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A huge week of central bank rate decisions will tell a divergent story about how developed markets can afford to delay rate hike cycles as emerging markets continue to tighten monetary policy. The main event on Wall Street will be one that was eased after the last inflation report which showed consumer prices rose at the fastest annual rate in nearly 40 years. The Fed’s hawkish turn is well justified, and a faster pace of reducing its asset purchases has not only been justified for a long time.
Nine major central bank decisions will show policymakers are changing course with monetary policy. The European Central Bank could exit its emergency pandemic program while stepping up its regular asset purchase program. The BoE will have to raise rates soon, but it could wait until the new year.
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Now that the latest inflation report showed that inflation remains stubbornly high, attention has shifted completely to the FOMC’s policy decision. The Fed should acknowledge that inflation has been persistent and announce a faster decline. The hawkish turn will be complete once policymakers increase their median projection of the central bank’s short-term target rate. The Fed is increasingly expected to double the pace of its bond purchases, but if they register only a modest increase, the Fed’s credibility will suffer.
On Tuesday, the Empire Manufacturing report is expected to show activity cooled in December, as it may slow from high levels. Wednesday is a busy day with forecasts to show that inflation is impacting consumer spending, followed by the Fed’s fireworks in the afternoon. Thursday is devoted to housing data which should show and continue to increase. The last trading day of the week will give a first look at December and some data.
EU
The first half of next week seems a bit quiet, but the last two days are packed with action, with no doubt the flagship event. Central banks are really in the spotlight right now, as inflation is way above target and showing no signs of slowing down. The ECB is among those who have legitimate reasons to believe it will come back below the medium-term target and with the PEPP program expiring in March, the question arises as to what will replace it, if any. This question could be answered next week.
and the data will also be released on Thursday and Friday, which should be a successful week before the holiday season.
UK
A big week for the UK as we get tons of economic data including,, and. But it’s Thursday that will get the most attention, with the MPC now expecting not to hike rates amid the uncertainty around Omicron. It is not certain that this will happen, with markets still banking on a decent chance of a 15 basis point increase, but it is no longer the most likely outcome.
Russia
The CBR is expected to gain 100 basis points on Friday as it continues to fight mounting inflationary pressures. It rose to 8.4% last month, well above its target of 4%.
He last hiked rates by 75 basis points in October when he said further hikes might be warranted in future meetings if the situation evolves in line with baseline forecasts, which had inflation between 7. 4% and 7.9% at the end of 2021.
South Africa
The country continues to grapple with the Omicron outbreak which is seeing cases increasing rapidly, perhaps even 4.2 times faster than Delta. With hospitals not yet overwhelmed and symptoms seemingly milder than Delta, the government could resist implementing severe restrictions too soon. Of course, the situation is changing rapidly and as more data is collected, that could change quickly.
is the only data release next week.
Turkey
CBRT is meeting next week, and as always, anything can happen. The central bank has cut interest rates by 400 basis points since September and signaled it could again in December, before assessing its position. And this despite the fact that inflation continues to rise and reached 21.31% in November.
The central bank is clearly under pressure from President Erdogan – a staunch opponent of high interest rates and convinced that higher rates fuel inflation – and he has repeatedly defended CBRT measures in recent weeks.
Interventions in the foreign exchange markets have not been particularly beneficial and more unconventional policies like this will be needed if the central bank continues down this dangerous path.
China
Fitch placed Evergrande Group (HK 🙂 and Kaisa (HK 🙂 in selective default. Headlines of restructuring over the weekend will dominate sentiment on Monday morning. China responded by lowering the RRR last week and this week increased Chinese banks’ foreign reserve requirements and corrected the decline against the US dollar. All in all, this suggests that China is nervous about the economic fallout from the failure of indebted real estate developments and is done with the trend towards the strength of the yuan. Whether the United States agrees or not is open to debate.
