This week marked the resumption of a normal schedule as the first full week of the New Year brought about the release of the first major data for the UK: GDP. Early this morning, the figures revealed a positive trend, surpassing expectations at 0.3%, compared to the forecasted 0.2%. The Office for National Statistics attributed October’s negative reading to unusually high rainfall, suggesting that the latest figures could be a result of a correction from that anomaly.
In the US, the focus this week was on the latest CPI inflation figures. As we transition into the new year, inflation is expected to take centre stage, offering insights into how the Federal Reserve’s high-rate policy impacts persistent inflation. As anticipated, there was an uptick in headline inflation, reaching 3.4% compared to the previous month’s 3.1%. This exceeded initial predictions of 3.2%. The increase in energy prices and services activity is likely the main contributing factor, a trend that may persist in the coming months. Employment data and CPI are expected to be significant market movers in the first half of the year, with higher wages and near-full employment in most G10 countries potentially leading to prolonged inflation, surpassing the central bank’s preferences. Despite these challenges, it is anticipated that the US will achieve its target inflation rate by the end of the year. Later this afternoon, PPI data is set to be released, with a slight uptick in both PPI and Core PPI anticipated.
Looking ahead to next week, there is a quieter economic calendar, with retail sales in both the US and the UK taking the spotlight, along with UK CPI figures. Expectations are for these readings to experience an uptick, driven in part by the busy lead-up to the festive period. Other key releases include the latest Claimant Count Change figures in the UK and the Empire State Manufacturing Index in the US on Tuesday. Additionally, the US will post the Preliminary Consumer Sentiment figures, a crucial indicator for the Federal Reserve in assessing future inflation readings.
Beyond economic considerations, there has been an escalation in the Red Sea area, with the UK, US, and several allies launching airstrikes across Yemen, targeting Houthi strongholds in response to attacks on trading ships in the region. This development adds to the already tense global situation. The potential domino effect of war, spreading across the world, is a cause for concern, with a direct conflict between major world powers posing a catastrophic threat to the global economy. This geopolitical factor will undoubtedly be closely monitored in the weeks to come. It is also worth noting that general elections in both the UK and US coming in the second half of this year, potentially within a month of each other for the first time since 1992, could also lead to large swings in the market with political turmoil looking set to be a running theme once again in the respective powers.
