Weekly Market Outlook (February 10–14)

Focus: US Consumer Price Index (CPI) and Fed Chair Powell's Testimony

UPCOMING EVENTS:

Monday:
NYFed Inflation Expectations
Tuesday:
US NFIB Small Business Optimism Index, Fed Chair Powell's Testimony
Wednesday:
US CPI, Fed Chair Powell's Testimony, BoC Meeting Minutes
Thursday:
Japan PPI, UK GDP, Swiss CPI, US PPI, US Jobless Claims, New Zealand Manufacturing PMI
Friday:
US Retail Sales, US Industrial Production and Capacity Utilization

Wednesday

The US CPI year-over-year is expected to be 2.9%—the same as the previous reading—while the month-over-month figure is forecast at 0.3% compared to 0.4% previously. The Fed is currently focusing primarily on the progress of inflation. These numbers would be acceptable, although even lower figures would be received even more positively.

Nevertheless, the projection for two rate cuts by the end of the year remains intact, even though the market took on a slightly more hawkish stance on Friday following the NFP report—and especially due to the inflation expectations data from the University of Michigan Consumer Sentiment survey.

The NFP report was good, and the increase in average hourly earnings is not yet concerning given the decline in weekly hours worked. On the other hand, the sharp rise in inflation expectations is largely attributable to the tariff news—a factor that should ease as fears of trade wars subside (provided that actual trade wars do not occur).

Thursday

The Swiss CPI year-over-year is expected to be 0.4% compared to 0.6% previously, while the month-over-month figure is forecast at -0.1%, unchanged from before. The market is currently pricing in a 92% probability of a 25 basis point cut in March and a total of 40 basis points by the end of the year—which essentially amounts to two rate cuts that would bring the policy rate back to 0%.

Inflation in Switzerland has been falling markedly for years due to a strong Swiss franc, which has led the central bank to threaten interventions and implement negative rates at various times. SNB Chairman Schlegel recently reiterated that although there is a reluctance to reintroduce negative rates, they will be reinstated if conditions warrant it.

Further US Data

The US Producer Price Index (PPI) is expected to be 3.2% year-over-year compared to 3.3% previously, while the month-over-month figure is forecast at 0.3% compared to 0.2% before. The core PPI is projected at 3.3% year-over-year (down from 3.5% previously), and its month-over-month reading is expected to be 0.3% (previously 0.0%). As long as no significant deviations occur, the trend will likely be determined by the US CPI data from the previous day.

Another important indicator is US Jobless Claims, which provides a timely insight into the state of the labor market on a weekly basis.

Initial Claims have remained in the range of 200,000 to 260,000 since 2022,
Continuing Claims have been hovering near cyclical highs, although some easing has been observed recently.

For this week, initial claims are expected to be 216,000 (compared to 219,000 previously). There is no consensus yet on continuing claims, although the previous release showed an increase to 1,886,000 compared to 1,850,000 previously.

Friday

US Retail Sales (month-over-month) are expected to come in at -0.1% compared to 0.4% previously, while the ex-automotive figure is forecast at 0.3% versus 0.4% previously. The focus is on the so-called "Control Group" figure, which is expected to be 0.3% versus 0.7% previously.

Consumer spending has remained stable, as one would expect given the positive real wage growth and a robust labor market. However, recent data suggests some easing in consumer sentiment, which might lead to a slight softening in consumer spending.

If the data does indeed indicate some softening, it should not be cause for immediate concern but could help alleviate further inflation worries and keep the market pricing in around two rate cuts in 2025.

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