- BoE, Federal Reserve and ECB to all provide monetary policy updates
- UK Retail Sales eyed to see if growth here can outstrip inflation
- UK employment data could underline success of government furlough scheme
The week kicks off with the latest US Consumer Inflation Expectations, which will offer some indication of just how aggressive the public expect price rises to be in the coming months. Forecasts suggest that the November reading will push out to another record high, edging up slightly from the 5.7% posted a month ago. Despite this assessment however, there’s still little belief that the Fed will start to tighten rates before the second quarter of the new year. Expect Wednesday’s release from the Central Bank to be under added scrutiny as a result.
On Tuesday, the latest UK employment data will be published. With the government furlough scheme now well out of the picture, these numbers will give a key insight as to how well Rishi Sunak’s scheme worked out – although given forecasts there’s a risk that it will now be hailed as overly generous. Headline unemployment for October is expected to edge down from 4.3%, whilst November’s claimant count is also tipped to fall by around 20,000, making for the ninth consecutive month of contraction here.
Keeping with that theme of US inflation, also on Tuesday, US PPI data for November will be released. These readings are expected to continue climbing, with the annualised print moving towards 9%. Whilst manufacturers can absorb some of this increase given the profitability of many US firms right now, this will again play to monetary policy hawks. However, any market reaction is likely to be short lived given the Fed’s update on Wednesday.
UK Inflation data for November will be released on Wednesday morning, with markets braced for this to move as high as 5%, well ahead of the Bank of England’s mandated 2% target. However, even a bumper reading here isn’t expected to shift opinion on Threadneedle Street, with the MPC still due to leave rates unchanged this week. Fears over the impact of the latest COVID variant are weighing on sentiment here, but clearly such price pressures will be unsustainable in all but the short term.
Also on Wednesday, The Federal Reserve will provide their latest call over monetary policy. There’s no change anticipated to headline interest rates, but look for talk of accelerated tapering as monetary stimulus is unwound and there’s also the idea that a faster trajectory for rate hikes over the next few years could be laid out. This has the potential to serve as a shock for the market, boosting the US Dollar and taking a toll on stocks before the Christmas wind down gets underway.
There’s no let up in tempo expected on Thursday, with November Flash PMI data releases expected from the UK, EU and US. There’s some concern that data from Germany, particularly the Services PMI print, could be sliding towards the break-even 50 mark and this is something that has the potential to rattle sentiment, especially since these numbers reflect the situation before the latest COVID variant emerged. The big challenge here is that sustained weakness will pressure the ECB to take fresh stimulus measures, at a time when many are angling for policy tightening. Downside pressure on the Euro could follow as a result.
Also today, the Bank of England will release its latest monetary policy statement. As with the Fed, uncertainty over Omicron is expected to suppress those hawkish voices which were heard last month and given the current narrative being seen from scientists then this could serve to push back policy tightening further into the New Year. Expect the meeting minutes to be carefully scrutinised her, but suggestions that the ultra lax monetary policy will persist for much longer could be the trigger for a Santa rally amongst stocks.
Finally, the European Central Bank will also make a call on monetary policy. Given sluggish growth, COVID fears and stubborn employment there’s absolutely no expectation of any tightening, but the key point to watch for will be any strategy details in the press conference as to how economic momentum may be maintained in the near term.
Rounding out a busy week, Friday sees the release of UK Retail Sales for November. These are expected to post a robust month-on-month increase and the key point to watch here will be whether this number outstrips inflation. That’s certainly forecast and would provide some confidence of the state of the underlying economy, although again these numbers pre-date the latest COVID mutation so any upside may end up being limited and/or short lived.