Picadilly Circus, London, UK. Image source: Ian Holton, flickr.com
This week will bring a series of high-impact events that are likely to drive significant market movements. With critical economic data releases and central bank decisions from the US, UK, Eurozone, Canada, and Japan, investors and traders will closely watch for signals on global economic health and monetary policy direction. Below is a breakdown of what to expect this week.
Monday: Manufacturing PMIs in Eurozone, UK, and US
The week kicks off with the release of December’s Manufacturing Purchasing Managers’ Index (PMI) data from the Eurozone, UK, and the US on Monday, December 16. These figures will offer insights into the performance of the manufacturing sector and provide clues about broader economic trends.
In the Eurozone, recent PMIs have shown signs of contraction due to weakening demand and persistent inflationary pressures. Analysts expect December’s PMI to hover near contraction territory as European manufacturers continue to face headwinds from a sluggish global economy and geopolitical tensions. A sharper-than-expected decline could weigh on the euro and European equity markets.
The UK’s Manufacturing PMI is also likely to reflect similar trends, with output expected to remain subdued as the economy grapples with high interest rates and lackluster demand. While recent PMI figures have signaled a slowdown, any surprises—positive or negative—could influence the Bank of England’s policy stance heading into 2025.
In the US, the manufacturing sector has shown more resilience, though it too has faced challenges from a tight labor market and high borrowing costs. December’s PMI is expected to stay a bit below the 50-mark, indicating expansion, but a sharp downturn could fuel concerns about the overall health of the US economy as growth begins to slow.
Tuesday: US Retail Sales and Canada CPI
On Tuesday, December 17, two key economic indicators will be released—US Retail Sales and Canada’s Consumer Price Index (CPI) for November.
US Retail Sales, a critical gauge of consumer spending, are expected to show moderate growth after a robust holiday shopping season. Analysts predict a rise of around 0.6% in November retail sales, reflecting a mix of stronger online sales and the impact of higher prices on consumer spending. However, any signs of a slowdown could raise concerns about the resilience of the US consumer, a crucial driver of economic growth. If the data disappoints, it could lead to heightened speculation that the Federal Reserve might continue cutting rates in early 2025 to support the economy.
Canada’s CPI will provide key insights into inflationary pressures in the country. With inflation steadily declining in recent months, economists expect the headline inflation rate to ease further in November, potentially getting closer to Bank of Canada’s 2% target. A lower CPI print could reinforce the Bank of Canada’s recent decision to cut rates, suggesting that inflationary pressures are being successfully managed. Markets will react to any surprises in the data, particularly in the Canadian dollar and bond yields.
Wednesday: UK CPI and Fed Rate Decision
Wednesday, December 18, will be one of the most crucial days of the week, with the release of UK CPI data and the Federal Reserve’s rate decision.
UK CPI for November is expected to show a slight decline in the inflation rate, with economists forecasting an annual rate of 2.6%, While the Bank of England has recently cut rates to stimulate economic growth, inflation remains a key concern. A lower-than-expected CPI figure could further support the case for more dovish moves by the BoE in 2025, potentially weakening the pound.
The Federal Reserve’s rate decision is highly anticipated, with a strong probability that the central bank will announce a 25 basis point cut in the federal funds rate. This would mark the third rate cut by the Fed in 2024 as it continues to respond to slowing economic growth and cooling inflation. Markets are already pricing in this move, and the key focus will be on the Fed’s forward guidance. Any signals of further cuts in 2025 could lead to a rally in US equities, while the dollar may face downward pressure.
Thursday: US GDP, Bank of Japan, and Bank of England Rate Decisions
Thursday, December 19, will feature three major events: the US GDP report, as well as rate decisions from the Bank of Japan (BOJ) and the Bank of England (BOE).
US GDP for the third quarter is expected to be revised slightly lower, with economists predicting an annualized growth rate of 2,8%. The US economy is not showing major signs of slowing, but any further downward revisions could strengthen the case for additional Fed rate cuts in 2025. Investors will closely watch this data for any surprises that might influence market sentiment.
The Bank of Japan is expected to keep its interest rates unchanged after two hikes earlier this year, which brought the policy rate into positive territory for the first time in decades. While inflation in Japan has shown signs of moderating, BOJ policymakers are likely to adopt a wait-and-see approach to assess how their previous rate hikes are impacting the economy. Markets will focus on Governor Kazuo Ueda’s press conference for any hints about the BOJ’s plans for next year.
Similarly, the Bank of England is also expected to hold rates steady after two rate cuts in 2024. With inflation easing and growth remaining fragile, the BoE is likely to remain cautious, adopting a neutral stance for the remainder of the year. Governor Andrew Bailey’s comments will be closely scrutinized for clues about future monetary policy, particularly in light of upcoming economic data releases in early 2025.
Friday: UK and Canada Retail Sales
The week concludes on Friday, December 20, with the release of UK and Canada Retail Sales data for November.
UK Retail Sales are expected to show an of 0.5% month-on-month growth. Any surprise on the downside could intensify concerns about the UK’s economic outlook, especially heading into 2025.
Canada’s Retail Sales for November are forecast to show an increase of 0.4%, following a strong showing in October. Retail sales have been supported by resilient consumer spending, but rising interest rates and inflationary pressures may start to weigh on consumer sentiment. A weaker-than-expected retail sales figure could reinforce expectations for further rate cuts from the Bank of Canada in 2025.
Conclusion
This upcoming week will offer critical insights into the global economy’s health as key data on manufacturing, inflation, retail sales, and GDP is released. In addition, central bank decisions from the Federal Reserve, Bank of Japan, and Bank of England will provide further clues about the future direction of monetary policy. With so many pivotal events scheduled, markets are likely to experience heightened volatility, and investors will be watching closely for any surprises that could shape the outlook for early 2025.
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