A decision by the U.S. Federal Reserve will be the highlight of a busy week for central-bank decisions. The Fed is expected to cut interest rates by 25 basis points, though the outlook beyond that is uncertain.
Other interest-rate decisions are due from Japan, the U.K., Norway and Sweden.
The week ahead will also be a busy one for economic data as a rush of figures are released before the year-end holidays. In the eurozone, surveys will give an important indication of whether economic activity in the region is showing any signs of picking up, while a flurry of key economic data are due from China.
U.S.
The U.S. Federal Reserve announces its last rate decision of 2024 on Wednesday. It is widely expected to cut interest rates by 25 basis points as inflation has been sufficiently contained recently to justify a further reduction.
There will be heightened focus on the outlook for future interest-rate cuts, especially given that many of the policies of President-elect Donald Trump are expected to be inflationary.
U.S. money markets price in a 94% chance of a rate cut in December, according to LSEG data. However, for the whole of 2025, they price in just two more rate reductions.
"December's cut [is] still likely but the pace from there is definitely going to slow," said Jefferies analyst Brad Bechtel in a note.
The Fed will present its latest rate projections and these will be closely scrutinized.
Generali Asset Management expects that the Fed will emphasize that any further easing will be slower and heavily dependent on upcoming economic data.
"Risks are tilted towards even less accommodation, as inflation could surprise to the upside," said Generali AM's senior economist Paolo Zanghieri in a note.
Recent economic data have suggested that the U.S. economy remains strong. Some analysts say it isn't out of the question that the Fed could opt to keep rates on hold this month, although this is considered unlikely.
In terms of economic data, focus will center on Friday's release of November PCE inflation, the Fed's preferred inflation gauge.
Other data will provide further information on how well the economy is faring as we near year-end.
These include the Empire State Manufacturing Survey and flash purchasing managers' surveys for December Monday, retail sales Tuesday, and the final estimate for third-quarter gross domestic product and weekly jobless claims Thursday. Housing starts are also due Wednesday and existing home sales Thursday.
CANADA
Canadian inflation data for November are due for release Tuesday and will be closely watched as investors gauge the outlook for interest rates going forward.
The Bank of Canada delivered a second consecutive half-point interest-rate cut this month, but rate reductions are expected to be more gradual from here.
"Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time," the BOC said in its statement.
Canadian housing starts data are due Monday.
MEXICO
Mexico's central bank announces an interest-rate decision on Thursday.
Citi economists expect a 25 basis-point cut to the policy rate to 10.0% following recent weaker-than-forecast inflation data, although a larger half-point reduction is possible.
EUROZONE
Flash estimate purchasing managers' indices for France, Germany and the eurozone on Monday will provide insight into the subdued outlook of the bloc. This comes after the European Central Bank this month reduced GDP and inflation forecasts as it cut interest rates once more.
Germany's Ifo and ZEW indices on Tuesday will also be watched closely as Europe's largest economy continues to struggle. Germany's GfK consumer climate survey is due Thursday.
Eurozone final inflation figures for November are due Wednesday. Italy will release consumer and business confidence surveys Friday, followed by a eurozone consumer confidence survey for December. Producer price indices from Germany, France and Italy will be released the same day.
U.K.
A decision by the Bank of England is due Thursday, alongside a raft of economic data releases.
The BOE is widely expected to keep its policy rate on hold at 4.75%, sticking to a policy of gradually reducing rates every few months due to concerns about the risks of inflation remaining elevated.
U.K. money markets show an 85% chance that rates will be left on hold this month, with February's meeting considered to be a much more likely candidate for the BOE to cut rates.
Investors will be scrutinizing any forward-looking comments within the central bank's statement for clues on the rate outlook from here. They will also watch to see how concerned policymakers are about the economy after recent data showed U.K. gross domestic product unexpectedly contracted for a second month running in October.
Ahead of Thursday's decision, data are expected to show another uptick in annual CPI inflation in November, which would add to the argument for the BOE to keep rates unchanged this month.
