Macroeconomics: The Day Ahead for 12 December

The SNB and ECB rate decisions will be the focal points on a busier day for statistics, that has the UK RICS House Price survey (headline strong, but details largely weaker on the month), final Swedish CPI and Australia’s labour data (very robust, and pushing out timeline for an initial RBA rate cut even further into 2025) to digest ahead of India’s CPI and Industrial Production and the second leg of this week’s run of US inflation statistics via way of PPI, as well as weekly Jobless Claims. Rate decisions in Serbia, Ukraine and Peru are all expected to see no change. In China, the China Central Economic Work Conference concludes today, with markets hoping for some more information on what growth boosting measures are being envisaged, even if details may be somewhat sketchy, but it should at least highlight the primary direction for economic policy. Tonight also brings the Q4 BoJ Tankan survey, which is forecast to show indices holding at the solid levels seen in Q3, and a solid 10.0% y/y increase in All Industry CapEx.

** Switzerland – SNB rate decision **

– A further 25 bps rate cut to 0.75% is expected, and would seem to be inevitable given that CPI continues to be toward the lower end of the SNB’s 0-2% target range (headline 0.7% y/y, core 0.9% y/y), as well as CHF strength, even if the currency has eased back since the US election, it remains 2.5% higher since the SNB started to ease policy. The prospect of a return to zero rates now looks very real, with the SNB likely to revise down its inflation forecasts, which at the margin argues for the possibility of a larger 50 bps cut. But with little left in the way of ammunition in its rates locker, it seems much more likely that it will stick to a gradualist path, while also resorting to a more forceful protest about the strength of the CHF.

** Eurozone – ECB rate decision **

– Given the obvious weakness of Eurozone growth, with little immediate prospect of any meaningful turnaround, above all given the political paralysis in France and Germany, a further 25 bps rate cut is all but inevitable. That said, unemployment remains low, and core and services inflation while falling remain elevated, so it will be interesting to see the extent of the Staff Forecast changes. That the ECB needs to get rates back to neutral is agreed by all members of the policy council, but where exactly neutral is (many forecasters assume around 2.0%, while Schnabel has suggested between 2-3%) is one heated topic of contention. A perhaps even bigger bone of contention is whether growth is weak due to cyclical or structural factors, with Schnabel arguing that much of it is in fact structural and needs to be addressed by fiscal policy and legislation, rather using up limited rate ammunition, which may also result in higher inflation, which in her view remains a risk. Given these divisions, Lagarde may be force to paper over the cracks on the council, with some risk that this sends a somewhat confused message on the rate trajectory. She will nevertheless face some questions about how much more room the ECB has for rate cuts.

** India – November CPI, October Industrial Production **

– CPI has been on an upward tear for the past few months, but is expected to ease back to 5.5% y/y from October’s 6.2%, with some easing in food prices (above all vegetables) augmented by benign base effects being the primary drivers, with lower oil prices perhaps also contributing. It would at least bring CPI back into the RBI’s tolerance range of 4.0% plus/minus 2.0%. Industrial Production is expected to pick up modestly to 3.5% y/y from 3.1%, which would be all the more impressive given very adverse base effects (November 2023 production surged to 11.9% y/y from October’s 6.4%). Government spending is finally picking up to planned budget levels (as evidenced by a pickup in Infrastructure Industries Output), non-oil exports were very robust, and rural consumption also accelerated thanks to a bumper harvest.

** U.S.A. – November PPI **

– Following on from yesterday’s as expected rise in CPI, which was largely driven by housing (though Shelter’s 0.23% m/m increase was the lowest in nearly 4 years), Used Car Prices and Food, with core Services still somewhat sticky at 0.34% m/m, and overall signalling a sideways trend for prices, though it is worth noting some very modest upward pressure on core goods prices, after a long period of disinflation. Be that as it may, today’s PPI is forecast to post a 0.2% m/m increase on headline and core measures, which would also edge y/y rates higher (headline 2.6% y/y, core 3.2% y/y), largely due to base effects. A close eye needs to be kept on the volatile Trade Services, which may evidence some upward pressure as buyers look to stock up ahead of tariffs, while a rising equity market will continue to exercise upward pressure on Portfolio Management fees, though there should perhaps be some easing in Airfares after an outsized rise in October. As noted in yesterday’s CPI preview, this week’s inflation data while not to be dismissed wholesale, are not going to be game changers for Fed policy, given the array of uncertainties for 2025, and the current strength of the economy and labour market.