This week, several key economic events will shape market sentiments, starting with the RBA cash rate decision and Canada's CPI on Tuesday. Markets expect the RBA to cut rates from 4.35% as inflation in Australia slows, while Canada’s CPI faces upward pressure from rising energy costs and trade tensions. On Wednesday, the RBNZ cash rate decision and UK CPI will be released, with RBNZ potentially easing further following previous rate cuts and UK inflation expected to remain stable amid fiscal concerns.
On Thursday, it features U.S. initial jobless claims, with labour market uncertainty rising due to tariffs on key trading partners. The week concludes on Friday with the UK and U.S. composite PMI readings. The UK is expected to return to expansion, while the U.S. PMI could continue strengthening, supported by robust consumer spending but facing trade policy risks.
Here are the week’s key events:
Australia's consumer prices grew in the December quarter at the slowest pace seen in nearly four years, with falling housing costs contributing to the cooling of core inflation and opening the door for an interest rate cut ahead. According to data published by the Australian Bureau of Statistics, the consumer price index increased by 0.2% in the fourth quarter compared to a 0.3% increase forecast. The financial markets are much more confident about easing, with a 95% implied probability that the RBA will cut its cash rate from 4.35% at its February 18 meeting.
(RBA Interest Rate Decision Chart, Source: Trading Central)
Canada's CPI decreased by 0.4% month-over-month in December 2024, bringing the annual inflation rate to 1.8%. Rising energy prices, coupled with persistent supply chain challenges, continue to exert upward pressures on consumer prices in Canada. On top of this, building trade tensions, such as tariffs imposed by the U.S., may contribute to increased costs for imported goods, further influencing inflation.
(Canada Inflation Rate YoY Chart, Source: Trading Central)
Top US company earnings: Arista (ANET), Medtronic (MDT)
While the official rate is currently at 4.25%, it is still considered to be on the restrictive side, relative to the Bank's estimation that the long-term neutral rate is to be between 2.5% and 3.5%. The RBNZ has cut the official cash rate by 125 basis points since August 2024, when inflation softened even as economic activity fell into recession during the third quarter. In addition, easing domestic inflationary intentions and recent declines in inflation expectations allow for further easing.
(RBNZ Interest Rate Decision Chart, Source: Trading Central)
The CPI in the UK rose by 0.3% in December 2024, bringing the annual rate to 2.5%. Improved supply chain conditions and continued stabilizing of energy prices are expected to cause a slight easing in inflation. However, changes in the economic outlook for the U.K. may cause complications regarding the possibility of fiscal policy adjustments. Chancellor Rachel Reeves may need to raise taxes or cut spending as the bank is short of a £10 billion budget buffer, which could affect consumer spending and inflation dynamics.
(U.K. Inflation Rate YoY Chart, Source: Trading Central)
Top US company earnings: HSBC (HSBC), Rio Tinto (RIO)
Initial unemployment claims were reported at 219,000 for the week ending February 7, 2025. The recent US tariffs on imports from Canada, Mexico, and China may further compound this uncertainty about employment in certain sectors.
(U.S Initial Jobless Claims Chart, Source: Trading Central)
Top US company earnings: Walmart (WMT), Mercado Libre (MELI)
The UK's composite PMI recorded a reading of 49.8 in January 2025, indicating mild contraction. Analysts expect a rebound to 50.2 in February 2025, suggesting marginal expansion. Easing political uncertainties and improved business sentiment are expected to promote economic activity. However, the UK's economic landscape is complex, with Chancellor Rachel Reeves facing potential decisions on raising taxes or cutting spending due to fiscal constraints, which could impact business confidence and PMI readings.
The composite PMI for the US was recorded at 52.3 in January 2025, signifying moderate expansion. Further gains are anticipated based on the continued strength of services and consumer spending. Meanwhile, recent developments in trade policy, including the imposition of tariffs on imports from key trading partners, may introduce uncertainties affecting manufacturing and export-oriented services, potentially influencing PMI outcomes.
Top US company earnings: Constellation Energy (CEG), Sika (SXYAY)
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