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With Chinese growth already badly lagging expectations, markets will be focused on inflation readings that could provide a guide on domestic demand. On Thursday, investors will get two signals in the form of official consumer and producer price indices.
Consumer prices contracted again in December and are tipped to fall once more in January. Economists polled by Bloomberg are forecasting a year-on-year fall of 0.5 per cent, slightly higher than December’s fall of 0.3 per cent.
That average is also in line with a forecast from analysts at Citigroup, who have predicted the lateness of the lunar new year holiday will weigh on the figures. The major Chinese celebration falls on February 10, delaying demand for key foodstuffs.
“Prices tend to rise prior to the Chinese new year holiday and drop thereafter,” the bank’s analysts wrote in a recent note. “The late [holiday] this year could delay such a seasonal pattern. Meanwhile, high-frequency price indicators are not encouraging.”
Meanwhile, deflation for producer prices is expected to hold at roughly the same level of 2.6 per cent, compared to a year-on-year fall of 2.7 per cent in December.
Any outperformance by either indicator could trigger a surge on the day for Chinese equities. But after more than half a year of steady falls for stocks traded in Shanghai and Shenzhen, any such rally is unlikely to last for more than a few days. Hudson Lockett
What will Fed speakers this week tell us about rate cuts and regional bank jitters?
Public comments from Federal Reserve officials this week will be watched more closely than normal, as investors look for cues about the central bank’s path forward and how policymakers are reacting to jitters in the US banking sector.
Several members of the Fed’s policy committee are making speeches, including chair Jay Powell, Cleveland president Loretta Mester and head of the Richmond Fed Thomas Barkin.
Their appearances come after the most recent Fed meeting, in which Powell said definitively that the central bank did not expect to cut interest rates in March. Powell and the other speakers may reiterate that point, particularly in the wake of a blowout January jobs figures on Friday. The 353,000 extra jobs last month, almost twice as many than forecast, meant the market expectations for a rate cut were at roughly 20 per cent. That was far below expectations at the start of the week, but not yet at zero.
Powell, Mester and Barkin may also use their remarks to address jitters in the US banking sector.
On Wednesday, New York Community Bancorp on Wednesday reported it had taken losses on commercial property loans, which rekindled fears about weakness in US regional banks. Powell did not address the topic at the press conference following the Fed’s interest rate decision this week. Kate Duguid
Will eurozone retail sales remain sluggish?
Europe’s consumers have been consistently cautious for much of the past two years — despite relatively low levels of unemployment — and that trend is unlikely to change when the latest eurozone retail sales data is published on Tuesday.
Economists polled by Reuters expect retail sales for the 20-country bloc to have fallen 0.8 per cent month-on-month in December as high interest rates, sticky inflation, and a dim economic outlook weigh on spending, while energy subsidies begin to expire.
“We’re dealing with record high employment, so that [should] seem quite positive, but the inflation shock is clearly still weighing,” said Bert Colijn, an economist at Dutch bank ING. “There’s a limit to what you can expect from a consumer that has lost quite a bit of wage power and is starting to lose some of the subsidies that were put in place,” he added.
The sales figures are likely to point to growing divergence across Europe. Figures published this week showed that retail sales in Germany, the eurozone’s largest economy, fell 1.7 per cent year-on-year in December. However Spanish retail sales figures rose 3.1 per cent in the same month.
Sustained strength in the employment market will be the key to supporting further spending, especially as real wage growth finally starts to turn positive. Data published on Tuesday showed that the eurozone economy stagnated in the final three months of 2023, held back primarily by shrinking output in Germany despite strong rebounds in Spain and Italy.
“It’s quite astounding how incredibly resilient the eurozone labour market has been and I think this is something that will support retail sales”, said Tomasz Wieladek, chief European economist at T Rowe Price. “They’re probably going to shrink in the short-term but they aren’t going to fall off a cliff.” Stephanie Stacey
