Markets are still erring on the bullish side of the ledger with risk assets relatively buoyant even with the moderate selloff in stocks this week. But the constant hawkish rhetoric from the majority of Fed speakers since the FOMC meeting may slowly be seeping into equity bulls. The “higher for longer” rates mantra from policymakers remains on loop. It warns of a more prolonged downturn in both the wider economy and risky assets if rates go higher than the current terminal rate of 5.15% .

The release of the latest US inflation figures on Tuesday could go some way to deciding if markets or the Fed is correct. It is understandable that markets and central banks are now massively data dependent as we get closer to the end of policy tightening. Both headline and core annual readings are forecast to slow. But the recent upside revision to the prior monthly print hints at prices possibly remaining more entrenched than previously thought. That would be an unwelcome development for the FOMC. Certainly, for markets too which are anticipating that price pressures will drop sharply in the coming months. This report is the most important data point for policymakers so is fully expected to move markets.

It’s the middle of the month which means we get the usual data deluge from the UK. Following the Bank of England’s latest “dovish” rate rise, markets are entertaining the chance of a pause going forward. We will be watching out for the wage data which has so far been eclipsing 7% recently. The “core services” inflation is the key measure for the MPC. Sterling has proved resilient this year and could trade between 1.20 and 1.24 in the next few months. The 200-day simple moving average sits at 1.1942.

The announcement of the nominees for the new BoJ head are expected to be presented to Parliament on Tuesday. A successor to present Governor Kuroda whose term ends in April is expected to be named on Friday. The front-runner according to local press reports is Ueda after Amamiya turned down the role. After the shock hawkish tweak to its yield curve control policy in December, markets are expecting more policy normalisation by the BoJ this year. But the pace of these changes may be modest and more of a slower process than initially thought, even though recent inflation data hit multi-year highs. Again, the BoJ is data dependent with these price pressures predicted to be transitory. Strong support in USD/JPY resides around 128 with the upside potentially capped at 133 for the time being.

Major risk events of the week

14 February 2023, Tuesday:

-UK Jobs: The recent string of labour market reports has painted a consistent picture of resilience despite the weakening trend in GDP. The jobless rate is expected at 3.7%. Wages have been hovering above 7% but are likely to ease with a BoE survey lately hinting that we have seen the peak.

-US CPI: Expectations are for another cooldown in price pressures with the peak definitely behind us. The headline annual rate is forecast to fall two-tenths to 6.3% in January. The monthly rate is seen at 0.5% with energy prices and auto sales supportive. The core annual reading is seen slowing to 5.5% from 5.7% previously. The m/m figure may tick up one-tenth to 0.4%.

15 February 2023, Wednesday:

-UK CPI: Headline inflation is predicted to fall to 10.2% from 10.5% in December. Lower fuel prices continue to be the biggest downward contributor. The core rate is expected to drop one-tenth to 6.2%. Analysts cite easing supply chain pressures and softer demand as the main reasons for the ongoing declines. There is one more inflation report before the March BoE meeting.

-US Retail Sales: The market median estimate for January sales is 1.7%. A new year bounce is anticipated. A very mild first month of the year, in contrast to mid-December should also mean a lift in January spending. Auto sales are already known to be strong, according to Mannheim data.

17 February 2023, Friday:

-UK Retail Sales: Analysts say consumer confidence remains in the doldrums. Mixed weather and the “January blues” will most likely see a negative sales print. Sales volumes posted only one m/m increase over the whole of last year. A mild drop in GDP in the first quarter is anticipated.