With the next US Federal Reserve next policy decision not until 1 February there is a whole month of data for investors and policy makers to ponder in the run-up.
Next week the key indicator will be US inflation figures, on Thursday, where the market will be hoping to see the impact of lower energy prices feeding through to the headline figure as it retreats from June’s peak of 9%.
Inflation was one of the biggest macroeconomic themes in 2022 and it is likely to remain so in 2023.
AJ Bell analysts explained “Last year the questions were ‘how high could inflation go’ and ‘when would it peak’?”
“Right now, for this year, stock and bond markets (as well as central bankers and politicians) are looking for the rate of inflation to slow down and start to head back toward policymakers’ 2% target.“
"If the rate if inflation does slow, then the view is that central banks will get to pause on rate rises and then pivot to rate cuts and that bond and share prices will benefit.”
Back to the US numbers and ING economist James Knightley forecasts “a further moderation in the annual rate of US inflation from 7.1% down to 6.6%,” but noted this is still more than three times faster than the Federal Reserve’s 2% target.
A 0.3% month-on-month print would lead to the annual rate of core inflation hitting 5.7% versus 6% in November he estimated.
"We expect to see much sharper falls in the annual rate of inflation from the early second quarter onwards" he added.
The other headline macro news next week will come closer to home on Friday with monthly UK GDP numbers for November together with industrial production and trade figures.
ING’s Knightley pointed out the GDP figures have been a bit all over the place recently, in part because of the Queen’s funeral last September.
But the economy is clearly weakening and ING expect a negative monthly figure for November, after October’s artificial bounce back following September’s extra bank holiday.
“That, and another such decline in December, would probably be just enough to lock in the second consecutive quarter of negative growth and mark the start of a UK recession that’s likely to last until at least the summer” Knightly stated.
He has pencilled in a 0.1% fall for overall fourth quarter GDP when the figures are released next month, and just over a 1.5% peak-to-trough fall in output over several months.
Market consensus is for November’s figure to show a fall of 0.3%.
Aside from these two headline releases Eurozone unemployment figures are due on Tuesday with rate expected to remain unchanged at 6.5%. Labour markets have proved remarkably resilient in light of the deteriorating economic picture and the question remains for how long can this continue.
Besides unemployment, we also get trade and industry data in the EU. ING noted industrial production has been resilient despite the energy shock, but survey data points to weaker activity regardless.
The trade balance is important to watch as expensive energy imports have completely flipped the eurozone trade balance from surplus to deficit, it said.