During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.
The economic calendar is jammed packed with US and UK centric data points this week. Markets will also be on watch for more banking failures, and especially news surrounding Deutsche bank.
The final estimate of Britain’s Q4 gross domestic product is expected to confirm that there was no growth during the quarter. This means that the UK economy avoided a technical recession in Q4, after economic output shrank 0.2% in Q3.
Accordingly, the British economy expanded 0.3% month-over-month in January of 2023, partially bouncing back from a 0.5% contraction in December when strikes halted activity and beating market forecasts of a 0.1% rise.
Although the country may have avoided a recession for now, the economic outlook remains challenging with headline inflation running at 10.4% and consumer confidence still fragile.
The final reading of the US’ fourth-quarter gross domestic product is expected to see growth revised upwards to 2.8% from the previous estimate of 2.7%.
The US GDP expanded by 2.1% in 2022, slowing from a 5.9% expansion in 2021 as the economy returned to a more normal pace of growth after pandemic-related disruptions in the previous two years.
Given how weak consumer spending was in the United States at the end of last year, it is perhaps surprising that the US economy held up as well as it did in Q4.
The Fed’s favourite inflation gauge, the core personal consumption expenditures price index, unexpectedly increased 4.7% in the year to January, up from 4.6% in December.
This has helped fuel the debate about the “stickiness” or persistence of high inflation. Markets will be on guard for this week’s PCE number, especially with the Fed back on the fence about future rate hikes.
With monthly growth in personal spending in the United States expected to have slowed from January’s 1.8%, the big question is whether core PCE also fell.