Written Commentary
Top tier UK, US and Canada statistics in view, but to remain heavily overshadowed by Middle East conflict, little in the way of other scheduled events, as focus also shifts to buy run of major central bank policy meetings next week.
- U.K.: GDP shows no growth momentum at start of year, big drag from Administration & Support Services offsets some strength in Retail and Wholesale; jump in energy prices ahead
- U.S.A.: PCE deflators to show inflation rather more stubborn; Q4 GDP seen unrevised; Durable Goods Orders to see strength; Michigan Sentiment to offer insight into Middle East conflict impact on consumers
EVENTS PREVIEW
The week ends with a rush of significant data from the UK (GDP and monthly activity indicators), US (PCE Deflators, Durable Goods Orders & Michigan Sentiment) and Canada (labour indicators), but it will be the conflict in the Middle East and highly volatile energy prices that remain front and centre. Yesterday’s attacks on shipping, ports and energy infrastructure, and rather unsurprisingly an uncompromising and combative tone in the first message from Iran’s new ‘Supreme Leader’, and a 30-day suspension of the US Jones Act (that requires US made ships manned by US crews to be deployed for shipping between US ports, a law should that should have been ditched decades ago) all point to a rapid end to hostilities remaining unlikely. Though markets (above all energy prices) will continue to be buffeted by and jump around on the array of reports about attacks and ambiguous political rhetoric. One historic taboo area in terms of infrastructure attacks does need to be carefully watched, namely, the array of critical water desalination plants across the Persian Gulf. Attacks on these are outlawed under numerous international treaties, above all as such attacks represent a direct threat to civilians and the food supply chain – but the turpitude of all parties involved in this conflict suggests that this cannot be completely ruled out.
Next week brings central banks into the frame via way of Fed, ECB, BoJ, RBA, BoC and SNB policy meetings, with only the RBA expected to hike a further 25 bps to 4.10%, but all others seen holding rates, though close attention will be paid to their respective narratives on how ‘temporary’ (‘transitory’ is likely to be absent given the 2021/2022 debacle) the energy price impact on inflation is likely to be. Most will likely stress a high level of uncertainty, opine that they stand ready to act, but for the time being are taking a watching brief, though the SNB will likely note that they are prepared to intervene and/or redeploy negative interest rates to stem CHF strength.
** U.K. – January GDP / activity indicators **
A flat m/m reading paints a very sluggish profile of the UK economy, with most sectors seeing little change on the month, with the big drag proving to be an unchanged Index of Services, which saw a 0.1 ppt positive contribution from Wholesale/Retail offset by a bigger -0.12 ppt drag from Administration & Support Services (which includes travel, recruitment, office administration and rental/leasing), a sharp fall not seen since the pandemic. It would be unwise to overinterpret one month’s data, as it may have been partly weather related, though some will doubtless suggest it might be an initial signal about a potential AI drag. Be that as it may, it does confirm little or no growth momentum as 2026 got underway, with the sharp rise in energy prices clearly posing a major headwind going forward.
** U.S.A. – Jan PCE deflators, Durable Goods Orders, Q4 revised GDP, March Michigan Sentiment **
Today’s busy data run is largely redundant in terms of the outlook for the economy, inflation and rates, but the expected 0.3% m/m 2.9% y/y for the headline PCE deflator, and a higher 0.4% m/m 3.1% y/y for core not only contrasts with the muted CPI gains, but also points to inflation being rather more stubborn, even before the impact of the jump in energy prices due to the Middle East conflict. Q4 GDP is seen unrevised at 1.4% SAAR, while Durable Goods Orders are seen posting solid gains on headline (1.1% m/m) and core ex-Transport (0.5% m/m) measures, but perhaps most attention will be given to Michigan Sentiment, seen at 54.8 from 56.6 and likely to reflect some consumer reaction to the first few days of the Iran conflict.
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