China is releasing heavy data in the coming week. Wednesday a,, and Capital investment. Ahead of the FOMC’s decision, the data, if weaker, will weigh heavily on Chinese stocks and possibly the yuan. Not quite the results the government and the PBOC want to achieve.
Otherwise, keep an eye on the ticker for Evergrande developments and other tech company restrictions on overseas listings.
India
The Reserve Bank of India and outlook unchanged this week, remaining in accommodative mode to support the post-Delta recovery at the expense of soaring inflation. Local stocks and INR were flat as the US dollar weakened.
India is releasing trade data this week, but stocks and the currency will be completely at the mercy of the FOMC results on Thursday Asian time. Both have been bolstered in recent months by hot money flowing from China to the IPO and the tech sector in India. A hawkish FOMC might see a quick reversal of the two.
Australia
The continues to rebound on the daily changes in investor sentiment driven by the Omicron headlines. Overall it remains close to its 2021 lows and against the backdrop, nerves are rising and the FOMC reunion. Negative headlines from China this weekend, or Omicron, will put the AUD under pressure again next week. Stocks continue to slavishly follow New York markets for direction.
RBA Gov Lowe and Lowe speak midweek, but they’re unlikely to give any insight into politics. NAB Biz Confidence, Westpac Cons. Shipped. PMIs and employment fill a busy week of data. Importantly, it should show a quick rebound from the third quarter lockdowns and is bullish for stocks and currencies on the periphery. will generate the most intra-day volatility.
New Zealand
It remains close to 2021 lows, underperforming the AUD / USD as negative global investor sentiment pushes both down, and the RBNZ’s cautious policy move continues to haunt the currency.
Watch the number of COVID cases in New Zealand as the country almost fully reopens this week. The surge in cases will weigh on local currencies and stock markets.
New Zealand publishes Service PMI, Consumer Sentiment, and in a busy week. The GDP figure has the highest point of volatility.
Japan
Japan is Monday, Thursday and Friday, booked the week. The Tankan will generate a negative response from local stocks if it is weak, which will slow down the image of the recovery. Volatility will be strictly intraday.
The BoJ will remain on hold without change, as it has done for the past 20 years. The FOMC will have a bigger impact with a hawkish tilt almost certainly sending a lot higher on the output differentials. Japanese stocks, excluding intraday noise, will continue to slavishly follow US stocks and in particular.
Markets
Energy
crude seems to follow US stocks more than. It ends up being a pretty good week for crude prices as the outlook for Omicron crude demand may be limited. OPEC + continues to firmly control the direction of prices and can disrupt any massive sell-off with a rapid reversal of its production increase.
Once Europe gets past this wave of restrictive moves and the north stops seeing better weather, the rebound in oil prices could easily head to last month’s highs.
Gold
Slowly picking up momentum after a hot inflation report mostly matches estimates. Much of inflation is stiffer than anyone would like and that should keep the medium to long term outlook for gold bullish. Gold just needs to survive a firm consensus on how many rate hikes the Fed will start with next year. An accelerated cycle of rate hikes is a big risk and could trigger panic selling that could prove embarrassing for gold in the near term, but it still seems unlikely.
The recent gold trading range of $ 1,760 and $ 1,800 may continue to hold until next week’s FOMC decision.
Cryptos
Prior to the US Inflation Report, many traders noticed dominance was setting in. It’s been a tough week for cryptos and Ethereum has outperformed significantly. The global crypto market cap is around $ 2.2 trillion and while still reigning supreme with 39% dominance, Ethereum has now gained 20%. There is still a lot of motivation to create more crypto products and the prospects for growth next year should limit any selling pressure that comes in.
Bitcoin prices initially after US inflation peaked in 39 years, but the rally came to a halt after hitting the $ 50,000 level. Considering what happened last weekend, some leveraged traders are thinking twice before holding positions this weekend. Some traders anticipate a sideways market until the FOMC policy decision on Wednesday, so reluctance to hold the weekend could increase. Hodlers will likely remain unperturbed and mostly feel confident as the need for inflation hedges increases given widespread upward price trends.
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