The Week Ahead - Nomura

Analysts at Nomura take us through a flurry of economic events from across the globe that will be reported in the week ahead, and will emerge the main drivers for the FX markets.

Key Events:

US CPI (Wednesday): Retail gasoline price data indicate gasoline prices continued to rise in January. Futures prices suggest an increase in natural gas prices. Against this backdrop, we expect a 2.1% m-o-m advance in the aggregate energy price. Altogether, we expect a 0.292% m-o-m (2.3% y-o-y) increase in the headline CPI and 242.445 for CPI NSA in January.

Retail sales (Wednesday): Retail sales were weaker than expected in December, up only 0.6% m-o-m in December. We expect retail sales ex-autos to have advanced 0.7% m-o-m. With autos, we forecast a 0.1% m-o-m increase in total retail sales.

German first estimate of Q4 GDP (Tuesday): We expect the first estimate of German Q4 GDP to show that growth picked up to 0.5% q-o-q from 0.2% q-o-q in Q3. Our forecast would also be consistent with the annual pace of GDP growth of 1.8% for 2016 that was published by Destatis in January.

Germany ZEW index (Tuesday): We expect the ZEW expectations index to show a marginal decline to 15.0 in February after increasing to 16.6 in January. Despite

UK CPI inflation (Tuesday): CPI inflation rose sharply in December to 1.6%. We think there is further to go, with CPI inflation expected to rise to around 2.75% by end-2017/early-2018. Our forecasts for food and petrol prices can account entirely for the expected 0.3pp rise in inflation in headline January. We expect core inflation to remain unchanged for the time being.

UK labour market report (Wednesday): One of the key watch-variables for the Bank of England at the moment is wage growth. Wage growth sub-3% (as we expect) is broadly consistent with the 2% inflation target given productivity growth of just under 1% currently.

UK retail sales (Friday): Official retail sales fell sharply by 2% in December. However, this is a volatile series and may well snap back to some degree in the January reading. We reiterate that retail sales are a volatile series, and a rise in the official measure would not be a surprise after the size of December’s fall.

China CPI (Tuesday): CPI inflation likely rose modestly to 2.2% y-o-y in January from 2.1% in December, driven by the impact from the lunar New Year, which occurred in January this year but February last year. However, high-frequency data suggest the impact of lunar new year on food price inflation was not as strong as usual.