Fed, BoE and BoJ meetings coupled with preliminary December PMI from the Eurozone and the UK as well as inflation from the US, the UK and Canada will highlight the week ahead as we slowly wind down the year.
USD
November CPI data came in line with expectations with headline at 2.7% y/y and core at 3.3% y/y. Monthly figures showed increase of 0.3% for both core and headline with both numbers running above 0.3% when unrounded (0.313% for headline and 0.308% for core). This is a fourth consecutive month of 0.3% m/m print. Core services ex shelter eased to 4.2% y/y from 4.4% y/y in October. Powell was saying, during the last press conference, that inflation is high due to shelter component and that shelter is lagging. Considering there are declines in non-housing services inflation Fed can be satisfied with this report.
The yield on a 10y Treasury started the week at 4.17%, rose to 4.41% and finished the week at around 4.40%. The yield on 2y Treasury started the week at 4.11% and reached the high of 4.25%. Spread between 2y and 10y Treasuries started the week at 4bp and finished the week at 18bp as curve steepened further. The 2y10y was inverted for over two years. The money market-capital market curve (3m10y) has become upward slopping after 776 days with a 6bp spread. FedWatchTool sees the probability of a 25bp rate cut at December meeting at around 98%, while probability of a no cut is around 2%.
This week we will have retail sales, FOMC meeting and Fed’s preferred inflation metric PCE. Markets have fully priced in a 25bp rate cut so the attention will be on new Summary of Economic Projections as well as Powell’s tone during press conference. Additionally, technical adjustment to the Fed’s reverse repo rate is also expected.
Important news for USD:
Tuesday:
Retail Sales
Wednesday:
Fed Interest Rate Decision
Friday:
PCE
EUR
ECB has lowered rate by 25bp, as was widely expected, to 3%. The statement shows that domestic inflation edged down but is still high due to wages and prices in certain sectors, namely services. The most important part is that ECB removed their pledge to keep monetary policy restrictive. They will stop reinvestment of PEPP proceeds by the end of 2024. They are not pre-comitting to a rate cut path, instead they remain data dependent with a meeting-by-meeting approach. Three main factors they will follow when deciding on future monetary policy moves are 1. inflation outlook, 2. underlying inflation and 3. strength of monetary policy transmission. New projections see growth lowered to 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and first projection of 2027 growth seen at 1.3%. Headline inflation was also lowered and is now seen at 2.4% y/y in 2024, 2.1% y/y in 2025, 1.9% y/y in 2026 and 2.1% y/ in 2027. Core was unchanged and is seen at 2.9% y/y in 2024, 2.3% y/y in 2025, 1.9% y/y in 2026 and 2.1% y/ in 2027.
At the press conference President Lagarde stated that the risks to inflation were two-sided, adding that with four cuts they had already covered a lot of ground in terms of easing. Lagarde mentioned that there was talk about a 50bp rate cut. She added that economy is losing momentum as manufacturing is sliding down further and services sector starts to ease.
This week we will have preliminary December PMI data expected to show mild improvements with services returning back into expansion.
Important news for EUR:
Monday:
Manufacturing PMI (EU, Germany, France)
Services PMI (EU, Germany, France)
Composite PMI (EU, Germany, France)
GBP
October GDP data showed economy contract by -0.1% m/m while expectations were for a 0.1% m/m increase. Services sector was flat while drops were seen in production and construction sectors. This is a weak start to the Q4 and although downsides are more pronounced stimulus from budget should help economy grow faster in 2025.
This week we will have preliminary December PMI data, employment and inflation data as well as BoE meeting. The rate should remain the same as Governor Bailey already announced that they will cut four times in 2025 if economy outlook continues developing as projected.
Important news for GBP:
Monday:
Manufacturing PMI
Services PMI
Composite PMI
Tuesday:
Payrolls Change
Unemployment Rate
Wednesday:
CPI
Thursday:
BoE Interest Rate Decision
AUD
RBA has decided to leave their cash rate unchanged at 4.35% as was widely expected. The accompanying statement emphasizes that although inflation has fallen substantially from its peak it is still too high and it is expected to come into bank’s targeted range by 2026. “The Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain.” Uncertainties regarding growth prevail. Labour market remains tight although it has been easing recently. Wage growth has eased by more than expected. Monetary policy remains restrictive and is working as intended.
