Today:
Like last week’s flash PMIs, the German ifo survey this morning suggested that business conditions in the euro area’s largest member state improved slightly at the start of 2025. In particular, the headline business climate index rose 0.4pt to 85.1, with the current assessment index up for a second successive month to a six-month high of 86.1. But these indices still remained below the average over the past year. And despite greater optimism in the services sector, firms – particularly manufacturers and retailers – were increasingly pessimistic about the outlook for the coming six months. Indeed, the composite expectations index fell to 12-month low (84.2). Meanwhile, ahead of the Lunar New Year holiday, the Chinese PMIs for January disappointed. The manufacturing index dropped 1pt to a five-month low (49.1) as new orders fell the most in eleven months. And the non-manufacturing index almost fully reversed the 2.2pt increase in December to 50.2, consistent with stagnation despite the recent increase in policy stimulus.     

Tomorrow:
Consumer confidence surveys from the US and France are due. The Conference Board index is expected to rebound from weakness in December, which contradicted the message from the similar Michigan survey. And in France we might also see a modest recovery after dropping sharply in December as political and fiscal uncertainty weighed. European policymakers will hope that the withdrawal of monetary policy restrictiveness will be reflected in the ECB’s Bank Lending Survey for Q4. Meanwhile, ahead of Thursday’s Q4 GDP release, US advance goods trade figures for December will offer insights into the likely contribution from net trade. Irish GDP figures, which often skew the aggregate euro area data one way or the other, will also warrant close attention, with growth in Q4 likely to be markedly softer than in Q3 (3.5%Q/Q).

Wednesday:
All eyes will be on the Fed’s monetary policy decision. With the December FOMC decision to cut rates for a third consecutive meeting having been a closer call and the Committee having judged that it might have been at or close to the point that it would be appropriate to slow the pace of easing, the FOMC is expected to leave the FFR target range steady at 4.25-4.50%. The statement is likely to maintain that “economic activity has continued to expand at a solid pace” and that unemployment “remains low”. Despite the softer inflation prints in December, the Fed’s assessment that inflation “remains somewhat elevated” is also likely to be little changed. Attention will also be on Powell’s post-meeting press conference for guidance for the near-term outlook. We would expect him to reiterate that the economy is in a good place and that the path of policy will be determined, in part, by the incoming data. So, he might add again that the FOMC’s December dot plots – that signalled two rate cuts this year – is still a reasonable assumption.

Thursday:
Attention will be on the ECB’s policy announcement. After the Governing Council in December dropped the commitment to keep policy “restrictive for as long as necessary”, measures of underlying inflation have been consistent with a return to the 2% target and the flash January PMIs pointed to an ongoing absence of economic growth. So, there appear increasing risks of a potential inflation target undershoot over the medium term. And the Governing Council seems bound to cut rates again by 25bps to 2.75%. While the statement will continue to note that policy decisions will remain data dependent, we expect the updated forward guidance to likely signal its readiness to cut rates again, to neutral if not necessarily beyond.

The first estimates of Q4 GDP from the euro area and member states will illustrate slowing economic momentum in the final quarter of last year. We expect euro area GDP growth of just 0.1%Q/Q in Q4 down from 0.4%Q/Q in Q3 (which was boosted by special factors). We expect German GDP to have contracted 0.1%Q/Q in Q4 to maintain a sideways trend since the pandemic. A similar contraction is also possible in France, where the Olympic Games previously inflated quarterly GDP (0.4%Q/Q in Q324), while we see only marginal growth in Italy (0.1%Q/Q). In contrast, Spanish GDP growth likely remained strong in Q4, despite the impact of the flash floods in late October, moderating just 0.2ppt from Q3 to 0.6%Q/Q. The Commission’s economic sentiment survey for January will also provide a cross-check to last week’s flash PMIs. In the US, GDP growth likely remained robust in Q4 underpinned by solid household consumption. This notwithstanding, Daiwa America’s Lawrence Werther forecasts a modest slowing from 3.1%Q/Q annualised to 2.2%Q/Q annualised, about ½ppt softer than the Bloomberg survey consensus.    

Friday:
Focus will turn to inflation-related indicators across the major economies. In the US, the December CPI and PPI results suggest that the headline PCE price index increased 0.3%M/M – the most in eight months – to take the annual rate up 0.2ppt to 2.6%Y/Y. But the Fed’s closely watched core PCE index is expected to rise a more modest 0.2%M/M to leave the annual rate steady at 2.8%Y/Y for a third consecutive month. The Employment Cost Index – the Fed’s preferred measure of wages – is expected to report that growth of 0.9%Q/Q in Q4 was broadly in line with the better-behaved readings in Q2 and Q3, which took a step down from 1.2%Q/Q in Q1. In Japan, Tokyo CPI inflation is expected to be broadly steady at around 3.0%Y/Y in January, while the BoJ’s preferred core rate (excluding fresh foods and energy) is expected to edge slightly higher close to the 2% target. The usual tranche of month-end Japanese data will also include December industrial production, retail sales and unemployment. Finally, in Europe, January’s flash inflation estimates for Germany and France are also due, with the consensus for German HICP inflation to be steady (2.8%Y/Y), but the equivalent rate in France to tick up (1.9%Y/Y). But prices of petrol and household energy represent significant upside risks everywhere.