FOMC and BoJ meetings in focus, as UK inflation and Japan Trade are digested ahead of final Eurozone CPI and US Housing Starts; plenty of ECB speakers and smattering of US corporate earnings also in view
UK CPI: petrol prices help to contain base effect driven rise in headline CPI, increasingly muted Services pressures offer some encouraging signs, but NI hike ‘pass through’ still likely key to H1 2025
US FOMC: rate cut expected, but very cautious tone on rate outlook to emerge, upward revisions to dot plot and economy forecasts, and array of uncertainties to dictate minimalist guidance
Japan: BoJ seen holding rates as politics hems in room for manoeuvre, but strong hint of rate hike in January
EVENTS PREVIEW
As markets continue to wind down ahead of the year end holiday period, central bank meetings dominate the schedule with the immediate focus on the Fed and the BoJ overnight. A reasonably busy run of data has UK inflation, Japan and Malaysian Trade to digest ahead of final Eurozone CPI, UK ONS House Prices & CBI Industrial Trends survey, and US Housing Starts. ECB speakers feature heavily on the events schedule, and have kicked off with comments from Wunsch suggesting he is comfortable with the idea of four further rate cuts (echoing other speakers), while perhaps a little naively suggesting that a weaker EUR could help to offset the impact of tariffs. Food producer General Mills, homebuilder Lennar and Micron Technology offer focal points on the corporate earnings schedule.
** U.K. – November CPI **
– Following on from the much higher than expected rebound in Average Hourly Earnings, and the overnight Brightmine survey suggesting employers continue to see pay settlements around 4.0%, somewhat higher than the BoE will be comfortable with, the CPI data were largely as expected, though the details imply that the disinflationary trend remains in place, even if at a slow pace. Transport prices (-0.11 ppt) helped to keep the m/m rise contained to just 0.1%, and offset modest upward pressures in food and clothing, while muted recreation, leisure and holiday related increases are starting to reduce some of the persistent upward pressure on Services CPI (unchanged at 5.0% y/y vs. expected 5.1%). If personal experience is anything to go by, airfares should exercise considerable downward pressure in December. But as previously observed, so much hangs on how much of the increased Employer NI contributions are ‘passed through‘ in H1 2025 that will determine whether Services inflation eases as it should due to benign base effects, or remain stubbornly high.
** U.S.A. – FOMC rate decision **
– Yesterday’s auto sales boosted headline Retail Sales, and sluggish Industrial Production are unlikely to weigh very heavily in the Fed’s near terms policy calculus, and are perhaps a little moot, given the uncertainty about how Trump 2.0 will impact the economy. 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 looking for a ‘hawkish cut’.
** Japan – BoJ rate decision **
– While the run of domestic data over the past month (and tomorrow’s expected jump in CPI), and the renewed weakness of the JPY make a strong case for a further 25 bps hike, the BoJ is not expected to hike until January, leaving rates at 0.25%. 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.
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