Investors will have a very busy economic calendar this week with multiple data releases including the US CPI report, major central banks’ economic projections and interest rate decisions. The US yield curve is now steeply inverted with short-term interest rates rising due to a tight Fed policy and long-term yields retreating, highlighting a weakening economic outlook.
Most US major indices sold off after the US ISM PMI (services) came in higher-than-expected last week, showing that this sector has been expanding for 30 months in a row. Investors thought that strong data could expand the Fed rate hike cycle’s duration, and this weighed on risk assets and benefited safe havens such as the US dollar while the gold price remained flat. On the other hand, the oil price fall was driven by lower demand expectations due to a deteriorated economic outlook in 2023. However, in China (the second-largest consumer of oil) it seems that the government took some serious steps to ease the Covid zero policy restrictions, so this could stabilize the price.
Economic data highlights
Monday 12th of December
Tuesday 13th of December
- GBP- GDP (Q3)
- GBP- Industrial Production (Oct)
- GBP- Manufacturing Production (Oct)
- BoC Governor Malckem Speech
Wednesday 14th of December
- EUR- Inflation Rate Final (Germany- Nov)
- GBP- Unemployment Rate (OCT)
- EUR- ZEW Economic Sentiment Index (DEC)
- USD- Inflation Rate (NOV)
- RBA Gov Lowe Speech
Thursday 15th of December
- JPY- Industrial Production (Oct)
- GBP- Inflation Rate (NOV)
- EUR-Industrial Production (OCT)
- Fed Interest Rate Decision & Press Conference
- NZD – GDP (Q3)
Friday 16th of December
- AUD- Unemployment Rate (NOV)
- CNH- Industrial Production (NOV)
- CNH- Retail Sales & Unemployment Rates (NOV)
- SNB Interest Rate Decision
- BoE Interest Rate Decision
- ECB Interest Rate Decision & ECB Press Conference
- USD- Retail Sales (NOV)
- USD- Industrial Production YoY (NOV)
Fed Rate Hike Slow Down
- GBP- Retail Sales (NOV)
- EUR- Manufacturing & Services PMI flash (Dec)
- GBP- Manufacturing & Services PMI flash (Dec)
- EUR- Inflation Rate (NOV)
- USD- Manufacturing & Services PMI flash (Dec)
The FOMC will meet this week to decide on monetary policy and to publish its economic forecasts in terms of GDP growth, inflation, and unemployment levels with the dot plot diagram showing each Fed member’s projections for the US interest rates in the coming years.
Investors expect the Fed to slow down its rate hike pace from 75 bp to 50 bp in the December 14 meeting, taking the cash rate from 4.00% to 4.50%. In the last weeks, the FOMC members maintained their hawkish tone and assured on multiple occasions that the tight monetary policy would continue until the inflation level is brought down to its target of 2%. Therefore, it is widely expected to see more rate hikes in the next year by 50 bp at least, followed by a rate hike pause and then a possible rate cut before the end of 2023.
Traders will listen to the Fed Chair press conference for more clarity about the central bank’s evaluation of the US economy and for any hints of a possible policy change before the end of 2023.
ECB 50 bp or 75 bp
Eyes will be on the ECB meeting on Thursday to find out whether the European monetary policymakers will slow down their rate hike pace as their American counterparts, or if they would go for another 75 bp.
The German inflation rate (Nov) due on Tuesday could help in predicting the central bank rate hike size as any lower-than-expected figure will strengthen the market’s expectations of a 50 bp rate hike in December’s meeting. Despite the recent hawkish statements from some ECB board members have maintained a 75 bp hike on the table. A 75 bp rate hike would benefit the Euro price however, it will weigh on the growth outlook of the Eurozone.
Investors expect the ECB to shrink its reinvestment of bond purchases and avoid selling bonds at this stage. The central bank will also publish its economic projections in terms of growth and inflation in the coming years.
Bank of England – a 50 bp
The bank of England is expected to hike rates by 50 bp in the coming meeting, taking the current cash rate from 3.00% to 3.5% as the inflation rate seems to have peaked.
The central bank’s monetary committee will keep an eye on the CPI numbers of November due before the meeting. Markets expect the core inflation to steady at 6.5% while the CPI headline to fall from 11.1% to 10.9% due to cheaper energy prices. Any lower-than-expected data will be helpful to the BoE to slow down its rate hike pace further by Q2-23.
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