses benefited from an improvement in the sales environment, and as a result, hiring and company confidence rose. Service providers saw a historically large and sharper increase in input costs due to increased wages and food prices.

For this week's highlights, Swiss CPI was released early this morning. It remained unchanged m/m in December, above expectation of -0.1% m/m, while Core CPI increased 0.2% m/m. For the annual data, CPI increased from 1.4% y/y to 1.7% y/y, matching expectations. Core CPI increased from 1.4% y/y to 1.5% y/y. Swiss Retail sales, which was also released, rose 0.7% y/y in November, exceeding expectations of 0.0%.

Moreover, European retail sales is due for release today, expected to have declined in December by 0.3%.  Since Germany and France, both accounting for almost half of the Eurozone's GDP, already released their consumer spending data, the European retail sales figure tends to have a more subdued market impact.

For tomorrow, retail sales in Australia is expected to have increased from -0.2 to 1.2%. It is the primary indicator of consumer spending, accounting for the majority of overall economic activity in Australia. If the reported figure turns out greater than expected, this could be favorable for the currency, and vice versa.

On Wednesday, the two most important highlights are as follows. First, we have CPI in Australia, which is expected to weaken from 4.9% to 4.5%. Second, we have BOE Governer Bailey due to testify on the Financial Stability Report before the Treasury Select Committee in London. Investors usually await any of his appearances for hints on the central bank’s next decisions

Finally, on Thursday, we have the two most important highlights for the week. These are the Unemployment Claims and US CPI. The unemployment claims are expected to have increased from 202K to 211k, while annual CPI is expected to have increased in December from 3.1% to 3.2%. Inflation has retraced quickly in recent months due to weaker prices of goods and moderating costs of services. Headline inflation saw a faster slowdown than underlying price pressures as energy prices began declining in September, erasing nearly all the gains posted during the summer months.

However, with the 2022 downtrend now dropping out of the year-on-year calculation, oil prices are close to their opening levels for 2023, meaning that the y/y change has moved into negative territory close to zero. And with headline CPI resting below the core rate, this might signal the risks for a rebound in headline inflation, even if the latter softens further.



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