Inflation and retails sales data from the US will highlight the week ahead of us as economic data from other countries is still enjoying New Year’s holidays. Earnings season starts with big banks reporting first.
USD
New year started with a bang as US forces captured Venezuelan president Maduro. Vice president of Venezuela Delcy Rodriguez will lead the country under the watchful eye of the US as president Trump subtly hinted to her that if she does not comply she will face the same fate as Maduro.
ISM manufacturing for the month of December printed 47.9 down from 48.2 in November while markets were expecting a tick up to 48.4. The report saw small improvements in new orders and new export orders but they are still in contraction. Employment index saw a bigger improvement but only because it is even deeper in contraction with a 44.9 print. Production index slowed down further and although it is still in expansion its trajectory is worrying. Prices paid remained unchanged at 58.5, still very elevated, but markets expected them to decline to 57 as inflation pressures ease. So far, there are no signs of rebound in manufacturing sector as this is the weakest reading since October of 2024.
December ISM services PMI rose to 54.5 from 52.6 in November while markets braced for a decline to 52.3. Positives include increase in business activity and new orders as they now move deeper into expansion as well as return of employment index in expansion for the first time since . Prices paid declined slightly but still remain very elevated with above 60 reading. One worrying sign is plunge in backlog of orders to almost 40 level indicating weakness in sector for months to come. October trade balance showed a deficit below $30bn which is the smallest deficit since 2009.
December NFP saw economy add 50k jobs vs 60k as was expected. Revisions for previous two months were painful as it show economy shedding 75k more jobs for that period. December report saw the unemployment rate drop to 4.4% from 4.6% (4.375% vs 4.564% previously). Participation rate ticked down to 62.4% while underemployment, U5, drop to 8.4%. Wages rose 0.3% m/m and 3.8% y/y compared to 0.2% m/m and 3.6% y/y in November. The report almost completely wiped out probability of a January rate cut.
The yield on a 10y Treasury started the week at 4.19%, rose to 4.20% and finished the week at around 4.18%. The yield on 2y Treasury started the week at 3.49%, rose to 3.50% and finished the week at around 3.54%. Spread between 2y and 10y Treasuries started the week at 71bp and finished the week at 64bp. FedWatchTool sees the probability of a 25bp rate cut at January meeting at around 5% while probability of no change is at around 95%. For 2025 silver rose 139% and gold rose 62%, This week silver climbed all the way to $82 while gold breached $4500. S&P reached new ATH.
This week we will have December inflation and retail sales data with former expected to ease a bit while latter expected to show strong consumer.
Important news for USD:
Tuesday:
CPI
Wednesday:
Retail Sales
EUR
Preliminary December CPI for the month of December printed 2% y/y, tick down from 2.1% y/y in November with core ticking down to 2.3% y/y from 2.4% y/y the previous month. Services inflation also ticked down to 3.4% y/y but remains uncomfortably high. German reading unexpectedly dropped to 1.8% y/y from 2.3% y/y in November while markets were expecting a milder drop to 2.1% y/y. Energy prices saw biggest declines followed by declines in leisure, clothing and food prices. Core reading also declined hard printing 2.4% y/y vs 2.7% the previous month. French reading saw a 0.8% y/y print, tick down from November 0.9% y/y. Decline in energy prices was the main reason for the December print while food prices rose. Services inflation hovers slightly above 2% with 2.2%. Falling inflation will reduce chances of ECB hiking and will present a headwind for the EUR.
Final December services PMI was revised down to 52.4 from 52.6 as preliminary reported on the back of downward revisions to French reading as well as big miss in Italian print. On the other hand, Spanish reading smashed expectations showing stronger growth in services sector while German riding saw slight upward revision. The report shows that companies continued to employ more people and that new businesses continue to grow. The troubling factor is that input prices rose to a nine-month high as inflation pressures are still strong.
GBP
December final services print was revised down to 51.4 from 52.1 as preliminary reported and just a tick up from 51.3 in November. The report shows increase in new orders as one positive while strengthening of inflation pressures remains a negative. Composite also printed 51.4 vs 52.1 as preliminary reported and up from 51.2 the previous month.
AUD
November CPI report showed headline number decline to 3.4% y/y from 3.8% y/y in October while markets were expecting a 3.7% y/y print. Trimmed mean, measure of core inflation, ticked down to 3.2% y/y from 3.3% y/y the previous month. Housing remained the biggest driver of inflation, followed by food and transport. Bigger than expected drop in headline number will be welcomed by RBA, but they target core CPI in 2-3% range and since it printed higher than that rate hikes will still be on the table. RBA will place bigger focus on quarterly inflation data which is due on January 28.
China RatingDog PMI, former Caixin, showed services tick down to 52 in December from 52.1 in November. Business activity and new orders both rose but latter by weakest pace in six months while new export orders slipped into contraction. Business confidence improved further while employment contained to decline. Composite reading ticked up to 51.3 from 51.2 the previous month showing that economy continues to expand at a slow pace. December headline inflation rose to 0.8% y/y making it the highest reading since February of 2023. Rising food prices are contributing most to the overall reading PPI showed smallest decline since August of 2024 with a -1.9% y/y print.
NZD
First GDT auction of the year showed first increase in prices after nine consecutive auctions of falling prices. Prices rose by 6.3% led by anhydrous milk fat 7.4% and wholesome milk powder 7.2%. NZD enjoyed strong start of the week and strengthened by mid-week but then gave most of it back as we got close to the weekend.
CAD
Employment report for December showed economy adding 8.2k jobs vs losing 5k as markets were expecting. This is the fourth consecutive month of job growth. The unemployment rate surged to 6.8% from 6.5% in November but it was followed by equal increase in participation rate (65.4% vs 65.1% previous month). Wage growth eased to 3.7% y/y from 4% y/y in November indicating that we will see lower price pressures in the future. All of the jobs added were full-time (50.2k) which puts a nice ribbon the report while part-time jobs declined by 42k. This report shows that labour market is stabilising and vindicates BoC’s decision to pause.
JPY
Final manufacturing PMI for the month of December was revised up to the neutral 50 level. The report showed new orders continuing to decline but that decline easing to the slowest in past eighteen months. Business conditions improved to the strongest level in over a year. There was a modest up tick in employment while input prices continued to increase and rose at a fastest pace since April showing that inflation pressures are not calming down. Final services declined to 51.6 from 53.2 in November. Still in expansion but growth is slowing as can also be seen with new orders index. Employment increased at the fastest pace in over two years but it was followed by fastest increase in input prices since May as labour costs as well as raw material and fuel prices surged. Despite higher costs, business confidence remains very strong. Composite dropped to 51.1 from 52 the previous month.
Average cash earnings for the month of November came in at 0.5% y/y vs 2.3% y/y as expected. Real wages recorded plunge further 2.8% y/y much worse than expected 1.2% y/y decline. On the other hand, household spending in November rebounded and showed a 2.9% y/y growth. Spending rising is positive but falling wages will cap that positivity and put BoJ in more difficult situation. Yields in JGBs continued to rise with 10y reaching 2.13% and 30y reaching 3.50%.
CHF
SNB total sight deposits for the week ending January 2 came in at CHF452.4bn vs CHF458.3bn the previous week. Sight deposits have been declining since middle of December as investors move their funds out of Swissy and into more profitable ventures. December inflation report saw slight improvements as both headline and core numbers ticked up to 0.1% y/y and 0.5% y/y respectively. This will provide a small sigh of relief to SNB, but it will have no effect on monetary policy.
