Week of DECEMBER 11

Key data from the closing week pointed to the US reaching a soft landing and the Fed being able to start easing sometime next year. The focus now turns to the release of US CPI a day before the conclusion of the December FOMC meeting, followed by rate decisions from the UK and the ECB.

Top Events in Review

Declining global interest rates were the week's theme, providing a disappointing start to trading on Monday and Tuesday as traders worried that the global economy was weakening. The Fed was in its pre-rate decision blackout with no speakers throughout the week.

EU bonds dipped following surprised comments from hawkish member Isabel Schnabel suggesting rate cuts were possible in the middle of next year, joining other dovish voices such as France's Francois Villeroy, who suggested the same.

Labour figures from the US disappointed, with JOLTS showing over 900K fewer open jobs than expected, considering the miss in the data and the prior month being revised lower. US final non-farm productivity for the third quarter was revised higher.

In monetary policy, the RBA decided to keep rates unchanged, but a more dovish tone suggesting that inflation was moderating surprised the markets. The BOC left rates unchanged, implying that demand pressures were easing. 

Moody's affirmed China's credit rating but changed its outlook to negative. Meanwhile, the divide between the official and private PMIs in China continued in the services sector. Caixin reported a rise in PMI services, expanding in contrast to the previous week's NBS measure, which fell into contraction. 

BOJ Deputy Governor Ryozo Himino provided commentary that investors took as hawkish, supporting the yen. 

Biggest Market Movers 

The Euro trended more than 1% lower through the week as markets moved to price in more rate cuts next year.

Gold came off its record spike to end the week in the red as safe haven flows normalised, and the dollar gained some strength in the middle of the week.

WTI fell for a 7th week in a row and retested $70 on demand concerns as markets worried the global economy faced headwinds going into the northern hemispheric winter.

Top Events in the Week Ahead

A busy schedule is coming this week as institutions compress releases ahead of the holidays at the end of the month. 

US Double-Header with CPI and Fed 

The US will release its November CPI figures a day before the Fed rate decision, which could add extra market volatility. Inflation in the US is expected to continue to ease, with the monthly reading potentially deflationary. If expectations are met, then the FOMC meeting the next day would leave rates unchanged, with analysts expecting that the time for declaring an end to the rate hikes is near. Focus will likely be on Fed Chair Jerome Powell's post-rate-decision press conference to see if he provides a more dovish tone this time. Gold is a likely volatile candidate, with a move back to $2K pending data releases and little chance of reclaiming record highs regardless.

Will ECB Join Recent Commentary?

A day later, it's the ECB's turn, which has already said that rates won't go higher, but in light of recent comments from officials suggesting that conditions might be met for cutting, investors are likely to be very interested to see how forceful the statement is on keeping rates up for the rest of the year. If the ECB is perceived as joining the dovish chorus, EURUSD could descend even more, with $1.0681 in the spotlight. Any respite will have little chance of gaining traction while trading below $1.085.

UK Data Barrage Ahead of BOE

The UK will keep cable traders on edge through most of the week with a series of key data points released before the BOE decides on policy. Starting on Tuesday is the release of the claimant count and the unemployment rate, which is expected to show an easing in the labour market that could be used to justify ending rate hikes. The next day is the release of the monthly GDP, which is expected to show that the economy remains stagnant, with manufacturing data expected to slip into negative growth. 

The BOE meets on Thursday, with the consensus that there won't be another hike. However, the focus will be on the vote count to see if the minority that supported hikes in the past has given up or grown. The BOE could surprise and go along with its peers in suggesting that rates have peaked for now. Doing so will imply additional pressure towards $1.2450, with a hawkish narrative pointing to $1.27 once again.

Other Events, Earnings

Tuesday sees the release of Westpac and NAB confidence data. On Wednesday, the Tankan Large Manufacturers Index will be published. Thursday has French jobs numbers and US retail sales. Flash December PMIs for major economies are expected on Friday, along with Chinese retail sales. Corporate reports start their year-end wind down, with progressively fewer names publishing results. 

Oracle, Johnson Controls, Adobe, Costco, Lennar and Darden Restaurants are among the companies updating investors.