US – Fresh data to show us the way
This Tuesday US CPI is expected to fall from 3.4% to 2.9%, and core CPI from 3.9% to 3.7%. Goods prices are likely to fall further, while services prices may stay sticky. Last Friday’s seasonal CPI revisions were well anticipated but did not change the picture of slowing inflation into last year end. Thursday’s US retail sales are expected to slow to +0.2% MoM for the control group, down from the exceptionally strong +0.8% in December but still in robust territory. Seasonal adjustments may distort the print, but should be reversed thereafter and we look for underlying data pointing to a healthy consumer. The Atlanta Fed’s GDP Nowcast currently estimates a real GDP growth of 3.3% for Q1, well above the Bloomberg consensus of 1.1%, and if true may result in further upside in yields in the short-term.

UK – Mixed data unlikely to move the needle
Average weekly earnings 3m/YoY are likely to fall from 6.5% to 5.7%, but reliable official data on unemployment may not be available until September amid data quality issues. This makes it particularly challenging for the BoE to judge reliably if the labour market is loosening, which is a material consideration for immediate policy making. CPI on Wednesday is likely to tick up, from 4.0% to 4.2% YoY, whereby particular focus lies on resilient services prices – which are seen to rise from 6.4% to 6.9%. UK rates led last week’s selloff, as 5Y Gilt yields rose by 20bps and markets trimmed rate cut bets to only 84bps in 2024, compared to 118bp in the US and 109bp in the Eurozone. The market doesn’t believe in early cuts by the BoE and requires material data undershoots to reverse their view. With very few cuts priced, UK yields appear asymmetric.

Algebris Investments’ Global Credit Team