Market Outlook for the Week of 18-22 December

<p dir="ltr">Last week was full of economic events, but as we approach the Winter holidays, activity is winding down and we'll get fewer notable data prints.</p><p dir="ltr">On Tuesday, Australia will release the Monetary Policy Meeting Minutes, Japan will get the BoJ monetary policy announcement, and Canada will announce its inflation figures.</p><p dir="ltr">Wednesday will bring focus to the U.K. with the release of inflation data, while the U.S. will get the CB Consumer Confidence report.</p><p dir="ltr">Thursday's highlight will be the final GDP q/q print in the U.S., along with the weekly Unemployment Claims.</p><p dir="ltr">Wrapping up the week on Friday, the U.K. will get the retail sales data, while the U.S. will release the Core PCE Price Index m/m, the Core Durable Goods Orders m/m, the Durable Goods Orders m/m, the Personal Income m/m, the Personal Spending m/m, the Revised UoM Consumer Sentiment and the Revised UoM Inflation Expectations.The RBA meeting minutes scheduled for this week will likely see the Bank pushing back on the idea that interest rates have reached their peak. The Bank would want to leave open the possibility of further action next year if the economic conditions require it with strong labor market data being one potential driver for an additional hike, according to ING.</p><p dir="ltr">In Japan, the BoJ is widely expected to maintain its policy unchanged. While some analysts previously speculated that the Bank might increase the interest rate in December, that doesn't appear to be the case anymore. At this time the market anticipates a hike of 10 bps at the April meeting. According to analysts at Wells Fargo, the BoJ would need to first see growing GDP figures "with strength specifically flowing from domestic components such as consumer spending and business investment," both of which were weak in the third quarter. The outcome of the spring wage negotiations will also be a key factor as the Bank has previously signaled the need for stronger wage growth.</p><p dir="ltr">In Canada the BoC stressed at the last meeting that inflation is still facing inflationary pressure. The Bank needs to see sustainable signs of a core inflation cooldown so it will pay attention to inflation expectation surveys. CPI data has seen a slower drop than expected and is not yet on a clear path towards the Bank's 2% target.</p><p dir="ltr">In the U.K., the CPI y/y is anticipated to drop from 4.6% to 4.4%. As a reminder, in October headline inflation saw a sharp decline from 6.7% to 4.6% and core inflation fell from 6.1% to 5.7%. Some analysts argue that decreasing food and energy prices will be one of the main factors for the inflation cooldown.</p><p dir="ltr">Last week the BoE decided to leave its monetary policy unchanged and stressed that it will need to be restrictive for an “extended” period of time. The market is expecting rate cuts somewhere in May but those expectations could be influenced by data releases including the one this week. </p><p dir="ltr">The October income and spending report showed some moderation in spending despite continued income growth. Despite a softening job market, unexpected rises in real disposable income and revised Q3 data indicate consumers may have more spending capacity for the holidays than previously estimated. However, according to analysts from Wells Fargo, there are signs of a shift from discretionary to non-discretionary spending. For November, they expect to see a 0.4% rise in personal income coupled with only 0.2% spending growth over the same period.</p><p dir="ltr">This article was written by Gina Constantin.</p>

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