Week in review
The US inflation data came in hotter than expected, while GDP growth surprised on the downside. In January, the core PCE (Personal Consumption Expenditure) index was reported at 4.7% y/y (vs 4.3% forecast and up from December’s 4.4%), while headline rose to 5.4% from 5.3%. Following months of steady decline, the upwards tick of core inflation figure proved particularly worrisome for investors. The reading served as a further reminder that reducing inflation below 4.0% may be significantly harder than bringing it to the current level was.
On the activity side, the second estimate of the US GDP growth came in below expectations. The 4Q22 GDP growth was reported at 2.7% q/q (vs 2.9% forecast and down from 3Q22’s 2.9%). While slowed growth is consistent with Fed’s tightening policy and falling inflation, bad activity news may no longer be good news for markets. Investors now seem to be worried equally about the potential recession as they are about inflation. This week, the US manufacturing and services PMIs as well as durable goods orders will be released, providing more insight on the activity side of the economy.
In Europe, inflation surprised on the upside while sentiment improved beyond the forecasts. In contrast to the headline figure, the core inflation kept increasing in January, reaching 5.3% y/y (vs 5.2% forecast and up from December’s 5.2%). Meanwhile, the headline kept contracting and fell to 8.6% y/y (in line with expectations and down from December’s 9.2%). Importantly, it is the core figure that concerns central banks the most.
Additionally, economic sentiment in Euro Area improved by far more than expected. This is partly due to the improved expectations on the resolution to the Russia-Ukraine war, underlined by the strong pro-Ukrainian messages from the Western leaders in February.
Week ahead
Macroeconomics: The list of this week’s major macroeconomic releases includes Services & Manufacturing PMIs from the US, Euro Area, and the UK, inflation from Euro Area, and the ECB monetary policy meeting accounts.
Earnings: The list of this week’s major earnings releases includes Occidental Petroleum (OXY), Target (TGT), Salesforce (CRM), Broadcom (AVGO), Costco (COST), and JD.com (JD).
