UPCOMING EVENTS:
- Monday: US NAHB Housing Market Index.
- Tuesday: RBA Meeting Minutes, BoJ Policy Decision, Canada CPI, US Building Permits and Housing Starts.
- Wednesday: PBoC LPR, UK CPI, US Consumer Confidence, BoC Summary of Deliberations.
- Thursday: Canada Retail Sales, US Q3 GDP Final, US Jobless Claims.
- Friday: Japan CPI, UK Retail Sales, Canada GDP, US PCE, University of Michigan Consumer Sentiment Final.
Tuesday
The BoJ is expected to keep everything unchanged with rates at -0.10% and YCC to target the 10yr JGBs at 0% with 1% as a reference cap. The latest Japanese CPI showed a slight easing in inflation rates although they remain well above the 2% target. The central bank is mainly focused on wage growth as it doesn’t foresee sustainable price increases.
The wages data picked up recently and the BoJ might want to wait for some more months before considering a tweak in its monetary policy. The latest big development was a speech a couple of weeks ago by BoJ Governor Ueda where, if you read between the lines, he hinted to an end to the NIRP in 2024 and triggered a huge rally in the Japanese Yen.
The Canadian CPI Y/Y is expected at 2.9% vs. 3.1% prior, while the M/M figure is seen at -0.2% vs. 0.1% prior. The BoC is focused on the underlying inflation measures (common, median and trimmed-mean), so those will be the figures to pay attention to. BoC Governor Macklem last Friday said that the 2% inflation target is now in sight, which reaffirmed the central bank’s neutral approach. The major central banks have ended their tightening cycles, so the market is now pricing in rate cuts in 2024. Strong data might just trim the amount of rate cuts expected but not erase them.
Wednesday
The PBoC is expected to keep the LPR rates unchanged at 3.45% for the 1 year and 4.20% for the 5 years. Such expectations come from the PBoC leaving the MLF rate unchanged recently which generally acts as a precursor to a change in the LPR rates. Chinese officials have been promising forceful and precise actions to spur growth although we haven’t seen much of that with the deflationary forces continuing to weigh on the economy.
The UK CPI Y/Y is expected at 4.4% vs. 4.6% prior, while the M/M figure is seen at 0.2% vs. 0.0% prior. The Core CPI Y/Y is expected at 5.5% vs. 5.7% prior, while the M/M reading is seen at 0.2% vs. 0.3% prior. Last week, the BoE kept interest rates unchanged and maintained its neutral stance in stark divergence with the surprisingly dovish FOMC decision. Again, the market’s reaction function is now “strong data equals less rate cuts while weak data equals more rate cuts”.
The US Consumer Confidence has been falling steadily in the past few months as the labour market started to weaken. In fact, compared to the University of Michigan Consumer Sentiment, which shows more how the consumers see their personal finances, the Consumer Confidence shows how the consumers see the labour market. The consensus sees the index rising to 104.3 in December vs. 102.0 in November.
Thursday
The US Jobless Claims continue to be one of the most important releases every week as it’s a more timely indicator on the state of the labour market. Initial Claims keep on hovering around cycle lows, which shows us that layoffs have not yet picked up notably, but Continuing Claims have been rising and that’s indicative of people finding it harder to get another job after being laid off. This week the consensus sees Initial Claims at 218K vs. 202K prior, while there’s no estimate at the time of writing for Continuing Claims, although the last week’s number was 1876K vs. 1856K prior.
Friday
The Japanese Core CPI Y/Y is expected at 2.5% vs. 2.9% prior, while there’s no consensus on the other measures at the time of writing although the Headline CPI Y/Y was 3.3% in October and the Core-Core CPI Y/Y was 4.0%. This inflation report comes on the last day before Christmas holidays and after the BoJ Policy Decision, so the market’s reaction is likely to be muted unless we get big surprises.
The US PCE Y/Y is expected at 2.8% vs. 3.0% prior, while the M/M figure is seen at 0.0% vs. 0.0% prior. The Core PCE Y/Y, which is the Fed’s preferred inflation measures, is expected at 3.4% vs. 3.5% prior, while the M/M reading is seen at 0.2% vs. 0.2% prior. Unless we get big surprises, it’s unlikely to see the market react to this report given that we already saw the more timely CPI data. If the Core PCE M/M prints at 0.2%, the 6-month annualised rate would fall to 2.4%, which is basically at the Fed’s 2% target.
