The week begins with the World Economic Forum, alongside eurozone CPI. Tuesday brings Germany’s ZEW expectations survey and the UK employment report, both likely to attract market attention, while Netflix earnings will be a notable corporate highlight. On Wednesday, focus shifts to UK CPI, followed later by US construction spending, the Conference Board Leading Index, and US home sales data. Thursday is set to be the week’s macro focal point, with the release of US GDP, personal income, the Fed’s preferred PCE inflation measure, and initial jobless claims. The week concludes on Friday with manufacturing PMI readings across Europe, the UK, and the US, followed by the University of Michigan consumer sentiment survey. Ahead of these releases the BoJ is widely expected to leave rates unchanged, though markets will be alert to any guidance from Governor Ueda regarding the timing and pace of future hikes. We will also hear from the Bank of England’s Greene, who will address the implications of monetary policy divergence between the UK, US, and euro area.
Rhetoric from the World Economic Forum will be closely watched amid a mixed global growth outlook, ongoing policy and political uncertainty, and elevated geopolitical risks. Scheduled speakers include ECB’s Nagel (Tue); ECB President Lagarde, Governor Galhau, and US President Trump (Wed); and Lagarde alongside IMF Managing Director Georgieva (Fri).
Markets witnessed another choppy week, as investors weighed ongoing US policy uncertainty, geopolitical developments, and mixed signals from Fed officials. The 10-year UST yield rose 6bps to 4.22%, while the S&P Index fell 0.38%. Meanwhile, the dollar was up 0.26%, and Brent crude rose 1.25%, to $64.13pb.
The December US CPI report reinforced the view that the US economy is moving decisively from inflation volatility toward greater stability, with underlying price pressures continuing to ease. While inflation remains above target, moderating core inflation, deflation in goods, and a lagged but improving shelter outlook support the Fed maintaining a patient pause as the disinflationary cycle becomes more firmly established. November retail sales rebounded strongly, rising 0.6mom after a 0.1% decline in October, while sales excluding autos and gasoline increased 0.4%mom. October PPI eased to 2.8%yoy from 3.0%, with core PPI unchanged at 2.9%yoy, both measures printed above expectations. The Beige Book noted that economic activity “edged up further,” supported by a modest rise in consumer spending, while employment and wages were broadly flat and prices continued to increase at a modest pace. Price pressures were described as uneven, with higher restaurant costs offset by generally stable manufacturing input and output prices.
Last week, Fed officials coalesced around a stronger defence of policy neutrality and institutional independence, reinforcing a cautious bias ahead of the January 28 meeting. Vice Chair Jefferson said policy is “well positioned,” signalling support for a pause, while Bostic reiterated that rates should remain in restrictive territory given inflation remains too high. Goolsbee and Kashkari went further, warning that political pressure to cut rates prematurely could “cause inflation to roar back,” underscoring a higher-for-longer stance to protect the Fed’s credibility. In contrast, Bowman highlighted labour-market fragilities, noting the Fed “should be ready” to cut rates if conditions deteriorate.
Closer to home, the UK economy is showing signs of resilient but modest momentum, highlighted by a better-than-expected 0.3% GDP growth in November. This rebound was largely driven by a sharp recovery in car manufacturing and a 0.3% uptick in the services sector, effectively reversing the stagnation seen leading up to the Autumn Budget. However, while headline inflation has cooled to 3.2%, the broader outlook remains fragile amid a softening labour market.
China’s December data highlight a growing divergence between a resilient external sector and a still-fragile domestic economy. Exports continued to outperform despite policy and currency headwinds, lifting the 2025 trade surplus to a record high, but weak credit growth and household deleveraging underscore persistent softness in consumption and property activity. Against this backdrop, the PBoC has signalled a clear easing bias, rolling out a broad policy package that cuts relending rates, expands targeted credit support, and emphasises flexible government bond operations to safeguard fiscal funding conditions. With external constraints easing, bank margins stabilising, and liquidity ample, policymakers appear to have increasing scope to deepen monetary support in 2026 to stabilise growth amid an uncertain global environment.
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