The US Dollar reasserted itself as concerns about China, Brexit, and other topics dominated the headlines. What’s next? The Fed decision is the central event of the last week before the holidays. Here the highlights for the next week.
Trade tensions between the US and China dropped as both countries, and especially China made gestures. On the other hand, Chinese industrial output and retail sales badly disappointed, weighing on sentiment. The Brexit drama reached new highs. UK PM withdrew the vote on the Brexit deal after realizing she did not have enough support. She was then challenged by rebels in her party and managed to win the vote, albeit with a small majority. She tried to renegotiate the thorny issue of the Irish backstop with her European counterparts, but both sides are far from an agreement. Int he euro-zone, the ECB announced the end of QE, as expected, but also said that the balance of risks is moving to the downside. Weak PMI’s also weighed on the Euro.
- US housing figures: Tuesday, 13:30. Building Permits stood at 1.26 million annualized in October and are projected to advance to 1.27 million in November. Housing Starts stood at 1.23 million and are projected to remain at the same level. They will have a meaningful impact if they both go in the same direction. The sometimes cancel offset each other with one number beating expectations and the other missing them.
- UK CPI: Wednesday, 9:30. Inflation stabilized in recent months, standing at 2.4% y/y in October. The Bank of England would like to raise rates in order to curb inflation, especially as wages are on the rise as well. However, the increased uncertainty about Brexit holds them back. And now, inflation is projected to tick down to 2.3%. Core CPI is also expected to dropÑ from 1.9% to 1.8%.
- Fed decision: Wednesday, 19:00, press conference at 19:30. The Federal Reserve has the last word of the year and it is a critical one. There is no doubt that Chair Jerome Powell and his companions at the FOMC will raise rates. The economy continues enjoying robust growth, employment and wages are rising. In addition, the Fed indicated they are on course to increase interest rates. However, there are signs of a slowdown, mostly felt in the housing sector and in investment. Several Fed officials expressed concern about domestic and global growth. Markets have downgraded expectations for 2019 and have doubts if we will see any rate increase. The Fed’s most recent dot-plot points to three rate hikes. The fresh dot-plot will likely see a downgrade of rate hikes, but two increases are more likely than three, at least in the Fed’s forecasts. A downgrade to one would send the greenback plunging while maintaining three would be perceived as a hawkish sign. Apart from the dots, any changes in the statement will be eyed. In November’s FOMC statement, the Fed downgraded the wording on investment. Will they express worries about additional areas of the economy? Last but not least, Powell will hold a press conference after the event and may provide clarifications. He tends to provide straightforward answers about the economy and about monetary policy, but not about politically sensitive topics such as trade. The impact of the Fed decision will likely reverberate through markets through the week.
- New Zealand GDP: Wednesday, 21:45. The small South Pacific nation publishes GDP data only once per quarter. Back in Q2, the economy leaped by 1%, a robust quarterly rate. We will now receive the data for Q3 and a more moderate growth rate is likelyÑ 0.6% is on the cards.
- Australian jobs report: Thursday, 00:30. The Land down under enjoyed an excellent labor market report in October: 32.8K jobs were gained and the unemployment rate fell to 5%. Robust employment does not go hand in hand with other economic figures such as a slowdown in growth and a struggling housing market. A more modest increase of 0.6% is expected and the jobless rate is expected to remain unchanged.
- Japanese rate decision: Thursday, early in the day. The Bank of Japan is the most dovish central bank in the world and this is not about to change. Inflation remains very low and there is no reason to move. The interest rate is projected to remain at -0.10%, a negative rate, and the BOJ are projected to continue targeting the 10-year bond yield. Governor Haruhiko Kuroda will hold a press conference after the decision.
- UK rate decision: Thursday, 12:00. The Bank of England is stuck between a rock-solid economy and a hard Brexit. Wages beat expectations and imply higher inflation, which is not too low. A weaker pound also pushes inflation higher. On the other hand, Brexit uncertainty is reaching new highs. In case the UK crashes out of the EU without a deal, the economic damage could be monumental. Governor Mark Carney and his colleagues will likely keep interest rates unchanged and the same goes for the size of QE, at 435 billion pounds. The vote was unanimous back in November and no dissents are forecast now. Any surprising vote or comment in the accompanying MPC Meeting Minutes may rock the pound. Otherwise, it’s all about Brexit.
- US GDP: Friday, 13:30. According to the second release for Q3, the economy grew by a robust 3.5%. However, a bulk of this growth was related to inventories, which may be depleted in Q4. The third and final release will likely confirm the data. Apart from the headline and inventories, consumer spending and exports are of interest.
- US Durable Goods Orders: Friday, 13:30. Friday, 13:30. Released alongside the GDP, this more up-to-date figure for November will likely have a significant impact on markets. Headline sales fell by a whopping 4.3% in October according to the final read. They will likely bounce back with +1.8% on the cards. More importantly, core orders rose by 0.2% and the Fed would like to see a more significant advance there. +0.3% is predicted. The data feeds into Q4 GDP.
- US Core PCE: Friday, 13:30. The Fed’s preferred measure of inflation dropped to 1.8% y/y in October and will likely tick up to 1.9% in November after the parallel Core CPI moved up from 2.1% to 2.2%. Month over month, a rise of 0.2% is expected after 0.1% beforehand. The number will likely have a more muted impact than usual as the Fed will have already made its decision earlier in the week.
*All times are GMT
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