Week ahead: What are the markets watching this week?

In addition to inflation data, jobs numbers and global PMIs, four major central banks—the Fed, the SNB, the BoE and the ECB—also claim the spotlight this week, all of which are expected to remain on pause.

Without question, this week will be a busy one for traders.

FOMC rate decision – Wednesday

The headline event of the week will be the US Federal Reserve, the Fed, occupying the macro throne on Wednesday at 7:00 pm GMT. The FOMC is widely anticipated to remain on pause, leaving the Fed Funds target range at 5.25%-5.50% for a third consecutive meeting. As of writing, market pricing suggests around 110bps of cuts for 2024, down from 125bps following Friday’s above-consensus US jobs report. Also relevant, markets pulled back on expectations for a cut in March from 65.0% to 53.0%, though May is still largely priced for a 25bp cut. Evidently, traders will be seeking clues for rate cuts at this week’s meeting, though many desks claim that the Fed are unlikely to push out any overly dovish message given inflation still remains above their 2% target.

This week’s emphasis, therefore, leans on the accompanying rate statement and Summary of Economic Projections (SEP). You will recall that September’s economic projections had the terminal rate at 5.6% by the end of 2023 and 5.1% by the end of 2024.

In addition, interest will be directed to economic projections for growth, unemployment and inflation. You may also recall in September’s SEP that real GDP growth of 1.5% was projected by the end of 2024, with unemployment to tick higher to 4.1% and core PCE inflation to slow to 2.6% over the same period.

SNB, BoE, and ECB – Thursday

Three major central banks will be in the limelight on Thursday.

The Swiss National Bank (SNB) is scheduled to announce its latest policy changes at 8:30 am GMT and is anticipated to leave the Policy Rate unchanged at 1.75%. This follows September’s rate pause (markets were evenly split heading into the previous event, with half calling for a 25bp hike to 2.00% and the remainder happy to remain where they were).

The Bank of England (BoE) will be live at midday and is also projected to stand pat on rates, leaving the Bank Rate at 5.25% for a third straight meeting (15-year high). Regarding economic data, inflation cooled according to the recent release, easing to 4.6% for the year-on-year headline print and slowing to 5.7% for the core measure over the same period. The BoE looks increasingly like the outlier among major central banks, with rates expected to remain higher for longer; the ECB and Fed could cut as soon as March. You may also remember that the BoE Governor Andrew Bailey communicated that it was far too early to think of rate cuts. Consequently, we can expect the accompanying policy statement to repeat the sentence that policy will remain restrictive to return inflation back to target.

The European Central Bank (ECB) will be live shortly after the BoE at 1:15 pm GMT, and is expected to keep all three key benchmark interest rates unchanged for a second successive meeting (90% probability according to market pricing). You will note that annual inflationary pressures have subsided considerably of late, cooling to 2.4% in the twelve months to November, with the core measure also easing to 3.6%, down from October’s 4.2% print. What’s interesting is that one of the more hawkish members of the Governing Council, Isabel Schnabel, referred to the changes in core inflation as remarkable; Schnabel added that recent inflation numbers made the case for another rate hike ‘rather unlikely’. Following the remarks, expectations for rate cuts accelerated and March is now on the table for a 25bp cut.

Additional tier-1 data of interest this week

A day ahead of the FOMC rate decision, US inflation data will be released on Tuesday at 1:30 pm GMT. The release is unlikely to have much effect on Wednesday’s rate announcement but could influence future policy decisions. Year on year, headline inflation is expected to have eased to 3.1% in November, with the core measure expected to cool slightly to 4.0% from 4.1% for the same period.

UK employment numbers will also be monitored on Tuesday at 7:00 am GMT, though as of writing, estimates have yet to be published for the employment release. Nevertheless, for wages, in the three months to October, pay (excluding bonuses) is expected to slow to 7.4%, while pay (including bonuses) is anticipated to cool to 7.8% from 7.9%.

UK GDP will be released on Wednesday at 7:00 am GMT; the median estimate is for the UK economy to have contracted by -0.1% in October, down from 0.2% growth in September. Of note, the UK economy flatlined in Q3, according to the latest preliminary release from the Office for National Statistics (ONS). We will get the final Q3 reading in late December, yet it will unlikely have much impact.

Aussie jobs data will be out on Thursday at 12:30 am GMT. According to current estimates, the unemployment rate is anticipated to tick higher to 3.8%, with employment growth to slow to just north of 10,000 in November, down from October’s 55,000 reading. Also of note, the participation rate is expected to have decreased to 66.9%, marginally lower from the previous print of 67.0%.

Global flash manufacturing and services PMIs for December will be widely watched on Friday for the eurozone, the UK and the US at 9:00 am, 9:30 am and 2:45 pm GMT, respectively.

G10 FX (5-day change):

Charts: TradingView