Week Ahead: Inflation data key for USD and GBP

Tuesday’s inflation data from the US will be the major focus for markets this week. The primary message from a lot of central bank speakers in recent days has been that it is perhaps too soon to conclude that price pressures have been conquered. This is partly due to strong wage growth which remains above what is consistent with 2% inflation. That said, Fed funds futures only price in around a one in five chance of another rate hike.

Energy prices are expected to pull US headline CPI lower. This is likely to hurt the value of retail sales too, which are published on Wednesday, with the potential for a negative month-on-month print. The dollar retraced its recent breakdown last week. Much could depend on the core monthly US CPI reading, with a 0.3% figure possibly underpinning support for the greenback. Of course, helpful for the inflation outlook has been the recent sharp sell-off in oil prices. Brent crude is hoping to find some support around $80.

One other US event which will be in the spotlight is the potential government shutdown on Friday. There could be a lot of political noise around this, as Republicans and Democrats try to agree on a stopgap measure to keep the government open.

Elsewhere, we get a barrage of important UK economic data including wage growth, CPI, and retail sales. The first two releases are crucial inputs for the Bank of England, and we note it is the final inflation report before policymakers meet in December. A big fall is expected in CPI as last year’s 25% increase in energy bills drops out of the yearly comparison, essentially those so-called “base effects”. The MPC will be watching to see how sticky services inflation is, while hoping wage growth continues to cool.

China publishes its trio of big data points midweek with the release of October industrial production, retail sales and fixed asset investment. Chinese consumers remain cautious though activity could be boosted by the first post-pandemic Golden week holiday. The data will be used to gauge China’s ongoing recovery, which the latest inflation figures painted as fragile.

Also grabbing the headlines will be President Xi’s meeting with US President Biden in San Francisco, which will be only the second in-person meeting between the two. While no major breakthroughs from the talks are expected, any signs of improvement in relations will be welcomed with US stock markets hoping to build on their strong rebound.

Major data releases of the week:

14 November 2023, Tuesday

–UK Jobs: Expectations are for key headline wage growth of 8.3% and ex-bonuses to hold steady at 7.8% The jobless rate is forecast to rise to 4.3% from 4.2%. The BoE revised higher the medium –term unemployment rate to 4.5% at its recent meeting. Hotter date than expected could boost cable, with prices really needing to get above the 200-day SMA at 1.2435 to stop the long-term downtrend.

–US CPI: The headline is expected to cool to 3.3% from 3.7%. The core is seen unchanged at 4.1% and the monthly print at 0.3% in October, matching September. Energy costs have fallen while rents are likely to pull inflation much closer to target next year.  

15 November 2023, Wednesday

-Chinese Activity Data: October Retail Sales are forecast to increase to 7.0% y/y from the prior 5.5%. Industrial Output is expected to remain unchanged at 4.5% y/y, and Investments also unchanged at 3.1% y/y. The official manufacturing PMI data pointed to contraction in activity which may contribute to a potential slowdown.

-UK CPI: The headline is anticipated to drop sharply to 4.9% from 6.7%. The core reading is forecast to cool to 5.6% from 6.1%. Services inflation, a focus for the MPC is likely to remain unchanged at 6.9%. This is the last inflation report before the final BoE meeting of the year.

-US Retail Sales: Expectations are for a -0.1% m/m fall in October, a slowdown after the 0.7% gain the month before. Remember this is a value figure so lower gas prices will hit the overall sales print.

16 November 2023, Thursday

-Australia Jobs: October employment is expected at 24,000 and the unemployment rate one-tenth higher at 3.7%. Job gains are weakening gradually in line with low unemployment. The aussie had a wretched week reversing virtually all its gains with five straight days of losses. A major band of support sits around 0.63.

17 November 2023, Friday

–UK Retail Sales: High mortgage costs and still elevation inflation could shake consumer confidence further. Unseasonably warm October weather could see winter purchases delayed too.