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US and UK inflation data, central bank meetings, and Australia employment figures will be key for investors.
China is to release its fixed assets investment, industrial production, and retail sales data for November this Thursday | Image source: CFOTO/Future Publishing via Getty Images

It’s a busy week ahead for the financial world, with four major central banks holding policy meetings before the year-end. Wall Street’s rally has taken a breather this week as investors become cautious ahead of the US CPI and the last FOMC meeting before Christmas. While China’s reopening optimism still offers a bullish factor to risk assets, the inflation data from the US will have a major impact on the market’s trajectory for the rest of the year.

Will US inflation cool further? Is a slowdown in rate hikes really happening?

The US CPI and the FOMC meeting will be certainly the focus that shapes the market’s trend for the rest of the year. Since the US printed light CPI data for October, Wall Street had a more than one-month rally as the Fed confirmed a slowdown in rate hikes will commence in December.

The US headline CPI for October came to 7.7% year on year, a sharp decline from 8.2% the prior month, and the core CPI excluding food and energy has also been light at 6.3%, easing from 6.6% in September. It is expected that inflation will cool further in November. The forecast for the headline CPI is 7.3% and the core CPI is 6%. The data will be out on Wednesday.

Following the light CPI data, the Fed has also clarified its intention to slow rate hikes, with an expectation for a 50-basis points rate hike in December, which will be a step to scale back from its outsized 75 bps hike for the last four consecutive time since June. Market participants are hoping for a consistent tone from the central bank, and this may continue to push the equity market higher. The decision will be released on Thursday.

Covid curbs and the impact on China’s economic activities

China’s economic data for November showed a severely disruptive impact on the country’s economy. All the recent data, including trade balance, manufacturing, and service PMIs all sharply declined in both October and November. China is to release its fixed assets investment, industrial production, and retail sales data for November this Thursday, all of which are expected to be weaker than the prior month. Especially the retail sales may contract by 2.4% year on year, down from a negative growth of -0.5% in October. And the Industrial output is expected to grow by 3.9%, which will be the lowest since June.

The Australian labour market may stay tight 

Australian employment data is due for release on Thursday. The Australian unemployment rate for October printed at 3.4%, lower than an expected 3.6%, and down from the prior month of 3.5%, suggesting that the labour market is still very tight. However, the monthly CPI printed much lighter than expected in October, which may make employment not a major gauge for the RBA’s future cash rate decisions. However, with the gloomy global economic outlook, the unemployment rate is expected to rise to 4% in 2023.

The Kiwi economy is expected to be resilient

New Zealand’s second-quarter GDP slowed to 0.4% annually from 1% in the first quarter due to dampened consumer and business confidence amid rapidly rising interest rates and hefty inflation. But the GDP grew by 1.7% sequentially, picking up from 0.4% in the first quarter, suggesting that the economy may stay resilient after the country fully reopened its border in October. Tourism may become a big contributor to the economy, with the hopes of increased spending on hospitality and entertainment.  However, the RBNZ’s hawkish tightening policy may cap the growth pace in the new year when a tougher time is ahead in housing and construction.

How will UK’s CPI steer the economic trajectory? Will the Bank of England have to slow down tightening to save the economy from an imminent recession?

The Bank of England may have to scale back its speed on rate hikes on concerns about a possible economic recession ahead. The central bank warned of the longest and hardest recession in 100 years in the November meeting when it raised the interest rate by 75 basis points, to 3%, which was the biggest single rate hike since 1989. The country’s CPI soared to 11.1% in October due to the Russian-Ukraine war-intensified rising cost of energy and food. However, the bank may have to stop the aggressive monetary tightening pace to save the economy from an imminent economic recession.

Will the Swiss National Bank continue its oversized rate hike? 

Following the other major central banks’ dovish turn in monetary policy, the SNB is expected to slow down its rate hike at this upcoming meeting after an oversized rate hike of 75 basis points in the last meeting. The country’s inflationary pressure is much lighter than some other major western economies, with the CPI data easing to 3% in October from 3.3% the prior month. But it is still above the SNB’s target of 0-2%.


Tina Teng is a Markets Analyst at CMC Markets APAC & Canada


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