Week ahead: Inflation dominates, as US banks kick off Q4 earnings season

Monday

Tokyo CPI

Traders of the Japanese yen will be keeping a close eye out for Monday’s inflation survey, with markets looking for both headline and core readings to tick lower. This survey is particularly notable as the Tokyo survey typically acts as a leading indicator of where the wider nationwide figure might go. With recent speculation pointing towards the potential for the Bank of Japan to raise rates out of negative territory, Continuation of the recent downtrend in Japanese inflation could quell those hawkish expectations. From the perspective of the BOJ, they will want to know that inflation and wage growth will remain above historical levels before they can take the foot off the gas. As such weakness across this inflation report could drive downside for the yen.

Wednesday

Australian CPI

The Australian dollar has had a somewhat tough start to 2024, although from a wider perspective the currency has enjoyed plenty of upside over the final four months of last year. Those gains can be partly attributed to risk on sentiment seen throughout global markets. However it is also a function of the relatively elevated inflation rate seen in Australia compared to its counterparts. With Australian inflation typically lagging in its release, this November figure comes after the eurozone has reported its December number. Nonetheless, this figure needs to decline heavily to keep up with the weakness seen elsewhere, with market estimates pointing towards a move from 4.9% to 4.5%. Watch out for potential volatility as markets seek to gauge whether Australian inflation will move back into the pack.

Thursday

US CPI

The latest US inflation data looks likely to provide the main event for the week, with recent market jitters largely focused around the timing and pace of Federal Reserve rate cuts this year. Coming off the back of a relatively hot jobs report, a strong inflation reading could pile further pressure on risk assets. Downside momentum is likely to be relatively limited, with base effects pointing towards a likely lull before the chunky January and February figures are stripped out in the coming months. Set against those expectations, a gradual move lower in core and headline inflation would provide a likely boost for markets in anticipation of a steeper decline in the months ahead. With the economy holding up well, we need to see inflation falling back down to target if hopes for a March rate cut are to remain in play.

Chinese inflation and trade data

Overnight data out of China provides fresh updates for a region that has been coming under significant pressure of late. The recent move back into deflation only looks to worsen according to market expectations, highlighting the lack of momentum in the region. Also keep an eye out for the latest PPI figure, with the decline in factory prices signalling a strong chance of further global disinflation given the Chinese role as one of the worlds biggest exporters of consumer goods. The trade balance report will provide a greater idea on weather the Chinese economy is coming back to life after last months move back into positive territory for annual exports. AUD and NZD traders will be keeping a close eye out for import data given the importance of China as a key trade partner for the Australian and New Zealand economies.

Friday

UK GDP

UK GDP data heads up a raft of key figures that should provide a key assessment over the health of the economy in November. The October monthly GDP figure of -0.3 will have caused consternation for the Bank of England, raising hopes that they will seek to cut interest rates at an earlier date. That view was first further enhanced by significant weakness across both industrial and manufacturing production data last time around. However, markets are expecting the rebound across all three metrics for November, with signs of economic strength typically taken as a positive for GBP.

US Bank earnings

Friday sees The US big banks kick start the fourth quarter earnings season, with data from JP Morgan chase Wells Fargo and Citigroup expected. Shareholders will hope that the environment of elevated interest rates and a relatively strong US economy will bring benefits for both the top line and bottom line. That has shown up in the share price of many banks, with Citigroup, JP Morgan and Wells Fargo already having hit new one-year highs over recent weeks.

Investment banks such as JP Morgan should also benefit from trading revenue given the outperformance in equity markets over the fourth quarter. With the economic outlook largely better than expected traders will be keeping a close eye out for bad loan provisions set aside in anticipation of a harder landing.