European Session
The key focus during the European session will be the Eurozone Flash CPI report. Headline CPI year-on-year is forecast at 2.0%, slightly lower than the previous 2.1%. Core CPI year-on-year is expected to remain unchanged at 2.4%. Recent data from France and Germany have been softer than anticipated, suggesting that expectations for the CPI may be biased towards the downside.
Regarding monetary policy, these figures are unlikely to influence the European Central Bank (ECB), which remains comfortably on the sidelines. ECB officials have reiterated that they will not react to small or short-term deviations from their 2% inflation target. The next policy decision could go in either direction, but current market pricing strongly anticipates the ECB will hold rates steady throughout the year.
American Session
Attention shifts to several important US economic releases in the American session. The US ADP employment change is expected at 47,000, up from -32,000 previously. Despite this, the ADP figures have shown weakness since last June, with a number of negative monthly readings not seen since 2020. Consensus expectations point to a labour market characterised by low firing and low hiring, supported by steady jobless claims data. However, Federal Reserve’s Kashkari has recently warned of a potential rise in the unemployment rate.
The US ISM Services PMI is anticipated at 52.3, down slightly from 52.6. The S&P Global US Services PMI indicated that business activity eased in December but stayed in expansion territory. A more concerning detail was a sharp increase in input costs and selling prices. The Federal Reserve faces a difficult balancing act managing a weakening labour market alongside inflation that remains above target. Divergence between these factors will complicate monetary policy decisions.
US Job Openings are projected at 7.6 million, a slight decrease from 7.67 million previously. The prior report significantly exceeded expectations but the quits rate dropped to its lowest level since 2020. As quits typically rise when workers feel confident about securing another job, the decline suggests underlying weakness in the labour market.
Original Source: Giuseppe Dellamotta of investinglive.com
