Week of FEBRUARY 17

Last week, the focus was on US inflation, which came in higher than expected, supporting a more hawkish stance from Federal Reserve Chair Jerome Powell.

The upcoming week will see inflation figures from the UK, Japan, and Canada, as well as a rate decision from the RBA.

Week in Review

The twin themes for the week were tariffs and inflation, with US CPI coming in higher than expected. Of particular interest was the core CPI acceleration to 3.3% from 3.2% instead of falling to 3.1% as expected. This trend was repeated with PPI figures the next day.

While addressing legislators, Powell essentially stuck to the post-rate decision rhetoric about inflation not being quite there yet and warned that rates might not go down until the labour market showed weakness.

Across the Atlantic, UK Q4 GDP surprised to the upside at 0.1% instead of the expected -0.1% contraction as the economy unexpectedly expanded by 0.4% in December. Meanwhile, ECB President Christine Lagarde reiterated that inflation will return to target later this year, though the outlook is more uncertain due to trade tensions.

In geopolitics, markets were caught off guard when US President Donald Trump announced the start of peace negotiations over the war in Ukraine after calls with his Russian and Ukrainian counterparts. Notably, China expressed support for the process. Trump also announced "reciprocal tariffs" to take effect in April, targeting countries that levy duties on imports from the US, including value-added tax. However, the markets interpreted the lack of immediate action as a positive, weighing on the dollar.

Biggest Market Movers

• DAX and FTSE 100 hit new record highs amidst speculation of easing from major European central banks and a widening gap with the Fed.
• Gold scored its third week of consecutive all-time highs as investors fretted over the impact of tariffs following Trump's threats.
• The Euro gained 2%, aided by weakness in the dollar and hopes for a peace deal in Ukraine.

Top Events in the Week Ahead

The coming week is fairly active on the economic front, with the calendar featuring inflation reports from some major economies while the US will observe a holiday on Monday.

Upcoming Inflation Reports

Britain's inflation rate is expected to keep slowing down when it reports its latest figures on Wednesday. Headline CPI is forecast to dip to 2.4% from 2.5%, while the core is seen at 3.1% compared to 3.2% prior. Before the CPI release on Tuesday, the ONS will release the latest jobs numbers, with the unemployment rate expected to be unchanged at 4.4%. Cable could accelerate towards 1.27 if bulls break and sustain 1.26.

Canada is also expected to report inflation figures this week on Tuesday, with forecasts pointing to stability at 1.8%, unchanged from the prior month. Loonie bulls have eyes on the 1.40 handle next, with resistance at 1.42 holding firm,

Japan will report its own inflation on Thursday, with economists forecasting a rise to 3.7% from 3.6% year-on-year and core at 3.2% instead of 3% prior. Japan will also report Q4 GDP figures around the weekly open, expected to accelerate to 0.5% from 0.2% in the third quarter. USD/JPY hovers above the 200-day average near 152.60, almost averaging the 151-155 range.

RBA Expected to Cut Rates

The RBA is expected to conclude its first rate decision meeting on Tuesday, with three quarters of domestic economists predicting it will opt to start its long-awaited easing cycle with a 25bps cut. Policymakers' preferred inflation measure has finally returned to target, increasing pressure on the RBA to ease up and support the economy. However, dissenters argue that labour shortages might give the bank a reason to pause for another month. Aussie could continue its ascent towards 0.64 should the 200-day average support near 0.6270 remain intact.

Other Events, Earnings

Monday sees the Eurozone trade balance. German ZEW economic conditions and sentiment indices are due on Tuesday. Wednesday includes Japan's trade balance. Australia's unemployment rate is released on Thursday. Friday has flash PMIs from several key economies.

Earnings season is moving past its peak, with several major names still yet to report in the coming week, such as Arista, HSBC, Carvana, Analog Devices, Walmart, Alibaba, and NatWest.