Following the latest developments in equity markets and the BoE meeting last week, UK and US inflation data, on Tuesday and Wednesday respectively, are likely to take center stage. On Thursday, Australia’s employment data could attract market attention, but it is unlikely to alter expectations around the RBA’s policy plans.
On Monday, the only noteworthy indicator we get is Switzerland’s CPI data. Expectations are for Swiss consumer prices to have risen 0.8% yoy for the third consecutive month. In our view, even if inflation accelerates, it is unlikely to alter the thinking of the SNB around policy. At their latest meeting in December, officials kept interest rates unchanged at the historic low of -0.75%, and although they raised their inflation forecasts for 2018, the inflation rate is expected to remain well below the Bank’s target. It is projected to exceed 2% in the third quarter of 2020. What’s more, policymakers made it clear that the forecasts are based on the assumption that rates will remain at current levels for the entire forecast horizon, which makes it unlikely for them to change stance anytime soon.
On Tuesday, during the Asian morning, we get Australia’s NAB business survey for January. Given the RBA’s emphasis on wage growth, the part we focus more within this report is the Labour Costs Index.
Later, during the European day, we get UK CPI data for January. Expectations are for headline inflation to have slowed to 2.9% yoy from 3.0% in December, but the core rate is expected to have risen to 2.6% yoy from 2.5% previously. That said, bearing in mind that the services PMI for the month reported that the rate of charge inflation softened to a four-month low, we view the risks surrounding the core forecast as tilted to the downside. What’s more, the increase in the yoy change rate of Brent oil suggests that the spread between the headline and core rates may have widened in January. As such, if the headline rate was to tick down, the core rate is likely to decline more.
Read the full financial markets weekly outlook on JFD Research.