Busy day to kick off busy week for data and events; digesting China activity indicators, Japan & India PMIs, Japan Orders; awaiting Eurozone Labour Costs and NY Fed Manufacturing; busy run of central bank speakers
China: weak Retail Sales the focal point of mixed set of data, overall underlines stimulus measures are preventing further deceleration, but not giving much of a boost to growth
India: PMIs confirm govt spending catch up getting renewed traction
Japan: Orders encouraging, but not really material to near-term BoJ rate considerations
Week Ahead: raft of US, China and UK data, and myriad of surveys to ponder; Fed, BoJ and BoE rate decisions headline long list of central bank policy meetings; politics still in the driving seat for disruptions
EVENTS PREVIEW
A busy week for data and central bank policy meetings has PMIs, the monthly China activity data dump, Japanese Machinery Orders and Tertiary Industry (services) Index and Indonesian Trade to digest, with Eurozone Labour Costs and NY Fed Empire Manufacturing survey ahead, along with a rash of central bank speakers.
From the overnight run of statistics, China’s activity data were mixed. Retail Sales missed heavily in m/m terms at 3.0% y/y, though only marginally in y.t.d. terms, with very adverse base effects and the unwind of the boost from Singles Day / holiday promotions accounting for much of the weakness, but this does underline the point that confidence remains very weak, and little obvious benefits from stimulus measures to date, as was also evident in tepid FAI growth, though Industrial Production remains relatively robust. Housing Sector data suggest that stimulus measures are starting to check the fall in property prices, as well as sales, but investment continues to contract at a rapid pace. Per se concerns will remain, and the risks of an escalation in trade relations with the US remain front and centre. India’s flash PMIs were encouraging, suggesting that the catch-up in fiscal spending (relative to what had been targeted in the budget) is regaining traction after the very disappointing Q3 GDP and GVA data. Japan’s Orders data echoed the pick-up seen in the Q4 Tank for All Industry CapEx, while the PMIs continue to underclub the relative resilience of the economy, as is the case with many surveys elsewhere (above all by comparison to ‘hard’ data), but at the end of the day are of secondary or even lower importance to the pace of BoJ rate hikes.
RECAP: The Week Ahead – Preview:
It may be the last full trading week for 2025, but a barrage of data from China, UK and USA, a raft of surveys in the Eurozone, and flash PMIs accompany the Fed, BoE and BoJ rate decisions, which are the headliners among a total of 20 monetary policy meetings. Both government bond supply and corporate earnings are seasonally quite light (with FedEx, Micron Technology and Nike the primary focal points for earnings). Meanwhile national and geopolitics will continue to offer plenty of scope for ‘disruptions’, with France above all in focus following Friday’s handover to new PM Bayrou, and Moody’s unscheduled ratings review and one notch downgrade to Aa3 (outlook stable), bringing it into line with S&P and Fitch. In the commodity space, there is the weekend annual outlook from CNPC’s Economics & Technology Research Institute that said that China’s oil products demand already peaked in 2023, and that Crude demand will peak in 2025, a full 5 years earlier than it was predicting last year, which in turn leaves OPEC+ with a big quandary, given that better China growth prospects, if stimulus is delivered effectively, will not be a boon for oil prices. Beyond that there are EU Energy and Environment ministers’ meetings; France’s Agriculture Ministry monthly report on crop conditions, and New Zealand’s dairy trade auction, while Wheat markets continue to focus on sharply deteriorating output prospects in Russia.
