Week of December 19

It was a rough final two days for stocks when initial relief turned to panic after central banks continued to raise rates despite growing fears of recession. GBP/USD wiped out 5 days of gains after the BOE meeting. Now it’s the final week before the holidays.

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The week in review

The three major central banks who met last week raised by 50bps, but the market had different reactions to each decision by the Federal Reserve, Bank of England and European Central Bank.

• The Fed's rate hike was followed by the customary press conference of the Chairman, where Powell reiterated that rates would keep rising, denting the initial optimism from the market.
• There was no press conference following the BOE's decision, but the vote split was seen as dovish, as it appeared the MPC was divided on what to do about the UK's high inflation while entering a recession. 
• The ECB's decision was seen as more hawkish after announcing formal plans for QT (quantitative tightening) in March. 

All of this central bank action happened after the US reported lower-than-expected inflation figures for the second time in a row.

TOP EVENTS IN The week ahead

Fewer data releases this week could mean less action or perhaps investors left to their own devices could mean a pre-Christmas jolt in volatility.

Japan takes centre stage

BOJ will hold its rate decision on Tuesday, but the consensus is that policy will be unchanged. The press conference by governor Kuroda will be parsed over for any signs that a hawkish change in policy could be coming. The main economic debate in Japan at the moment is how to finance increased defence spending, which could get a mention in the press conference. 

Japan reports its latest inflation figures on Friday, which is expected to show an annual rate increasing above the target to 3.9% from 3.7%. Pressure is building on the BOJ to take action, but Kuroda might be hesitant to change a multi-year policy in the final months of his tenure. 

Canada will also report its inflation rate, which is expected to continue declining slowly for a few months now. But the core rate is expected to remain unchanged. 

Germany will report GfK Consumer confidence, which is expected to come in less negative than prior reports, but remain substantially in the red. Likewise, German Ifo expectations are forecast to remain depressed but improve slightly. 

The German DAX might be heading towards the 13500 handle after the major plunge it took during the latter part of last week. Below 14k, it is more likely to remain pressured than not unless it heads towards 14200.

US data kept for the end of the week

The final event that could shake up the markets this year is the release of US personal spending and durable goods orders on Friday, with both measures expected to slow but remain positive. 

Also during the week, the RBA will release the minutes of its latest meeting, where it decided to slow the pace of hikes to just 25bps. 

Other events, earnings

Monday sees the release of the US NAHB housing market index. For Tuesday, German PPI is expected as well as US building permits. US consumer confidence is released on Wednesday. Thursday has the final UK GDP. Friday has University of Michigan consumer sentiment. Companies expected to report this week include Nike, General Mills, Micron and CarMax.