We look forward to a busy week, with important data releases and central bank meetings in the coming days. European data is first on the agenda, with inflation and GDP from individual countries and the euro area coming up. Markets expect euro area GDP data for the fourth quarter to show that the regions economy stagnated after contracting in the third quarter. Euro area headline inflation is also on the docket this week and is expected to have resumed its downward trend in January. This will be welcomed by ECB officials as markets expect this inflation trajectory to continue, eventually taking the headline rate below the central bank’s 2% target around the middle of the year.
The Bank of England meets for the first time this year on Thursday and is set to hold interest rates unchanged at 5.25% for a fourth straight meeting. Rate setters on the MPC continue to be cautious of a fresh bout of inflation, however the outlook has seen a big shift since the central bank produced its last forecast in November. The market was disappointed with the small uptick in the December inflation report and the timing of the first cut remains an ongoing talking point.
It is a packed calendar from the US this week, kicking off with Consumer Confidence data tomorrow. A further improvement is expected, boosted by decelerating inflation and expectations of lower interest rates. Labor market data dominates the week with the JOLTs job openings report released on Tuesday, ADP Private payrolls out on Wednesday, weekly Initial Claims on Thursday, and Non-farm Payrolls on Friday. The Fed concludes its two-day policy meeting on Wednesday and is expected to keep rates unchanged. Markets will be looking for clues on the size and timing of rate cuts in 2024 when Chairman Powell delivers his post meeting press conference.
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