– U.S.A.: To a certain extent this week’s array of activity data are perhaps a little moot, given the uncertainty about how Trump 2.0 will impact the economy, though if they are in line with positive forecasts, then this will only steel the Fed’s likely very cautious message on the prospect for further rate cuts. The US flash PMIs are anticipated to show Manufacturing marginally in contraction at 49.5 (vs. prior 49.7), but Services are expected to remain robust at 55.8, despite November’s downward revision, and the slide in the Services ISM. The super volatile NY Fed Manufacturing is seen sliding back to 10 after jumping from -11.9 to 31.2 (with new orders and shipments jumping), its value as a proxy for national activity is basically zero, in contrast to the Philly Fed sector survey, that is forecast at +2.9 vs. prior -5.5, while the NAHB Housing Market Index is seen little changed at 47 vs. 46, as Trump related optimism for the sector is stymied by rising mortgage rates, and continued affordability challenges. In terms of ‘hard data’, Retail Sales are expected to show broad strength with headline up 0.5% m/m, and all core measures up 0.4%, with promotional discounts and perhaps some tariff related pre-emptive purchases pacing those gains. Industrial Production has echoed the Manufacturing ISM, posting only one m/m increase in the past four months, but is forecast to reverse October’s fall with a rise of 0.3%, with Manufacturing Output also seen reversing October’s fall with a gain of 0.5%. Housing Starts have been heavily affected by Hurricanes Beryl and Milton (Oct South region -8.8% m/m), but as that impact fades, a rebound of 2.5% m/m is expected. Final Q3 GDP is forecast to be unrevised at 2.8%, while Existing Home Sales are expected to post another solid rise of 3.0% m/m (vs. prior 3.4%). All of which is likely to result in the Fed’s ‘dot plot’ revised to show a shallower rate cut trajectory (end 2025, 2026 and 2027 revised up 25 bps to 3.625%, 3.125% and 3.125%, and the long run to 3.0% from 2.875%). However, a 25 bps rate cut to 4.25%/4.50% is still anticipated at this meeting, premised on the risks to inflation and inflation being ‘roughly in balance’, and per se behoving the Fed to continue on a gradual path back to neutral. Caution on the rate outlook will likely be based on upward forecast revisions to the core PCE Deflator, and above all to this year’s GDP forecast (in principle no more than acknowledgement of incoming data), and a slight downward revision to the 2024 Unemployment Rate. Given the myriad of uncertainties, the statement and Powell’s press conference may not specifically signal a rate pause in January, but continue to stress data dependency, and which of the many Trump policy proposals are actually put into place, as per Powell’s prior meeting comment: “We don’t guess, we don’t speculate, and we don’t assume.” Though in truth, they are likely to pre-emptively assess the probabilities of what will actually be implemented, which will then feed into staff forecasts. Markets are in principle expecting a ‘hawkish cut’.
– China: Monday’s run of activity and property sector data are anticipated to evidence little sign of any boost from the run of stimulus measures thus far. But then again, many view those measures as aimed at preventing a further deceleration rather than an effort to accelerate activity. Retail Sales are seen edging up 0.2 ppts to 5.0% y/y, while Industrial Production and FAI are seen barely changed at 5.7% (-0.1 ppt) and 3.5% y/y (+0.1 ppt), while Housing data may show some modest deceleration in New and Used Home Price falls, but little or no improvement in Property Investment and Sales. Given no change since September in the PBoC’s 7-day reverse repo rate, this week’s Loan Prime Rate fixings are expected to be unchanged at 3.1% (1-yr) and 3.6% (5-yr). Weekend comments from various officials mentioned RRR (Bank reserve requirement ratio) being cut in the year, and a wider fiscal deficit ratio being deployed in 2025, but without further details, markets are likely to err on the side of scepticism in terms of the prospects for a strengthening in domestic demand and vary wary of China US trade tensions as Trump returns to the White House.
– Japan: Ahead of the BoJ rate decision on Thursday, there is expected to better news on Private Machinery Orders, with a 1.1% m/m rebound expected, while flash PMIs seem likely to see Manufacturing remaining marginally in contraction, while the Services PMI should see a rebound, given the bounce in the latest Economy Watchers survey. Trade data are forecast to show that both Export (2.5% m/m) and Import (0.8% m/m) remain sluggish, while National CPI due on Friday after the BoJ meeting will echo Tokyo CPI, with a combination of the termination of some energy subsidies and upward pressure on Services due to pass through of increased wages, accounting for an expected jump to 2.9% and 2.6% y/y (Headline & Ex-Food), and a more modest 2.4% on core, from 2.3% y/y in October. While the run of domestic data over the past month, and the renewed weakness of the JPY make a strong case for a further 25 bps, the BoJ is not expected to hike until January. Given a good deal of political criticism of its July move, it will also be wary of not upsetting the apple cart, as PM Kishiba looks to marshal a modest stimulus package through the Diet. Ueda will however be keen to signal that a January hike is very much on table at his press conference.
