This week, attention will centre on inflation data from major economies, including the US, EU, and UK. Additionally, China’s forthcoming release of its Gross Domestic Product (GDP) growth figures for the final quarter will be a critical gauge for its economic trajectory.
ADVERTISEMENTThe European stock markets outperformed global peers last week, buoyed by expectations of a more accommodative monetary policy from the European Central Bank compared with the Federal Reserve. However, Friday’s robust US job data unsettled investors, causing the US and European government bond yields to surge, leading to a broad-based selloff in equities.
This week, attention will centre on inflation data from major economies, including the US, EU, and UK.
Additionally, China’s forthcoming release of its Gross Domestic Product (GDP) growth figures for the final quarter will be a critical gauge for its economic trajectory.
Europe
Eurostat is set to release final inflation data for December. Preliminary estimates indicate that the eurozone’s annual headline CPI accelerated for the third consecutive month to 2.4% year-on-year in December, compared with 2.2% in November and 2% in October.
However, this uptick was largely due to base effects, as falling energy prices were no longer impacting the annual rate. Core inflation, excluding volatile items such as food and energy, remained steady at 2.7%, signalling that inflation may be cooling.
The figures reinforce expectations for the ECB to implement further rate cuts in January, with a total reduction of one percentage point anticipated this year. The ECB has projected that inflation will return to its 2% target by the end of 2025.
Nonetheless, rising energy prices and uncertainties surrounding Trump’s presidency could complicate this outlook.
Germany is also poised to confirm its final CPI figures for December. Flash data revealed that annual inflation in Europe’s largest economy rose to 2.6% last month, up from 2.2% in November, marking an 11-month high.
Core CPI increased to 3.1% year-on-year from 3% the previous month. The final inflation figures are expected to align with initial estimates.
In the UK, annual inflation climbed for a second consecutive month to 2.6% in November, the highest level since March 2024. December’s CPI is anticipated to hold steady at 2.6%, while core inflation is forecasted to ease slightly to 3.4% from 3.5% in November. The data may slow the Bank of England;s pace of rate cuts.
Additionally, a recent selloff in UK government bonds and a weakening sterling suggest that investors are fleeing the country’s assets amidst concerns of stagflation. The Labour government’s tax-hiking budget plan is expected to exacerbate inflationary pressures while hindering economic growth.
United States
US CPI data will serve as a pivotal economic indicator for global markets this week. Annual headline inflation in the US accelerated for the third consecutive month to 2.7% in November, with core CPI rising 3.3%.
Consumer prices are expected to continue accelerating, reaching 2.9% annually in December, while core inflation is projected to remain at 3.3%. This persistent inflationary trend may prompt the Federal Reserve to adopt a slower pace of rate cuts in 2025, particularly in light of Friday’s strong job report. Rising bond yields could further pressure US equity markets.
The Producer Price Index (PPI), which tracks the average change over time in prices domestic producers receive for their output, will also be released this week. November’s PPI increased by 3% year-on-year, the steepest rise since February 2023, and a sharp jump from October’s 2.6% figure. December’s PPI is expected to show a similar 3% year-on-year increase.
Retail sales data, another key metric, is forecasted to grow 0.6% month-on-month during the holiday season, following a robust 0.7% increase in November. Strong retail figures could further influence market sentiment.
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China’s fourth-quarter GDP and several other economic data will be closely watched to assess the trajectory of the world’s second-largest economy. Consensus estimates suggest GDP growth will rise by 5% year-on-year in the final quarter of 2024, up from 4.6% in the third quarter, driven by Beijing’s stimulus measures.
Full-year economic growth is expected to meet the 5% target in December. Other indicators, including industrial production, retail sales, and home prices, are also projected to show continued improvement.
This combination of critical data releases from major economies will set the tone for global markets in the coming weeks, influencing central bank decisions, currency movements, and commodity prices.