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Week In Focus 8th-12th February 2021: Highlights include US CPI, China CPI, UK GDP, Riksbank, Banxico, CBR

  • MON: EZ Sentix Index (Feb)
  • WED: Riksbank Policy Announcement; Banxico Policy Announcement; Chinese Inflation (Jan); US CPI (Jan); Norwegian CPI (Jan); US CPI (Jan)
  • THU: CBR Policy Announcement; US University of Sentiment Prelim (Feb); OPEC Oil Market Report; Japanese National Day Holiday, Chinese Spring Festival, South Korea's New Year's Day
  • FRI: UK GDP Estimate (Dec) and Prelim GDP (Q4); Hong Kong New Year's Day

NOTE: Previews are listed in day-order

RIKSBANK PREVIEW (WED): The Riksbank is expected to hold rates at 0.00%, likely reiterate that rates are to remain unchanged for the foreseeable horizon and hold the QE programme at the current SEK 700bln figure. As a reminder, the last meeting took place in November at which point the Bank elected to increase their asset purchase programme and pushed the purchase window out to encompass the entirety of 2021; a decision that sparked pushback from Breman and Floden. Interestingly, the last meeting did not include any explicit mention of the SEK which at the time had appreciated markedly since the prior gathering; since then, the SEK has continued to strengthen but at a slower pace, and therefore may once again escape scrutiny or explicit mention from rate setters, particularly as NOK/SEK has continued to err higher since November. Focus for this meeting will be on the prospect of any further easing as a number of speakers have indicated that rates could be cut into negative territory if deemed necessary. Notably, Governor Ingves hasn’t spoken on the matter so it will be interesting to see if this view is shared by him as well; Ingves has generally been against a return to NIRP. As such, it is likely the statement will retain at least the usual policy optionality that rates can be reduced while keeping the forecast path unchanged for the entirety of the horizon.

CHINESE CPI (WED): Headline CPI Y/Y for January is seen cooling to -0.1% (vs prev. 0.2%), whilst the M/M is expected at 1.1% (vs prev. 0.7%). Goldman Sachs thinks that the headline will likely remain mild in the upcoming period due to cooling pork prices, albeit some of this could be offset by an early-January rise in fresh vegetable inflation. The bank also warns that the timing of the Chinese Lunar New Year could translate into some downside distortion in the Y/Y metric. In terms of monetary policy implications, Credit Suisse reminds us that China did not reply on policy rates to steer inflation – with the data not part of the PBoC’s official mandate. Instead, the key objective “is to maintain the stability of the value of the currency and thereby promote economic growth”, the bank says.

US CPI (WED): Headline CPI is expected to rise 0.3% m/m after +0.4% in December, helping to nudge the annual rate to 1.5% y/y from 1.4% prior. Core CPI is seen rising 0.2% m/m against a prior +0.1%, though the annual core rate is seen unchanged at 1.6% y/y. Analysts are watching for upside in inflation metrics over the coming months, but this is not likely to incite a policy reaction; the Fed has suggested the upside in prices from March, April and May -- where inflation will rise above the 2.0% target-- are a result of pandemic-related base effects, which it says will be transitory and the central bank sees inflation cooling towards the end of the year. However, in the second half of the year, there will be much attention on the stimulatory impact of the Biden administration's fiscal support measures, which may inject further reflationary impulses in the second part of the year -- much of this will naturally also hinge on the course of the pandemic.

BANXICO PREVIEW (WED): Some desks see the Banxico trimming rates by 25bps at next week's policy meeting, after it left policy unchanged in December -- that decision was split 3-2, with two members calling for a 25bps reduction. The central bank's statement said that uncertainty around inflation forecasts was a key factor for the decision. Pantheon Macroeconomics says inflation pressures are now in check, due to the sluggish nature of Mexico's recovery, and this has been offset by some pressures like higher taxes, and colder weather conditions, which are temporary factors. "Inflation will edge lower in January as a whole and in February, but it likely will rebound temporarily in April, due mainly to an unfavourable base effect, but disinflation will then resume," Pantheon says, "the recent MXN rebound will help to push inflation down, allowing Banxico to continue easing over the coming meetings, barring unforeseen supply shocks or a political mishap."

CBR PREVIEW (THU): The CBR will likely keep rates unchanged at 4.25%. December's statement was a little more hawkish than some were expecting, Credit Suisse notes, with the central bank showing some worries about the sharp rise in food inflation and higher consumer inflation expectations. The CBR also tweaked its language about the next rate cut: it had previously indicated that a cut could be forthcoming within one of the next upcoming meeting, but CS observes that the most recent statement made a reference to some additional cut in the policy rate at an indefinite point in the future; "therefore, even though we are still optimistic about CPI inflation returning back to below the 4.0% target in 2021 (from 4.9% in 2020), we no longer expect the CBR to cut the policy rate," CS writes.

UK GDP (FRI) Expectations are for the December M/M print to show growth of 1.5% as the UK economy made its way out of the November national lockdown. RBC highlights that in order to register positive growth for the quarter as a whole, the bar is relatively low, with a print of -0.9% needed for such an outturn. Note, a consensus reading of 1.5% for the M/M metric would give a Q4 Q/Q print of 0.7%, which in turn would give a 2020 figure of -9.9%. That said, given the imposition of a further national lockdown in January, the upcoming release will very much be regarded as in the "rear-view mirror" with more timely indicators such as PMIs of great interest to market participants. As a guide, the January composite reading dipped back into negative territory of 41.2 vs. December's 50.7.