The week ahead

US inflation and retail sales figures will be in focus this week as analysts search for clues as to the timing of the next Fed rate hike. The beginning of US earnings season will also dominate the news flow, with US banks taking their traditional place at the head of reporting season, with the recent highs in US markets ensuring that the focus remains squarely on the health of corporate USA.

A host of data from China, including trade, credit growth and inflation, will meanwhile provide signals of underlying growth and price trends. Other key data highlights the slew of UK Trading update, as UK retailers have already been in focus with Next and Debenhams, but with AO World, M&S and the supermarkets releasing trading statements, the spotlight remains on the habits of the UK consumer.

United Kingdom output

Market expectations are for industrial production to grow at an annual rate of 3.5%, close to that recorded in October and among the highest rates seen in recent years. This will be consistent with the UK PMI surveys, which indicated that solid export gains have recently helped boosting the goods-producing sector.

In contrast, the predicted rebound in construction output from October’s decline is expected to be a weak one, with markets looking at annual growth of 1.9%. Nevertheless, PMI survey evidence noted that improved house building activity provided a stimulus to the construction sector in the final months of 2017, helping the sector stabilise from its recent downturn.

US inflation

Surveys indicated that the economy ended 2017 in good shape. The steady growth and the solid labour market and rising prices have added to expectations that the Fed will remain on track for another rate hike in the near future. Markets are assigning a probability of over 60% to a March rate move (with incoming Fed Chairperson Jerome Powell helming his first policy meeting).

Tracking the above, the US inflation will provide further insights into price pressures, with market expectations of an annual rise of 1.8% for core inflation, slightly higher than November. A stronger number will add to expectations that the Fed will revise up its current projection of three rate rises this year.