Inflation measures for February are coming out this week for both – the EU and the US – and may show signals of plateauing.
Tuesday 14.03. 12:30 GMT, US Consumer Price Index (CPI) YoY February
The Consumer Price Index (CPI) measures the change in prices consumers pay for a particular basket of goods and services over a certain period. This information shows changes in comparison to one year ago. The CPI is a key indicator for inflation - a higher index indicates higher inflation.
Last month inflation came out higher than forecast – 6.4% versus 6.2%. February's CPI data are expected to show a plateauing inflation trend considerably above the Fed's target of 2%.
Food and housing costs are the two critical components of the Consumer Price Index due to the high weights for both categories. According to the January report, the cost of food, a necessary expense for all income groups, has risen at an annual rate of more than 10%. However, the rate at which food prices are rising is slowing and is expected to continue to do so in February. Housing costs - both prices and rents - have already been falling since mid-2022. Nevertheless, they remain up in yearly terms due to the strong growth in the first half of 2022.
Higher-than-expected data could be bullish for the US dollar and bearish for the stock market as it may increase the possibility of further interest rate hikes. Conversely, weaker-than-expected data could be bearish for the US dollar and bullish for the stock market.
Impact: USD, S&P500
Wednesday 15.03. 02:00 GMT, China Industrial Production YoY February
The Industrial Production index measures the change in the total value of output, adjusted for inflation, produced by manufacturers, utilities, and mines within the respective period. A value above 0 indicates an expansion, while a value below 0 indicates a contraction in the total value.
China's industrial production index has historically been in the expansion zone, hovering between mid-single digits and 20%. Negative data has been recorded only in the 3 months at the beginning of 2020 and in April 2022.
Growth in China's industrial production has slowed in recent months, with year-on-year growth of just 1.3% in December, better than the 0.2% expected but worse than the previous month's 2.2%. The forecast data to be released on March 15 are expected to rise to 2.6%, indicating an increased pace of expansion.
A higher-than-expected reading may have a bullish effect on the CNY, while a lower-than-expected reading may have a bearish impact on the CNY.
Impact: CNY
Wednesday 15.03. 12:30 GMT, US Retail Sales MoM February
Retail sales data show the change in the total value of retail sales within the respective period. It is among the leading indicators of consumer spending, representing the country's largest single economic activity. A reading above zero indicates an expansion, while a reading below zero indicates a reduction in retail sales during the respective period.
US retail sales unexpectedly rose to 3% in January, compared with the 1.8% forecast for that month and two months of negative data before that. Such an increase may show that consumer spending has remained robust amid a strong labour market and wage growth. A continuation of higher-than-expected retail sales could signal to the Fed that further monetary tightening is needed to bring inflation back to target. A small increase of 0.2% is forecasted for February.
Higher-than-expected data could be bullish for the US dollar. Conversely, weaker-than-expected data could be bearish for the US dollar.
Impact: USD
Thursday 16.03. 13:15 GMT, Eurozone Interest Rate Decision
The current eurozone interest rate is 3%, following a 50bp hike at the last ECB meeting. Investors are watching interest rate changes as short-term interest rates are an important factor in currency valuations. In addition, the stock market might react negatively to rising interest rates.
Although the official forecast is that the ECB may leave rates unchanged at the March meeting, the relative hawkishness of ECB officials signals that they may be ready for another 50bp hike if inflation and other related data show insufficient signs of cooling.
If the ECB officials decide to keep the interest rate at a current level, this would be the first time since July 2022, indicating a potential pivot in the current tightening monetary policy. Such a decision may be perceived positively by the stock market.
Higher-than-expected data could be bullish for the EUR and bearish for the stock market. Conversely, weaker-than-expected data could be bearish for the EUR and bullish for the stock market.
Impact: EUR, STOXX, DAX
Friday 17.03. 10:00 GMT, Eurozone Consumer Price Index (CPI) YoY February
The Consumer Price Index (CPI) measures the change in prices paid by consumers for a particular basket of goods and services over a given period. This information shows changes compared to one year ago. CPI is a key indicator for inflation – a higher index means higher inflation.
The preliminary data for February CPI were reported at 8.5% - slightly higher than the forecast at 8.2%. It is expected to be even higher, at 8.6%, when the final data are released on March 17. If the final data for February is confirmed at 8.6% - the same level as in January - it could signal that inflation in the eurozone is plateauing after falling from its double-digit highs in November.
Higher-than-expected data may have a bullish impact on the EUR and a bearish impact on the stock market, while lower-than-expected data may have a bearish effect on the EUR and a bullish impact on the stock market.
Impact: EUR, STOXX, DAX
Stocks to watch
Adobe (ADBE) announcing its earnings results for the quarter ending on 02/2023. Forecast: 3.68. Positive earnings surprise in 9 out of the last 10 reports. Time: Wednesday, March 15, 10:00 GMT.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
