Key Events: Will PCE Change the Fed’s Inflation View?

Key Events

G10

In the US, the main data points are:

1. PCE, personal income and spending – Friday. Core PCE MoM is likely to print at 20bp, a moderate number unlikely to significantly change the Fed’s inflation views. Consensus on personal income and spending imply a low savings rate that supports continued high consumption and GDP growth.
2. Employment Cost Index (ECI) – Friday. ECI is the Fed’s preferred measure of wages because it adjusts for changes in the distribution of wages. Consensus sees a small acceleration to 1% QoQ from 0.8% in Q3, which would be consistent with other wage data showing stabilization and justify the Fed’s policy caution.
3. Q4 GDP – Thursday. Consensus expects 2.6% against the Atlanta Fed nowcast currently at 3%. Even if consensus is correct, the print would be well over trend of about 2% and consistent with continued above-trend productivity growth.

In the Eurozone and UK, the main events will be:

1. ECB Bank Lending Survey – Tuesday. This could indicate loan demand and hence policy transmission.
2. Preliminary German, French, EZ Q4 GDP – Thursday. Growth is likely to be subdued into year-end, driven by stagnation in Germany. However, further out we are less bearish on EZ growth (particularly in manufacturing) than many others.
3. December EZ unemployment – Thursday. The EZ labour market has stayed tight lately. While Germany may be seeing near-term job losses, we expect labour market tightness to persist ahead.
4. Preliminary January CPI – Friday. We monitor for the first signs of whether services and core inflation has followed the pattern seen in 2022, 2023 and 2024, which significantly overshot typical rates.

Elsewhere in G10:

1. Australia Q4 CPI – Wednesday. Focus on the trimmed mean measure. The RBA forecast a +3.4% YoY increase, with consensus expecting a softer +3.3% YoY. Top forecasters are edging to an even weaker outturn.
2. Switzerland UBS Survey (Wednesday) and KOF Indicator (Thursday). Inflation expectations jumped in November despite growth expectations tempering. We watch for a clearer signal on the economy.
3. Tokyo CPI – Thursday. Risks remain tilted to the upside for headline inflation, but global core will be key given it has been stuck near 1.2% YoY on weak core goods and tepid services inflation.
4. New Zealand ANZ Survey – Thursday. We watch for continued signs the economy is rebounding, supporting our view that the worst is over.
5. Canada GDP – Friday. Preliminary data showed Canada GDP contracted in November, but we expect a bounce back in December as consumer spending rises following the tax holiday and early impact of lower rates.

EM

1. China Official PMI – Monday. We expect the manufacturing PMI to move sideways. However, the components will develop differently. While production will be weak due to the Chinese New Year seasonality, export orders will continue improving and rising commodity prices indicate a rise in input prices.
2. India budget – Saturday. A growth-friendly budget is expected given mounting concerns over India’s slowing economy.

Central Banks in Action

1. Fed to remain on hold – Wednesday. The Fed is unlikely to significantly change its policy guidance as the most consequential driver of the growth and inflation outlook is the Trump administration’s economic policies, and too little is known yet.
2. ECB to cut 25bp – Thursday. The ECB has telegraphed this cut clearly. We expect them to keep indicating a data-driven approach and optimism about disinflation. An upside surprise in Friday’s inflation print may drive more caution ahead.
3. BoC to cut 25bp – Wednesday. Following two bumper rate cuts, we think the BoC will continue with a smaller 25bp cut, while signalling the potential for a skip in March.
4. NBH rate decision – Tuesday. December’s CPI spike will keep rates firmly on hold again.
5. SARB rate decision – Thursday. Consensus expects another 25bp cut with subdued inflation and a recovery in the rand.

Markets to Watch

• USD has been weakening with Trump proving friendlier on tariffs than most expected. However, economic data will drive the dollar this week. We remain short USD vs a EUR, CAD and JPY basket.
• AUD/NZD has tentatively traded within a 1.1040 to 1.11 range through January. It needs a kicker to send it lower – Australia Q4 CPI may help. We remain short AUD/NZD.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)