Week of December 12

Equities have struggled and oil prices cratered as concerns over recession mounted, exacerbated by dour commentary from prominent CEOs. Now attention turns to the last round of central bank policy meetings in 2022, with the Fed expected to hike rates by 50bps.

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The week in review

The general theme for the week was slowing optimism as markets faded some of the reaction to Powell's commentary from a week ago. Key US indices fell, in most cases, more than 2%.

• In the early part of the week, the focus shifted to a series of investor conferences, where CEOs from Dow components gave their outlook for the economy, striking a generally worrisome tone. 
• Crude prices fell more than 10% to the year's lowest level as traders worried about future economic growth. 
• The treasury yield curve inversion deepened with the Fed now in the pre-monetary policy decision blackout. 
• Chinese authorities shifted rhetoric about covid, focusing on minimising the effects of lockdowns and talking up vaccinations, but not officially ending the zero covid policy. Protests that had marked the prior week were absent. 
• UK Halifax house index slowed more than expected, the latest sign of a deepening UK recession as more unions agree to strike for higher wages.

TOP EVENTS IN The week ahead

Central banks

The focus for the week will be a host of major and emerging market central bank decisions. As usual, the market reaction could depend more on guidance for next year rather than the rate decisions.

The Fed, BOE and ECB are all expected to raise rates by 50bps, leaving the interest rate spread among these majors unchanged unless any of them surprise markets by raising by a different amount. Recent data gives room to all of them to surprise to the upside, such as better-than-expected employment data from the US, rising inflation in the UK, and persistently high core CPI in the EuroZone. Other crucial central bank meetings include the SNB and Norges Bank.

Of the major forex pairs, EURUSD and GBPUSD hit the highest since June but price action suggests momentum is weakening. 

Inflation data

The release of US CPI figures on Tuesday could substantially change expectations for the Fed's decision to be announced on Wednesday. The consensus is for the recent trend to continue, with both headline and core inflation expected to tick down by a decimal. But a surprise to the upside could shift the expectations about whether the Fed will hike by 50 or 75 bps.

A similar situation lies with BOE, as the UK reports its latest inflation figures on Wednesday, ahead of the rate decision on Thursday. But British inflation is expected to tick up, both on the headline and core. The UK also reports the claimant count on Tuesday, which is expected to show an increase in Britons seeking unemployment benefits. FTSE lost more than 1% last week, and formed an inside bar with 7430 acting as breakdown support.

Other events, earnings

After the rate decisions, market activity is expected to reduce ahead of the holidays.

Monday sees UK manufacturing production. Tuesday sees Australian consumer and business confidence metrics, but it is unlikely to trigger a break outside the 20-pips range on Aussie. Wednesday has the Japan Tankan index. Japan also publishes its trade balance on Thursday, along with the US releasing retail sales. USD/JPY might have found a top at 138.00 for now. Friday includes UK consumer confidence and retail sales. 

Companies updating investors include Oracle, TUI, Lennar, Inditex, Currys, and Adobe.