The main highlight of the session was the UK labour market report. The data was softer than expected across the board with the unemployment rate rising to the highest level since February 2021 and wage growth surprising to the downside. The market responded by firming up expectations for a 25 bps rate cut at the next BoE meeting with the probability now standing around 75%.

The other major data release was the German ZEW index. The data missed forecasts by a notable margin but was just slightly lower than the prior month. Overall, it didn’t change anything and the market reaction was muted. Other than that, we haven’t got anything of note.

In the American session, the focus will turn to the January Canadian CPI report. The CPI Y/Y is expected at 2.4% vs 2.4% prior, while the M/M measure is seen at 0.2% vs -0.2% prior. As always the focus will be on the underlying inflation measures. The Trimmed Mean CPI Y/Y is expected at 2.6% vs 2.7% prior, while the Median CPI Y/Y is seen at 2.6% vs 2.7% prior.

As a reminder, the BoC remains in a neutral stance with the market not pricing any move through year-end. The economic data has been supportive of such stance with the labour market stabilising and core inflation hovering a bit above the 2.5% mid-point of the BoC 2-3% target range.

The data is unlikely to change much for the BoC unless we get some big deviation from the estimates. In fact, Governor Macklem warned that the central bank must be careful not to misdiagnose economic weakness amid the structural economic change. The BoC is focused mainly on the USMCA review now as a negative outcome could weigh significantly on the Canadian economy and require more rate cuts.

We will also get the weekly US ADP jobs data, the NY Empire Manufacturing Index and the US NAHB Housing Market Index. These reports won’t change anything for the Fed though, so the market reaction will likely be muted. At the margin, we could see some reaction in case the ADP data surprises significantly on either side.