Streets of Paris, France. Image source: Allen James, flickr.com
As we enter the week, financial markets are poised to respond to a series of critical economic data releases and central bank announcements. Investors, policymakers, and traders will closely monitor developments, especially regarding interest rates, inflation figures, and economic growth indicators from various major economies. Here's what to expect in the upcoming week.
Tuesday: RBA Cash Rate Announcement
The Reserve Bank of Australia (RBA) will release its much-anticipated cash rate decision on Tuesday, December 10. Market consensus indicates that the RBA will maintain the current interest rate at 4.35%. While inflation remains a global concern, Australia’s inflationary pressures have shown signs of easing, allowing the central bank to take a more cautious approach. The economy has begun to stabilize, and the RBA is likely to reaffirm its stance of keeping rates on hold.
RBA officials are expected to issue a statement following the rate decision. The tone of the statement will be closely examined, as any hint of future rate hikes or dovish shifts could impact both the Australian dollar and the broader markets. Investors will be looking for cues about the RBA’s inflation outlook, especially given the potential spillover effects from global economies like the US and China, which are key trading partners for Australia.
Wednesday: US CPI Report and BOC Rate Decision
On Wednesday, December 11, two significant events will capture market attention.
US CPI Report:
All eyes will be on the US Consumer Price Index (CPI) report for November. Economists expect the data to show only a marginal increase of 0.1% in headline inflation, reflecting moderating price pressures as supply chain disruptions ease and demand softens. Core inflation, which excludes volatile food and energy prices, will be the focal point, as this provides insight into the underlying inflation trends that influence the Federal Reserve's policy decisions.
A lower-than-expected CPI print could boost market sentiment by reducing fears of aggressive Federal Reserve rate hikes in early 2025. Conversely, if inflation surprises on the upside, the markets may react with heightened volatility as speculation about further monetary tightening resurfaces. The Fed’s next meeting is still a few weeks away, but this CPI data will weigh heavily on its policy considerations.
Bank of Canada (BOC) Rate Decision:
The BOC will also announce its interest rate decision on Wednesday. The central bank is widely expected to cut its overnight rate by 50 basis points, from 3.75% to 3.25%. The Canadian economy has been grappling with slower growth and softer inflationary pressures, prompting economists to forecast this move. Governor Tiff Macklem will hold a press conference after the decision, where he is likely to outline the BOC’s rationale and its forward guidance. Markets will closely scrutinize his comments for clues on the future path of monetary policy and how the bank plans to balance growth and inflation risks.
Thursday: US PPI and Unemployment Claims, Central Bank Rate Decisions
Thursday, December 12, will be an action-packed day, featuring more key data releases and several crucial central bank rate decisions.
US PPI and Unemployment Claims:
In the US, the Producer Price Index (PPI) for November and the weekly Unemployment Claims report are set to be released. Like the CPI, the PPI is forecasted to increase by a modest 0.1%, signaling that input costs for producers are stabilizing after months of inflationary pressures. Markets will watch this data for any divergence from the CPI, as producer prices can often foreshadow future consumer price movements.
Additionally, initial unemployment claims are expected to reach 221,000, reflecting a relatively stable labor market. This report will be key in assessing whether the US job market remains resilient in the face of a high-interest-rate environment, especially as the Fed weighs its options going into the new year.
Central Bank Rate Decisions:
Swiss National Bank (SNB): The SNB is anticipated to lower its policy rate by 25 basis points, from 1.00% to 0.75%. Switzerland’s economy, like many in Europe, has been affected by weaker demand and lower inflation, leading to expectations of a dovish pivot. SNB Governor Martin Schlegel will address the media following the decision, and any deviation from the forecast could impact the Swiss franc and Swiss equity markets.
European Central Bank (ECB): The ECB is also expected to cut its main refinancing rate, reducing it by 25 basis points from 3.40% to 3.15%. ECB President Christine Lagarde will hold a press conference to explain the bank's decision. With Eurozone inflation cooling and growth slowing, the ECB is walking a fine line between supporting economic activity and ensuring inflation remains under control. Investors will watch closely for any hints regarding the bank’s plans for early 2025.
Friday: UK GDP
The week concludes on Friday, December 13, with the release of the United Kingdom’s Gross Domestic Product (GDP) figures for October. Forecasts suggest a modest growth of 0.1% month-over-month, which would signal that the UK economy continues to expand, albeit at a very slow pace. The Bank of England will undoubtedly consider this data in its own policy deliberations. A stronger-than-expected GDP figure could fuel speculation that the BoE might take a less dovish approach at its next meeting.
The UK has been contending with stagnant growth and inflation, making this GDP report a crucial barometer for the economy’s health. Financial markets will react to any significant deviations from the forecast, particularly in the British pound and UK stocks.
Conclusion
The upcoming week promises significant market movements as traders and investors react to a flurry of economic data and central bank decisions. From rate cuts in Canada and Switzerland to the all-important US inflation data, the financial landscape is set for potential volatility. Investors will be closely monitoring these events to reassess their portfolios and trading strategies as the year draws to a close.
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