The coming week is being brought to you by the central bank club which sees a mass of meetings from some of its leading members.
Australia’s Reserve Bank and the Bank of Canada and Bank of Chile met last week – the first two lifted rates while Chile sat on a cash rate of 11.15% Now that’s a BIG cash rate.
More rate rises will come from meetings this week from The US Federal Reserve, the Bank of England, The European Central Bank, the Swiss National Bank, the Bank of Mexico, Norges (Norway) Bank. The Bank of Japan meets next week.
We should get a rate rise or three from that cast – could it be a case of half a per cent all round, gents?
The Fed is the most important and we will know around 6am Thursday the decision – a half a per cent rise is the tip.
AMP Chief Economist Shane Oliver says the Fed is expected to slow its rate hikes to 0.5% (from 0.75%) taking the Federal Funds rate to the range of 4.25-5% for the end of 2022.
He reminds us (as we ourselves did last week) of the importance of the “dot plot” which shows the 19 Fed officials’ interest rate forecasts. Oliver says the plot could show a higher peak rate of 5-5.25% for the end of next year as the Fed seeks to better manage the risks of inflation and recession. The previous dot plot in September showed a top rate of 4.6%.
“This has been well flagged by numerous Fed officials including Fed Chair Powell so should not really be a surprise for investors,” Dr Oliver pointed out.
“Share markets may see the usual uncertainty going into the meeting followed by a post meeting relief rally. And of course, it doesn’t mean that the Fed will end up raising rates that much (just like the dot plot was a poor guide a year ago to what happened this year),” Dr Oliver wrote in his weekend note.
But Tuesday’s November Consumer Price Index release for the US could overshadow everything, even the size of the Fed rate rise if the CPI shows inflation back on the rise.
A CPI report showing another fall in US consumer costs (and petrol prices have fallen sharply) and a half a per cent rate rise from the Fed and a ‘nice’ dot plot, and Wall Street could have a pre-Christmas surge.
Economists reckon the CPI rose at an annual 7.3% in November, down from 7.7% in October and 9.1% in June. The AMP’s Shane Oliver says core inflation will come in around 6.1%, down from 6.3% in October.
There’s another important data release next week in the US – November’s retail sales which are forecast to rise 0.9% after the strong 1.3% rise in October. The data will reflect the start of the post-Thanksgiving ‘Black Friday” sales period. Industrial product for November will also be released.
Mid-month surveys of business activity will be released Friday, a week earlier because of Christmas. They are expected to show slowing growth in most areas, perhaps not the US though.
There’s a couple of quarterly results expected this week in the US from Oracle and Adobe, while Inditex, the Spanish owners of the Zara women’s wear clothing claim, is also due to report.
Like the Fed, the ECB (on Thursday) is expected to slow its rate hikes to 0.5% (from 0.75%), taking its main refinancing rate to 2.5%, and signal more rate hikes ahead.
The Bank of England (on Thursday) is expected to join the Fed and the ECB in raising rates by another 0.5% taking its policy rate to 3.5%. UK inflation data for November (on Wednesday) is expected to show a slight easing to an annual 10.9% from 11.1%.
The Bank of Japan’s Tankan business survey for the December quarter on Wednesday is expected to soften slightly and PMI’s (Friday) are also likely to remain soft. the Bank of Japan meetings the following week.
Chinese economic data for November on Thursday is likely to show a further slowing on the back of the latest Covid wave with growth in industrial production falling to an annual 3.7% growth rate and retail sales falling by 3.9%.
Unemployment is likely to have increased slightly. Investment in property will be closely watched as well. The trade data has set the tone for a weak data drop.
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In Australia, a slow week in the run up to Christmas after last week’s fireworks of a rate rise and 0.6% GDP growth in the September quarter.
There’s the Westpac / Melbourne Institute consumer confidence survey and the NAB business survey (all Tuesday) – Dr Oliver says both are forecast to show weaker conditions and confidence.
November jobs data is expected to show a 20,000 gain in employment with unemployment unchanged at 3.4%, according to Dr Oliver.
Annual meetings this week will wrap up the season for the year. Big banks, ANZ, NAB and Westpac are due to meet shareholders, along with industrials Nufarm and Elders as well as Orica.
