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Weekly Market Preview
Friday, Jan 12, 2023
Last week, the focus was on the US CPI report for December, revealing slightly elevated inflation levels with the YoY headline CPI coming in at 3.4%, surpassing the expected 3.2%, and the YoY core CPI also exceeding expectations at 3.9% compared to the anticipated 3.8%. This data has strengthened the perception that the Federal Reserve might not have completed its task, potentially leading to the decision to keep interest rates unchanged, at least until the May meeting.
Looking ahead, this week will bring forth more inflation reports for December from major economies, including the UK, Eurozone, and Canada. Despite a notable decrease in inflation rates in the UK, attributed to declining energy prices and a slower services sector, the YoY CPI headline, while falling below the 4% threshold in November, remains relatively high. Consequently, it seems unlikely that the Bank of England will opt for interest rate cuts in the first half of the year, in contrast to the ECB and the Fed.
Markets will closely monitor the release of European CPI figures for December, as they significantly influence the monetary policy of the European Central Bank. Projections, according to Bloomberg, indicate a potential increase in the YoY inflation headline from 2.4% in November to 2.9% in December. Notably, any data exceeding expectations might postpone the initiation of interest rate cuts by the European Central Bank, potentially strengthening the euro against other major currencies.
Another critical data point to watch this week is the release of US retail sales data for December. Projections, per Bloomberg, suggest that the data will remain stable MoM at 0.3%. Any data lower than expected may exert downward pressure on US inflation levels, potentially reinforcing the belief that the Fed could commence interest rate normalization sooner than anticipated. Such a scenario could negatively impact the value of the US dollar while providing a positive boost to metal prices.
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