– U.K.: The wages and price data leading up to Thursday’s BoE MPC meeting are expected to make a strong case for the BoE holding rates this week, as is universally expected. That said, Monday’s PMIs are forecast to show Manufacturing remains in contraction even if picking up slightly to 48.5, following three consecutive drops from August’s 2025 peak of 52.5 to 48.0, while Services are seen marginally above November’s annual low of 50.8 at 51.0. But the focal points will be Tuesday’s labour data, which are forecast to how headline Average Weekly Earnings jumping to 4.7% from 4.3% y/y, and basic pay to 5.0% from 4.8%, primarily due to adverse base effects. Employment measures are anticipated to show HMRC Payrolls contracting modestly (-5K), having also dipped in 4 of the past 5 months, while the much maligned LFS Employment measure is seen falling back into line with a marginal increase of +5K, while the Unemployment Rate holds steady at a still low 4.3%. Wednesday’s CPI are expected to see small 0.1% m/m rise, mostly due to the rise in tobacco excise duties, with adverse base effects in goods prices will see the headline y/y rate accelerate again to 2.6% y/y from 2.3%, and Core to 2.6% from 2.3%, though Services are only forecast to edge up 0.1 ppt to a still stubbornly high 5.1%. The question going forward is how much the hike in employer NI contributions will stymie an anticipated drop in Services inflation in H1 2025. Friday’s Retail Sales are likely to get a boost from Black Friday promotions, with a rebound of 0.5% m/m expected, with the November rate hike and perhaps some post-Budget relief also helping at the margins. An 8-1 MPC vote with Dhingra voting again for a 25 bps cut is expected, and the statement will likely stick to the November Q4 Monetary Policy Report messaging in terms of the rate outlook, which stated that “a gradual approach to removing policy restraint remains appropriate.” The MPC will doubtless reprise its emphasis on waiting to see the impact on Services CPI of the aforementioned hike in NI employer contributions; though there may also be some referencing of the weak Q3 GDP, and the likelihood that Q4 will undershoot the 0.3% q/q the BoE had anticipated.
– Eurozone: the run of surveys this week are expected to see PMIs little changed at 45.3 Manufacturing (+0.1) and 49.5 Services, while Tuesday’s German Ifo is expected to remain dire at 85.7, with ZEW Expectations expected 6.6 from 7.4, and French Business Confidence unchanged at a lowly 96. Outside of German PPI, there is little else scheduled in the Eurozone, with the focus remaining squarely on political developments. In Scandinavia, Sweden’s Riksbank is very likely to deliver a further 25 bps cut to 2.50%, highlighting weak growth, slack labour demand and CPI set to return to 2.0% in the rationale. Of interest will be whether they also continue to anticipate further cuts, but at the same time note that the terminal rate (generally assumed to be 2.0%) is within sight, and perhaps note some upside risks to inflation from energy prices. Norway’s Norges Bank is forecast to once again hold rates at 4.50%, and given last week’s improved Regional survey push back modestly on the timing of an initial rate cut.
– Central Banks: Outside of the above-mentioned policy meetings, Pakistan’s SBP is expected to cut rates 200 bps to 13.0% on Monday. Tuesday is likely to see Hungary’s MNB hold rates at 6.50% thanks to inflationary pressures from a weak HUF, while Chile’s BCC is forecast to cut 25 bps to 5.0%, with its Q4 inflation report due the next day. The focus on Wednesday shifts to Asia, with the Bank of Thailand expected to hold rates at 2.0%, while Bank Indonesia is again forced to keep rates elevated at 6.0%, having had to intervene heavily last week to steam IDR weakness. Thursday is expected to Philippines’s BSP cutting a further 25 bps to 5.75%, given that while CPI has picked up, it is still in the lower end of its 2-4% target range, and with the PHP broadly steady, it can continue to bring the policy rate back to neutral. Czechia’s CNB is seen holding rates at 4.0%, as it frets that the downtrend in inflation has lost momentum and may settle above target, per se warranting a more cautious approach to further rate cuts. In contrast to the sharp tightening in policy rates in Brazil, Mexico’s Banxico is expected to ease rates by a further 25 bps to 10.0%, with inflation still well contained, and economic growth sluggish, and threatened by Trump 2.0 tariffs. Friday is expected to see Russia’s Bank Rossiya hike rates a further 200 bps, as it continues to try and curb the rapid rise in CPI, and a very weak RUB, with imbalances in the economy due to so much output and labour capacity being deployed to defence, as well as the impact of sanctions. Last but not least Colombia’s BCR is expected to cut rates by a further 50 bps to 9.25%, bringing this year’s cumulative easing to a total 400 bps, and perhaps some risk of a larger 75 bps cut, given that October’s vote was a very close 4-3, with the minority favouring a larger cut. While it is expected to signal room to cut rates further, inflation remains elevated, and increasing concerns about fiscal policy, allied with persistent COP weakness may soon curb the central bank’s scope to ease policy further.
– There are 16 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Accenture, Cintas, FedEx, General Mills, Heico, Lennar, Micron Technology, Nike, Paychex.
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