This week highlights only the US CPI and Fed Chair Powell Testimony

US CPI (Wed):

The US CPI Y/Y is expected at 2.9% vs. 2.9% prior, while the M/M figure is seen at 0.3% vs. 0.4% prior. The Core CPI Y/Y is expected at 3.1% vs. 3.2% prior, while the M/M reading is seen at 0.3% vs. 0.2% prior. The Fed is focused mainly on inflation progress at the moment and these readings wouldn’t be bad, although lower than expected figures will be much more welcomed.

Nonetheless, the projection for two rate cuts by the end of the year still holds even though the market leant on a more hawkish side on Friday following the NFP report and especially the inflation expectations data in the University of Michigan consumer sentiment survey.

The NFP report was good and the increase in average hourly earnings isn’t worrying yet given the drop in weekly hours worked. The jump in inflation expectations, on the other hand, has been entirely due to the tariffs news, so that should ease going forward as the fears around trade wars fade (barring of course actual trade wars).

Switzerland CPI (Thu)

The Switzerland CPI Y/Y is expected at 0.4% vs. 0.6% prior, while the M/M figure is seen at -0.1% vs. -0.1% prior. The market is currently pricing a 92% probability of a 25 bps cut in March and a total of 40 bps by year end which is basically two rate cuts that would take the policy rate back to 0%.

Inflation in Switzerland has been falling markedly for years due to a strong Swiss Franc which saw the central bank threatening interventions and negative rates at different times. SNB’s Chairman Schlegel repeated recently that despite being reluctant to reintroduce negative rates, they will do that if the conditions call for it.

US Retail Sales (Fri):

The US Retail Sales M/M is expected at -0.1% vs. 0.4% prior, while the ex-Autos figure is seen at 0.3% vs. 0.4% prior. The focus will be on the Control Group figure which is expected at 0.3% vs. 0.7% prior.

Consumer spending has been stable which is something you would expect given the positive real wage growth and resilient labour market. More recently, we’ve been seeing some easing in consumer sentiment though which might also lead to some softening in consumer spending.

If the data indeed softens, it shouldn’t be worrying just yet but could help alleviate some more inflation worries and keep the market pricing around two rate cuts in 2025.

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