In addition to inflation data, jobs numbers and global PMIs, four major central banks—the Fed, the SNB, the BoE and the ECB—also claim the spotlight this week, all of which are expected to remain on pause.
In addition to inflation data, jobs numbers and global PMIs, four major central banks—the Fed, the SNB, the BoE and the ECB—also claim the spotlight this week, all of which are expected to remain on pause.
Without question, this week will be a busy one for traders.
The headline event of the week will be the US Federal Reserve, the Fed, occupying the macro throne on Wednesday at 7:00 pm GMT. The FOMC is widely anticipated to remain on pause, leaving the Fed Funds target range at 5.25%-5.50% for a third consecutive meeting. As of writing, market pricing suggests around 110bps of cuts for 2024, down from 125bps following Friday’s above-consensus US jobs report.
Also relevant, markets pulled back on expectations for a cut in March from 65.0% to 53.0%, though May is still largely priced for a 25bp cut. Evidently, traders will be seeking clues for rate cuts at this week’s meeting, though many desks claim that the Fed are unlikely to push out any overly dovish message given inflation still remains above their 2% target.
This week’s emphasis, therefore, leans on the accompanying rate statement and Summary of Economic Projections (SEP). You will recall that September’s economic projections had the terminal rate at 5.6% by the end of 2023 and 5.1% by the end of 2024.
In addition, interest will be directed to economic projections for growth, unemployment and inflation. You may recall in September’s SEP that real GDP growth of 1.5% was projected by the end of 2024, with unemployment to tick higher to 4.1% and core PCE inflation to slow to 2.6% over the same period.
Three major central banks will be in the limelight on Thursday.
The Swiss National Bank (SNB) is scheduled to announce its latest policy changes at 8:30 am GMT and is anticipated to leave the Policy Rate unchanged at 1.75%. This follows September’s rate pause (markets were evenly split heading into the previous event, with half calling for a 25bp hike to 2.00% and the remainder happy to remain where they were).
The Bank of England (BoE) will be live at midday and is also projected to stand pat on rates, leaving the Bank Rate at 5.25% for a third straight meeting (15-year high). Regarding economic data, inflation cooled according to recent data, easing to 4.6% for the year-on-year headline print and slowing to 5.7% for the core measure over the same period. The BoE looks increasingly like the outlier among major central banks, with rates expected to remain higher for longer; the ECB and Fed could cut as soon as March. You may also remember that the BoE Governor Andrew Bailey communicated that it was far too early to think of rate cuts. Consequently, we can expect the accompanying policy statement to repeat the sentence that policy will remain restrictive to return inflation back to target.
The European Central Bank (ECB) will be live shortly after the BoE at 1:15 pm GMT, and is expected to keep all three key benchmark interest rates unchanged for a second successive meeting (90% probability according to market pricing). You will note that inflationary pressures have subsided considerably of late, cooling to 2.4% in the twelve months to November, with the core measure also easing to 3.6%, down from October’s 4.2% print. What’s interesting is that one of the more hawkish members of the Governing Council, Isabel Schnabel, referred to the changes in core inflation as remarkable. Schnabel added that recent inflation numbers made the case for another rate hike ‘rather unlikely’. Following the remarks, expectations for rate cuts accelerated and March is now on the table for a 25bp cut.
Charts: TradingView
DISCLAIMER:
The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.
Aaron graduated from the Open University and pursued a career in teaching, though soon discovered a passion for trading, personal finance and writing.