Annual CPI fell below the BOE's 2.0% target in September, but then picked up to 2.3% in October. Investec economists expect that the rate will tick up again to 2.6% in November, with core inflation also rising.
"If inflation turns out as we predict, this would be an argument against stepping up the pace of policy easing," Investec's Sandra Horsfield said in a note.
The chances of future rate cuts could increase, however, if other data point to a weakening economy.
Flash purchasing managers' surveys on manufacturing and services activity in December are due Monday, followed by jobs data Tuesday, then retail sales and public finances figures Friday, Dec. 20. Producer price data are released at the same time as the CPI inflation data Wednesday.
The U.K. is due to auction the July 2029 gilt Tuesday.
SCANDINAVIA
Interest-rate decisions are due from Sweden's Riksbank and Norway's Norges Bank on Thursday.
After a bumper 50 basis-point rate cut in November, the Riksbank is expected to revert to reducing rates by a quarter point in December as it continues to provide support to a flagging economy. This would take the policy rate to 2.50%.
JAPAN
All eyes are on the Bank of Japan as rate-hike expectations swirl ahead of its two-day monetary-policy meeting ending on Thursday.
Opinions are divided over whether the central bank will deliver its final rate hike of the year or opt to wait for the new year.
Economists at Nomura expect the Bank of Japan to raise its policy rate by 25 basis points to 0.50% at the meeting, but still see scope for a deferment to January or beyond.
If the BOJ does decide to forgo a rate hike in December because of uncertainties or fiscal policy considerations, there are better odds of a move in January, Nomura said.
In contrast, if the BOJ decides to skip a rate hike in December because it thinks economic fundamentals are not firm enough, it may well pass on tightening in January too because data over that period is unlikely to show any significant changes, the Nomura economists said.
On Friday, Dec. 20, consumer price data for November is likely to show that inflation picked up a bit due to the fading impact of government energy subsidies. Core consumer prices--excluding fresh food--are expected to have risen 2.6% from a year earlier, according to a poll of economists by data provider Quick. That would be slightly faster than October's 2.3% rise.
The Ministry of Finance is scheduled to auction 1 trillion yen of 20-year Japanese government bonds on Tuesday, just one day before the BOJ's meeting starts. As such, investors' interest in the auction could be muted as they await the outcome of the rate decision.
CHINA
China reports the final prints of key economic activity data for 2024 on Monday, which will come under especially sharp scrutiny after the outcome of the Central Economic Work Conference.
At the economic agenda-setting, there were heavy signals of bolder stimulus to lift consumption and demand as the economy braces for a four-year period of major uncertainty tied mainly to U.S. policy.
China's consumption, investment and industrial output all likely stabilized in November, according to a poll of economists by The Wall Street Journal. If those outcomes materialize, it would suggest that Beijing's recent stimulus push has put a floor under the fragile economy.
Retail sales, a proxy for consumption, are expected to have risen 4.7% on year, compared with October's 4.8% increase. Fixed-asset investment, a barometer for investment in China, likely climbed 3.4% in the January-November period, matching the pace seen in the first ten months of the year. Industrial production is expected to have increased 5.3% last month, the same as in October.
China house price data and property investment will be sifted through as investors hope to see more uplifting signs on home prices and appetite from would-be homebuyers. A pickup in construction momentum among developers would boost sentiment too.
How stocks of major developers react will give a sense of how investors are viewing the latest data and could shape optimism toward next year.
On Thursday, the People's Bank of China announces loan prime rates.
AUSTRALIA & NEW ZEALAND
Bond traders in Australia are waiting for the federal Labor government to publish its midyear budget update.
While the date is not yet set in stone, many economists believe it will be before the end of the week.
There are some concerns that the government will use the budget update as a platform to announce more spending ahead of a federal election which is due before the end of May.
A big spending spree could change bets on when the Reserve Bank of Australia might cut interest rates.
For now, economists expect a cut in either February or May, but added fiscal stimulus could push those bets into the second half of next year.
In New Zealand, traders will be waiting for economic growth figures for the third quarter on Thursday.
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12-13-24 1159ET
