After an especially busy period for major markets, packed with tier one data and announcements, traders are in for a little respite this week. It is undoubtedly less packed on the economic calendar in the coming days, however, it would be wise for traders not to take it too easy, because a clutch of inflation data will paint the picture of price rises moving into 2022. US CPI will inevitably get the headlines, but there are plenty of other countries updating the inflation story this week. A first look at UK Q4 GDP will also be one to watch.

Watch for: 

  • North America – US CPI and Michigan Sentiment 
  • Europe & Asia – UK Industrial Production and Q4 growth 
  • LatAm – Inflation for Chile, Mexico, and Brazil, along with the Mexican central bank rates decision

North American data: 

  • US Trade Balance - Goods & Services (Tuesday 8th February, 1330GMT) The deficit for December is expected to have increased to -$82.9bn (from -$80.2bn in November
  • US CPI (Thursday 10th February, 1330GMT). Headline CPI is expected to rise further to 7.2% (from December’s 7.0%), with core CPI increasing to 5.9% (from 5.5%)
  • US Weekly Jobless Claims (Thursday 10th February, 1330GMT) 
  • Michigan Sentiment - prelim (Friday 11th February, 1330GMT) Sentiment is expected to improve slightly to 67.6 in February (from 67.2)

As so many central banks are, the Federal Reserve remains concerned by the path of inflation. Worries that inflation will not moderate as quickly as hoped in the coming months are driving hawkish reactions across the world. It seems that the Fed is no different. US CPI inflation is expected to continue to rise this week on both the core and headline basis. Upside surprises will help to fuel further rhetoric of faster rate hikes this year, something that fueled USD strength in the wake of the January FOMC meeting.

Major Economy Core Inflation

US Michigan Sentiment will also be worth watching. The prelim February data is expected to show an increase in sentiment to 67.6. This is forecast to be driven by improvements in both components, Expectations (to 65.0) and Current Conditions (to 72.4). There is also an inflation component to watch out for too, with the 5-year inflation expectations. This is expected to remain at +3.1% but any upside surprise would again fuel the talk of more Fed hikes. 

Major Economy GDP Market Reaction: 

  • USD to be strengthened by any sign of higher inflation in the CPI (and University of Michigan consumer data).
  • Broad risk appetite could also be hit on higher inflation signals

Europe & Asia: 

  • Australian Consumer Confidence (Tuesday 8th February, 2330GMT) Confidence is expected to fall slightly to 102.0 (from 102.2 in January)
  • New Zealand RBNZ inflation expectations (Wednesday 9th February, 0200GMT) 
  • Australian inflation expectations (Friday 11th February, 0400GMT) Inflation expectations are expected to rise to 4.6% in February (from 4.4% in January)
  • UK GDP – Q4 prelim (Friday 11th February, 0700GMT) QoQ growth is expected to have been +1.2% in Q4 (after 1.1% in Q3)
  • UK Trade Balance - Goods (Friday 11th February, 0700GMT) The deficit is expected to widen slightly to -£12.0bn (from -£11.3bn
  • UK Industrial Production (Friday 11th February, 0700GMT) An improvement to +0.9% is expected in December (up from +0.1% in November)
  • Switzerland inflation (Friday 11th February, 0730GMT) Inflation is expected to increase slightly in January to 1.6% (from 1.5% in December)

It is a very quiet week for major markets data outside the US this week. However, there are more signals for inflation to keep an eye out for. Consumer inflation expectations for New Zealand and Australia will both be eyed as they do play a role in the policy decisions of the RBNA and RBA. Expectations shot higher in New Zealand last quarter and anything above 3.0% would be above the 2008 peak, adding pressure on the RBNZ to act. Similar pressure would be piled on the RBA on any increase above 4.8%.

The first look at UK growth for Q4 is expected to show just a marginal improvement on the growth of Q3. Prelim UK GDP is expected to be +1.2% for the quarter which would be a year-on-year growth of +6.6% for the whole of 2021. This would be slightly down from the Q3 level of +6.8%. We are also looking out for a potential improvement in industrial production.

Major economy GDP

Market Reaction: 

  • AUD and NZD to move higher if inflation expectations increase.
  • GBP will react mostly to the GDP data on Friday. Positive surprises would be positive for GBP.
  • CHF is unlikely to be impacted too greatly by Swiss inflation unless there is a significant upside surprise.

Latin America: 

  • Chile CPI (Tuesday 8th February, 1100GMT) Inflation is expected to remain at 7.2% in January
  • Mexico inflation (Wednesday 9th February, 1200GMT) Inflation is expected to drop slightly to 7.25% (from 7.36% in December)
  • Brazil IPCA inflation (Wednesday 9th February, 1200GMT) Inflation is expected to increase to 10.46% (from 10.06% in December)
  • Mexican central bank interest rates (Thursday 10th February, 1900GMT) Forecast is for a +50bps hike to 6.0% (from 5.5% in December)

Inflation remains a big problem in Latin America and is driving central banks to be more aggressive with monetary tightening. Chilean inflation has been rising at a rate of at least half a percent a month for the past five months but is expected to moderate this month. Mexican inflation settled last month and is again expected to moderate slightly this week. Although Brazilian inflation dropped back last month, forecasts suggest a return back higher again in January.

Latam Inflation

The Mexican central bank unexpectedly increased the rate by 50bps in December, and the potential is for another 50bps hike this week. With inflation still running hot (expected to again be over 7% this week) the bank is likely to continue on the path of more aggressive hikes. 

Market Reaction

  • CLP, MXN and BRL will all be reactive to any surprises to inflation
  • MXN will also be supported if the central bank hikes by 50 basis points