Market Outlook for the Week of 11-15 December

<p dir="ltr">The past week had numerous economic events, with the most notable ones in the U.S., particularly regarding labor market data. The nonfarm payroll figures printed slightly above expectations, the unemployment rate declined to 3.7% and average hourly earnings increased by 0.4%. While this data indicates that labor market conditions remain tight, there are signs of a weakening trend, as suggested by Citi analysts who pointed out that employment gains have been narrowing in recent months, acting as a forward-looking indicator.</p><p dir="ltr">Monetary policy announcements from Australia and Canada were also highlights of the week. Both the RBA and BoC opted to maintain their policy rates unchanged, but their accompanying statements were perceived as less hawkish than what the market had anticipated.</p><p dir="ltr">For this week, on Tuesday we'll get the U.K. Claimant Count Change, the average earnings index 3m/y and the unemployment rate. In the U.S. we'll get the inflation data and in Australia RBA Gov Bullock will speak at the AusPayNet Summit in Sydney.</p><p dir="ltr">Wednesday will bring the U.S. Core PPI m/m and PPI m/m, the Federal Funds rate, the FOMC Economic Projections, the FOMC Statement and the FOMC Press Conference. New Zealand will release the GDP q/q figures.Thursday will be a busy day, with monetary policy announcements from the SNB, BoE and ECB. Australia will print the Employment Change and the Unemployment rate and the U.S. will get the Core Retail Sales m/m, Retail Sales m/m and the Unemployment claims.</p><p dir="ltr">The week will end with the Flash Manufacturing PMIs and Flash Services PMIs for the eurozone, the U.K and the U.S. on Friday. In the U.S. we will also get the Empire State Manufacturing Index and Industrial production m/m.</p><p dir="ltr">U.S. inflation data is eagerly awaited this week. Expectations are for the y/y figure to remain flat but the core CPI, which excludes food and energy, will likely see a slight rise of 0.3%. Any upside surprise could create volatility in the market and put pressure on the Fed's meeting, but likely not enough to influence its outcome.</p><p dir="ltr">At the upcoming FOMC meeting this week, it is widely anticipated that the federal funds rates will remain unchanged, and many analysts are of the opinion that the Fed's tightening cycle has likely peaked. The recent labor market data, released on Friday, exceeded expectations, yet there are indications of a cooling trend, with the likelihood of further weakness in the future. If this trend materializes and inflation continues to decline, there may be no pressure for the Fed to further tighten rates.</p><p dir="ltr">However, despite the ongoing decline in inflation, the path toward the 2% target might be bumpy, so there is a possibility that the Fed will keep the door open for further tightening if economic conditions require it. This meeting will also provide updates on the Committee Summary of Economic Projections (SEP) and the "dot plot," but Analysts at Wells Fargo don't see a compelling reason for an upward dot plot revision in December. </p><p dir="ltr">Analysts will look for any hints in Fed Chair Powell's comments of any push back to the market's expectations for rate cuts next year. That said, it is likely that he will be reserved and reiterate the need for a wait-and-see approach from meeting to meeting guided by economic conditions. </p><p dir="ltr">In Europe, the BoE is expected to maintain the current interest rates at 5.25% in this week's meeting. Recent inflation data for the U.K. has shown signs of cooling more than initially anticipated, providing some relief for the Bank. However, it is evident that the battle against inflation is not over, so the BoE's decision not to signal potential rate cuts appears justified. It is expected that Governor Bailey will reiterate the necessity for monetary policy to be "sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term." Additionally, wage data, scheduled for release this week, is forecasted to exhibit a slower pace compared to the previous month.The ECB is anticipated to maintain its deposit rate at 4.00%. Recent inflation data for the euro area has also experienced a decline, especially over the past few months, while economic activity softened. During this week's meeting, traders will closely watch the ECB's projections, with particular attention to any potential changes to the medium-term inflation forecast for 2025 and the 2% target. While the market anticipates potential rate cuts from the ECB to start in June, the decision depends on evolving market conditions. Analysts from Wells Fargo suggest that rate cuts might be possible as soon as April next year, but this must be reflected in the ECB's forecasts and a softening in its language.</p><p dir="ltr">In Switzerland, the SNB is also expected to leave the monetary policy unchanged. Inflation has seen a drop and last month the y/y figure printed at 1.4% which was way below the market expectation of 1.7%. Even if concerns about inflationary pressure are not entirely off the table, the SNB could start cutting rates sooner than expected, though it's highly unlikely for this to happen this week. According to Citi analysts, the Bank is likely to wait for rate cuts from other central banks before taking such a decision.</p><p dir="ltr">Since the last meeting, the data for Switzerland has shown that economic growth is weak, the unemployment rate is rising at a constant pace and the KOF leading indicator continues to point at stagflation.</p><p dir="ltr">The market will focus on this week's SNB forecast for GDP and inflation which are likely to drop. Citi expects the Bank to forecast a GDP growth of 0.5-1% for 2024 and an average inflation of 1.9%, from the prior 2.2%. "On the basis of these more dovish forecasts, further rate hikes seem very unlikely," Citi analysis said.</p><p dir="ltr">In the U.S., the consensus for retail sales is -0.1% (prior -0.1%). Consumer spending had a good pace for most of the year, but started to slow down in November. Credit card purchases decreased 7.4% last month according to the Bureau of Economic Analysis which is likely to be reflected in this week's data.</p><p dir="ltr">The U.S. Manufacturing PMI is likely to further contract with a drop from 49.4 to 49.3. The services PMI is also expected to decrease from 50.8 to 50.5, but will remain in expansionary territory. The decline is modest for both, but the manufacturing sector has faced more significant challenges throughout this year, while services have managed to slightly expand in activity.</p><p dir="ltr">The consensus for the Empire State Manufacturing Index is to drop from 9.1 to 1.7 while industrial production m/m is expected to rise 0.3% from -0.6% prior. However, analysts from Citi anticipate that industrial production data for November will fall modestly, but that manufacturing production will see a small 0.1% rise due to autoworkers returning to work and production restarting after the strike that ended in late October. However, other elements of manufacturing, such as nondurable goods, will soften.</p><p dir="ltr">This article was written by Gina Constantin.</p>

This article was written by FL Contributors at www.forexlive.com.