Week of december 16

Last week witnessed important economic events. The Chinese government announced fresh stimulus measures, and the ECB, BOC and SNB cut interest rates while the RBA held rates steady.

Next week features the final rate decisions of the year from the Fed, BOE and BOJ, in addition to inflation data from the UK, US (PCE) and Japan.

Week in Review

Last week, global markets hosted a series of events surrounding central banks and economic indicators.

Chinese authorities bolstered market sentiment with their first monetary easing stance after Asian markets closed Monday, marking their first shift towards monetary easing in over a decade. Meanwhile, the nation's trade surplus broadened amid the steepest import decline in 12 months.

The ECB meeting yielded mixed takeaways as President Christine Lagarde noted the quick dismissal of a 50 bps cut. However, reports of potential cuts at the following four meetings surfaced, as staff projections indicated lower growth. In subsequent communications, ECB officials reiterated their dovish stance. While the ECB slashed rates by 25 bps a day after US inflation matched expectations of a 2.7% year-on-year rise in December, price pressures increased both on the CPI and PPI fronts.

The BOC trimmed rates by 50 bps as projected but removed language suggesting further cuts, opting to assess rate decisions meeting by meeting. Still, the bank highlighted ongoing labour market softness and inflation trending towards target over two years. The Loonie weakened to a nearly 5-year high against the US counterpart (USDCAD) despite higher oil prices, with 1.43 next in sight while hovering above 1.41.

Meanwhile, the RBA held its rates but struck a dovish tone by removing language about ruling out options, particularly after Governor Bullock noted rate moves were not discussed. After several weeks of declines, AUDUSD could slip to the October 2023 low of 0.6270 should the Fed deliver hawkish or less dovish remarks. Conversely, resistance can be observed at 0.6450.

Geopolitical developments included the collapse of the Syrian government, fresh US-European sanctions on Russia, and a South Korean presidential impeachment that failed to gather sufficient votes.

Biggest Market Movers

• Oil prices soared over 5% on Chinese stimulus prospects and potential extended OPEC cuts, despite the EIA and OPEC reducing their demand growth outlooks.
• Gold struck $2,725 mid-week before retreating on the sticky US inflation data.
• EURUSD slid below 1.05 for the first time this December following the ECB decision.
• USDJPY gained 2.50% as markets priced in just 10% odds of a December hike versus 60% the week prior, amid speculation of tightening in 2025.

Top Events in the Week Ahead

The week marks the commencement of a condensed central bank meeting schedule preceding the festive period.

Fed's Final Cut Looms Large

The Fed takes centre stage this week, with markets pricing in a 25 bps cut amid sticky inflation data. The central bank will likely signal a "wait-and-see" stance, suggesting a January pause to digest year-end figures and White House transition effects. Despite recent inflation stickiness, the market conviction in easing remained firm, already anticipating a projected CPI increase towards the end of the year before an early 2025 drop. Due Friday, the Fed PCE Price Index may see core inflation climb to 2.9% from 2.8%. A hawkish outcome may pressure EURUSD below 1.04, with doves opening the door back to 1.06.

BOE Split Vote Takes Spotlight

The BOE convenes on Thursday amid mixed signals. Despite two months of GDP contraction, higher prices and strong employment suggest another hold. Market focus centres on the vote split, with dovish MPC member Swati Dhingra expected to favour a cut. Ahead of the meeting, Tuesday's jobs data may show unemployment steady at 4.3%, while Wednesday's inflation figures project headline CPI unchanged at 2.3% but core rising to 3.4%. The Cable hovers above the 1.26 handle, with eyes on 1.25 on the downside and the 200-week average of 1.28 on the upside.

BOJ Potential Surprise in Store

BOJ expectations for a hike on Thursday have diminished, though inflation data coming up a day after the decision add an extra layer of complexity. With consumer prices projected above target, the possibility of an earlier-than-expected "surprise" remains this year, though the hike is looming, as previous communication showed. Meanwhile, Japanese inflation, reported on Friday, is expected to climb to 2.5% from 2.3%. Should momentum continue favouring bulls, the next resistance for USDJPY sits at 156.90, whereas support lies at the 150.00 round level.

Other Events, Earnings

The week opens with Chinese housing and employment figures on Monday. German Ifo business sentiment and Canadian CPI are due Tuesday. Japanese trade numbers are set for release on Wednesday. German GfK consumer confidence and the final US Q3 GDP are released on Thursday. The Chinese Loan Prime rate and UK retail sales round out the week on Friday.

Corporate earnings are winding down, with notable reports from Accenture, Nike, Bunzl, Micron Technology, Lennar, Serco, Carnival, and FedEx.