Christmas market. Image source: Jorge Franganillo, flickr.com
As we head into the holiday week, markets will be influenced by a few economic events, despite the reduced trading volumes typical of the Christmas period. Investors will focus on key data releases and central bank commentary, particularly the Canadian GDP report, U.S. unemployment claims, and a speech from the Bank of Japan (BOJ) Governor Kazuo Ueda. Here’s a breakdown of what to expect in the upcoming week:
Canadian GDP on Monday, December 23
The week begins with the release of Canada's GDP data for October on Monday, December 23. Economists are forecasting a 0.2% month-over-month growth, signaling moderate economic expansion. This report will be closely watched as investors assess the health of the Canadian economy amid concerns over high inflation, elevated interest rates, and external challenges such as weaker global demand.
A GDP reading in line with the 0.2% forecast would reflect resilience in key sectors like energy and manufacturing, which have helped Canada weather recent economic headwinds. However, a downside surprise could prompt concerns about the potential for economic stagnation, putting pressure on the Bank of Canada (BoC) to reassess its monetary policy. A stronger-than-expected result, on the other hand, would support the narrative that the BoC may continue to hold interest rates steady as we enter 2024. This release is also likely to impact the Canadian dollar (CAD) and Canadian equity markets, depending on how the data aligns with expectations.
BOJ Governor Ueda’s Speech on Wednesday, December 25
On Wednesday, December 25, all eyes will be on Tokyo as BOJ Governor Kazuo Ueda delivers remarks at the Meeting of Councillors of Keidanren, Japan’s largest business federation. Ueda’s speech is expected to provide critical insights into the central bank’s outlook for 2024, particularly as Japan grapples with rising inflation and its ultra-loose monetary policy stance.
Given recent speculation about potential adjustments to the BOJ's yield curve control (YCC) policy and inflation targets, Ueda’s comments could influence the yen (JPY) and Japanese equity markets. Any hawkish remarks suggesting further tightening could strengthen the yen and weigh on Japan's stock market, while dovish comments would likely have the opposite effect.
U.S. Unemployment Claims on Thursday, December 26
The U.S. Labor Department is scheduled to release weekly unemployment claims data on Thursday, December 26. Economists expect 218,000 new claims for unemployment insurance in the prior week, reflecting a steady labor market. This release will be closely monitored as the Federal Reserve assesses whether the U.S. economy is showing signs of cooling, following months of tight monetary policy aimed at controlling inflation.
While the expected 218,000 figure is relatively low, any sharp deviations could spark market reactions. Higher-than-expected claims might raise concerns that the labor market is beginning to soften, which could lead to speculation that the Fed will pause or even cut interest rates sooner than anticipated in 2024. On the other hand, if claims come in lower than expected, it would reinforce the view that the labor market remains resilient despite the Fed's aggressive rate hikes. U.S. equity and bond markets could see modest movement based on the release.
Conclusion
Although holiday trading volumes are expected to be lighter, the upcoming week features a few key events that could move markets. Canadian GDP data and U.S. unemployment claims will offer fresh insights into the state of the North American economy, while BOJ Governor Ueda’s speech could shape expectations for Japan’s monetary policy in the year ahead. Investors will need to stay alert for potential volatility, especially if these events deliver any surprises.
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