(Reuters) – The world’s top central banks dominate the agenda next week with indications abounding that the aggressive pace of rate hikes might slow, but not yet fade away given price pressures.
China publishes key economic data as Beijing loosens a few of its strict COVID-19 shackles, while PMIs will provide a health check for the worldwide economy.
Here’s a have a look at the week ahead in markets from Lewis Krauskopf in Recent York, Kevin Buckland in Tokyo, Dhara Ranasinghe, Naomi Rovnick and Amanda Cooper in London.
Investors will likely be fed an enormous helping of year-end U.S. news when Tuesday’s release of November consumer inflation data is followed by the Federal Reserve’s last rate decision of 2022 on Wednesday.
October’s CPI report showed prices rose less-than-expected at 0.4% from the month before, with signs of slowing inflation boosting equities and knocking the dollar. November’s reading is anticipated at 0.3%. But recent strong U.S. jobs data rekindled inflation fears.
Over to the Fed, where Chair Jerome Powell will hold his last news conference of the 12 months after recent comments that it was time to slow the pace of coming rate rises. Traders are pricing in a 50-basis point (bps) hike – a step down from recent three-quarter percentage point increases. The main focus may as a substitute turn to signals for the way high the Fed will ultimately raise rates next 12 months.
Inflation and fed in focus https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/movakkmkxva/chart.png
It’s super Thursday in Europe, where central banks within the euro area, Britain, Switzerland and Norway all meet.
Latest inflation numbers have raised hopes that euro zone pressures are finally abating and markets feel confident that after two straight back-to-back 75 bps hikes, the ECB will deliver a 50 bps rate move on Dec. 15.
Don’t expect the ECB to sound dovish – pipeline price pressures remain strong and President Christine Lagarde will likely be careful not to offer the impression policy makers are taking their eye off the ball.
It’s the identical story elsewhere, with Switzerland and Norway also expected to jack up borrowing costs again. The pace of aggressive rate hikes from big central banks is slowing however the fight against inflation isn’t over yet.
Race to hike rates https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/lgvdkkmoapo/chart.png
3/ HIKING INTO A RECESSION
Britain’s grim economic situation is unlikely to stop the Bank of England from raising borrowing costs again on Thursday. Economists polled by Reuters expect the central bank to boost its key rate by 0.5 percentage points to three.5% despite a looming recession the BoE expects to last well into 2024.
Surging energy and food costs propelled consumer price inflation to a 41-year high of 11.1% within the 12 months to October. Wednesday’s UK inflation data may hint at price rises having peaked, following trends within the eurozone and the U.S.
Still, the BoE is prone to resist ending monetary tightening just yet with inflation still well above its 2% goal. Swaps markets imply UK rates of interest will hit 4.6% by next September and can end 2023 at 4.5%.
Bank of England’s fight against rampant inflation https://www.reuters.com/graphics/GLOBAL-MARKETS/xmpjkkgndvr/chart.png
4/CHINA LOOSENS COVID COLLAR
After three years of suffocating coronavirus curbs, China can finally breath somewhat easier. Recent measures include home quarantine for the COVID-positive as a substitute of isolation centers and no more testing for domestic travel, just in time for a visit to Shanghai’s reopened Disneyland.
Wednesday’s long-awaited shift has residents, who per week ago were protesting within the streets, now rejoicing on social media. Investors are more sedate. The Hang Seng had its worst day in greater than a month that day, selling the actual fact after a multi-week rally. The yuan is back on the stronger side of the important thing 7 per dollar mark, but peaked on Monday.
The weakest trade data for 2-1/2 years gave reason for caution, pointing not simply to the consequences of COVID lockdowns but weaker international demand. Retail and factory data due Thursday could make for further gloomy reading.
Chinese economy loses steam https://www.reuters.com/graphics/CHINA-ECONOMY/znpnbbdnypl/chart.png
A 12 months of the worst inflation in a generation is drawing to a detailed. With the energy prices now well off the 12 months’s highs, businesses and households are getting some respite from eye-watering high inflationary pressures.
But that is unlikely to be enough to avoid a sixth straight month of contraction in business activity in December across a few of the world’s largest economies. Anything from the manufacturing sector to hospitality has seen demand slump and input prices soar.
S&P Global’s flash composite PMI output indices for the USA, Britain, Germany, France and the broader euro zone are expected to point out some mild improvement, but activity in all five regions is anticipated to have declined again. Japan can also be on the docket – its manufacturing November PMI staged the sharpest contraction in two years.
Global economic activity flashes red https://www.reuters.com/graphics/GLOBAL-ECONOMY/PMI/jnpwyenyxpw/chart.png
(Compiled by Karin Strohecker, Graphics by Sumanta Sen, Kripa Jayaram, Pasit Kongkunakornkul and Vincent Flasseur; Editing by Kim Coghill)
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