Asian equity markets remained in constructive mood following rises in US and European stocks. Yesterday’s US data were positive, at least on the surface, with Q4 GDP growth of 2.9% (q/q annualised) beating expectations. That, however, was slightly lower than 3.2% in Q3 and the relatively subdued pace of growth in consumer spending points to potentially softer GDP growth in 2023. In Japan, Tokyo CPI was stronger than expected with the core measure excluding fresh food rising to 4.3% in January from 3.9%, adding to speculation of Bank of Japan policy changes later this year.
There are no UK data releases today. Chancellor Jeremy Hunt is scheduled to deliver a speech on achieving growth in key sectors including digital technology, green industries and life sciences, as well as setting out a long-term plan to improve productivity. Markets will look ahead to next week’s monetary policy update from the Bank of England (and also the Federal Reserve and the European Central Bank).
Spain will release Q4 GDP this morning, the first country to do so in the single currency area. Eurozone M3 money supply and Italian industrial sales data are not likely to attract much attention. The Spanish economy is expected to have eked out growth of 0.1%q/q for a second quarter in a row. Next week, Q4 GDP estimates for Germany, France, Italy and the Eurozone will be released. Recent economic indicators suggest that a Q4 contraction in the Eurozone is less likely or likely to be shallower than had been previously expected.
In the US, the December PCE deflator – the Fed’s preferred inflation measure – will be released. It is expected to confirm the message already given by the CPI data that both headline and core inflation fell last month. We forecast the headline PCE deflator to fall to 5.0% from 5.5% and the core PCE deflator to decline to 4.4% from 4.7%. Personal spending, meanwhile, is forecast to have fallen. Such outturns would reaffirm that inflation is on the way down and economic growth is slowing, adding to expectations that US interest rates are close to peaking.
The final release of the University of Michigan’s US consumer sentiment survey for January will probably be unchanged from the preliminary reading of 64.6, up from 59.7 in December. The preliminary results also showed one-year-ahead inflation expectations falling to 4.0%, the lowest since April 2021.
Market reaction to yesterday’s US data was broadly risk positive, albeit volatile. US 10-year Treasury yields rose above 3.5%. GBP/USD is broadly unchanged below 1.24. The Japanese yen is a little firmer following the Tokyo inflation data.
