Week Ahead: CPI and UK aData | Daily Market Analysis

Key events:        

• Switzerland – CPI (MoM) (Jan)
• Eurozone – Eurogroup Meetings    
• USA – FOMC Member Bowman Speaks

This week will be quite full of different statistical data. Tomorrow investors will keep a close eye on inflation data in the U.S., looking for clarity on the Federal Reserve's rate hike. The corporate earnings season is winding down, while the UK will release a flood of economic data. At the same time, the Japanese government is set to appoint a new central bank governor and the Eurozone will release updated quarterly economic forecasts. Here's what you need to know early in the week.

Markets trade  lower on Friday

Stock indices in Western Europe dropped sharply on Friday, following Wall Street and Asian markets.

The British FTSE 100 stock index was down 0.36%, the German DAX was down 1.39% and the French CAC 40 was down 0.82%.

Investors fear further tightening of the monetary policy of the European Central Bank (ECB) and the U.S. Federal Reserve System (Fed) to reduce inflation, writes Trading Economics.

CPI data

Investors will eagerly await Tuesday's consumer price index data, looking for signs that inflation continues to slow after recent strong employment data caused markets to revise expectations about how high the Fed might need to raise rates this year.

Inflation rose in December, not fell as previously thought, and data from the previous two months were also revised upward, as the Labor Department's annual CPI revision showed.

Strong inflation data could force markets to reconsider whether the Fed will actually cut rates before the end of the year, which could hurt the rally that lifted stocks and bonds after last year's downturn.

Earning season is coming to an end

The Nasdaq posted its first weekly decline of the year last week, down 2.41%, while the S&P 500 ended the week down 1.11% and the Dow Jones lost 0.17%, in a week dominated by hawkish comments from Fed officials and earnings reports.

More than half of the companies in the S&P 500 index reported earnings, with 69% beating earnings estimates for the quarter.

• UK statistical data

UK inflation and employment data this week will help the Bank of England decide whether it will raise rates again in March.

The Bank of England noted that February's 50 basis point rate hike could be the last in the current tightening cycle, but Wednesday's January inflation report is expected to show double-digit price increases.

Meanwhile, Tuesday's employment report is expected to show that wage growth continues to rise, putting pressure on the Bank of England, while January retail sales data on Friday is expected to show another decline.

Last week, the Bank of England predicted that Britain will enter a shallow but prolonged recession that will begin in the first quarter of this year and last for five quarters.

Bank of Japan

On Tuesday, the Japanese government is expected to formally nominate a surprise candidate to replace Haruhiko Kuroda, whose decade as governor of the Bank of Japan is about to end.

The yen initially rose after reports on Friday that Kazuo Ueda, a 71-year-old academic and former Bank of Japan board member, would be nominated as a candidate, but the currency regained some of its gains after he expressed support for the central bank's current position.

The question of when and how the BOJ will adjust its policy is one of the main issues facing global markets this year. Observers of the BOJ suspect that its ultra-soft monetary policy is likely to change as inflation rises.

Although Ueda is considered an expert on monetary policy, most analysts said his appointment was entirely unexpected and could mean a shift away from ultra-low interest rates sooner than originally expected.

On Wednesday, the European Commission will release its quarterly economic forecasts for the eurozone. Before that, the eurozone will release revised GDP data on Tuesday.

European Central Bank President Christine Lagarde is scheduled to deliver the bank's annual report to the European Parliament in Strasbourg on Wednesday.

Other ECB officials scheduled to speak during the week include Chief Economist Philip Lane, Vice President Luis de Guindos, and Executive Board members Fabio Panetta and Isabel Schnabel.