RBA Governor Bullock stated in the press conference that recent economic data have been mixed. She added that they have deliberately made changes to the wording of their statement due to some softer than expected data. That change in wording refers to RBA gaining more confidence on inflation moving down. Governor clarified that they have not explicitly talked about rate cuts at December meeting and that it is not clear that cut will be coming in February. Overall, a more dovish/less hawkish statement and press conference as RBA is mulling the prospect of rate cuts due to last week’s terrible GDP print. We will get quarterly inflation print before the February meeting and it will be the most important data point for their decision on rates.
November employment report provided us with some stunning figures. The economy added 35.6k jobs vs 25k as expected. The unemployment rate dropped to 3.9% from 4.1% in October while an increase to 4.2% was expected. Participation rate ticked down to 67% from 67.1% the previous month. All of the jobs added were full-time (52.6k) while part-time jobs saw decline (-17k). Tightness in the labor market should give RBA more room and should deliver another pause in February.
November inflation data from China saw CPI come in at 0.2% y/y vs 0.5% y/y as expected due to a drop in food prices. Non-food inflation was flat m/m after being in deflation for the previous two months. PPI printed -2.5% y/y, an improvement from -2.9% y/y in October. It is in deflation for 26 consecutive months. With inflation data so low, PBOC has more room to ramp up its stimulus program. Politburo decided to step in and announced that for 2025 more proactive fiscal policy and moderately loose monetary policy will be implemented. Unconventional counter-cyclical measures are touted as main goal is to increase domestic demand. No concrete details were given but a commitment to “moderately loose” monetary policy made Chinese stocks surge and AUD to start gaining strength.
This week we will have economic activity data from China.
Important news for AUD:
Monday:
Industrial Production (China)
Retail Sales (China)
NZD
November electronic card retail sales came in flat m/m and -2.3% y/y. Further declines in data point that consists of around 70% of total retail sales speaks that consumer is still struggling with high prices indicating weakness in Q4 retail sales.
This week we will have Q3 GDP data.
Important news for NZD:
Wednesday:
GDP
CAD
BoC has delivered another 50bp rate cut bringing rate down to 3.25%. The statement shows that economy has developed in line with expectations from the October meeting. Further down the statement there is a sentence “Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time” indicating that it is time for gradual approach to monetary policy. Q3 GDP came in below expectations and it is likely that Q4 will also miss expectations. Jobs market is still softening as indicated by increasing unemployment rate. Economy is in state of excess supply.
Governor Macklem stated at the press conference that they have debated whether to cut by 25 or 50bp and ultimately deciding on a 50bp cut due to no need for restrictive monetary policy and declining GDP data. He stated that recent data has been mixed and on the currency front stated that weakness in CAD is due to appreciation in USD. He reiterated that economy is in excess supply but he does not see recession on horizon. They will be considering further rate cuts in the future but there was no clear stance as BoC is expected to take “more gradual approach” to monetary policy.
This week we will have inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Final Q3 GDP was revised up to 0.3% q/q from 0.2% q/q as preliminary reported and 1.2% annualized vs 0.9% annualized as preliminary reported. Private consumption was revised down to 0.7% from 0.9% while capital expenditure was revised up to -0.1% from -0.2%. Net trade was also revised up and showed -0.2% vs -0.4% as preliminary reported.
This week we will have BoJ meeting. During the week there was a leak that BoJ members do not see high cost in waiting to raise rates, therefore we expect no change at this meeting and further rate hikes to come in 2025.
Important news for JPY:
Thursday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending December 6 came in at CHF458.8bn vs CHF458.9bn the previous week. Another week of virtually no change to deposits as SNB stands on the sidelines and lets market determine Swissy strength.
SNB has surprised markets and delivered a 50bp rate cut thus lowering its policy rate to 0.50%. The statement shows their readiness to intervene in the FX markets and their view that uncertainty around economic outlook has increased since September meeting. New projections see GDP unchanged at 1% in 2024 and 1.5% in 2025. Inflation projection has been lowered for 2024 and 2025 to 1.1% and 0.3% (on the brink of deflation) respectively while 2026 was revised up to 0.8% from 0.7% as previously seen. The statement concludes with “The SNB will continue to monitor the situation closely, and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.” indicating that they are not in a rush to continue with rate cuts.
SNB Chairmen Schlegel commented that inflation decreased significantly in the mid-term and that without today’s cut inflation projections would be even lower. Rate cuts will remain the primary instrument when conducting monetary policy and there is still room for further rate cuts to ensure price stability. He added that although they are not fans of negative rates, negative rates are working and SNB will use them if the need arises.