Market outlook for the week of 9th-13th February

Monday is quiet in terms of scheduled economic events for the FX market. The focus will be on the Japanese yen following the lower house elections. Japan’s Prime Minister Sanae Takaichi secured a two-thirds “supermajority” in Sunday’s general election, according to Nikkei projections. The decisive victory gives the country’s first female leader a strong mandate to address cost-of-living pressures and pursue her national security agenda. The JPY started to strengthen when the market opened on Monday following the news. On Tuesday, attention will turn to the U.S. with the release of retail sales m/m data, which was delayed by 27 days due to the U.S. government shutdown. Wednesday will bring key U.S. labor market data, including average hourly earnings m/m, nonfarm payrolls, and the unemployment rate. These releases were originally scheduled for last Friday but were also postponed due to a brief government shutdown. The consensus expects average hourly earnings to rise 0.3% m/m versus 0.3% previously, nonfarm payrolls to increase by 70K vs. 50K prior, and the unemployment rate to remain steady at 4.4%. On Thursday, the U.K. will publish monthly GDP and preliminary quarterly GDP figures, while the U.S. releases weekly unemployment claims. Finally, Friday’s highlight will be the U.S. inflation data. In the U.S., the consensus for retail sales m/m is 0.4% versus 0.6% previously, while core retail sales m/m are also expected at 0.4% versus a prior 0.6%. November retail sales surprised to the upside, pointing to resilient consumer demand late in Q4. However, more recent indicators suggest that spending momentum softened in December. This likely reflects cooler labor market conditions and ongoing affordability pressures, which appear to be weighing on discretionary purchases. Looking ahead, Wells Fargo analysts expect retail sales growth to see some improvement due to more favorable household tax policy that will drive more spending. In the U.K., the consensus for GDP m/m is 0.1% versus 0.3% previously, while preliminary GDP q/q is expected at 0.2% versus 0.1%. The data is expected to show only moderate growth toward the end of last year, with the outlook on both a quarterly and annual basis remaining subdued. At last week’s BoE meeting, the tone was dovish, and expectations have since shifted toward the possibility of consecutive rate cuts starting as early as March. Inflation has continued to slow, and policymakers expect it to move back toward the 2.0% target. If this week’s GDP data surprises to the downside it will further reinforce the case for policy easing. In the U.S., the consensus for core CPI m/m is 0.3% versus 0.2% previously; headline CPI m/m is expected at 0.3% compared to 0.3% prior, while CPI y/y is forecast to drop from 2.7% to 2.5%. The release is delayed by two days. Core inflation is expected to firm, partly reflecting residual seasonality. Additional drivers include delayed cost pass-through from tariffs, inventory rebuilding, and firms pushing through price increases where demand allows. Both core goods and core services are projected to post similar monthly gains, with firmer used-vehicle prices offsetting softer readings in areas such as healthcare and auto insurance, according to Wells Fargo analysts. The decline in headline inflation is largely attributed to slower food price increases and lower fuel costs, even as energy services inflation remains firm. While some private-sector measures point to a notable cooling in recent months, risks of persistence remain in the official data. Rising import prices and the lagged pass-through from tariffs suggest consumer prices could still face upward pressure, particularly as tariff costs continue to be absorbed by U.S. importers. Although firms may offset part of these increases through efficiency gains, further transmission to end prices cannot be ruled out, ING analysts said. At the same time, easing energy costs and slower growth in housing rents should help contain overall inflation pressures.
This article was written by Gina Constantin at investinglive.com.

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