Markets turn quiet in the approach to holidays.
The week between Christmas and New Year is an understandably quiet week in markets, although in 1989 the Bank of Japan sent a ripple through markets via an adjustment of the policy rate on Christmas Day.
No such ripples are expected in the coming week.
Signs that inflation may be at least stabilising in the US have led to some conjecture that the Federal Reserve (Fed) is approaching the end of its monetary policy tightening.
The Fed’s preferred inflation measure – the core personal consumption expenditures (PCE) price index – for November is released on Friday 23 December and is likely to reinforce the trend towards declining inflation that was exhibited by the November consumer price index (CPI). Market expectations are centred to decline in the core PCE index to 4.7 per cent from 5.0 per cent in October.
While that is unlikely to forestall further increases in the policy rate in 2023 it might herald a reduction in the policy rate increment to 25 basis points when the Fed meets at the end of January ahead of a “pause” later in the year.
Of some interest will be the release in the final week of the year of US regional high-frequency manufacturing activity indices, ahead of the widely monitored national Institute of Supply Management (ISM) purchasing manager index (PMI) for manufacturing released early in the New Year. That data will be parsed for both indicators of price pressure and activity with recession fears for 2023 remaining very much on the radar of financial markets.
Similar manufacturing indices for China are also slated for the final week of the year and will also be closely monitored. While markets have generally remained optimistic regarding the end of China’s “zero tolerance” Covid approach there is a fear that growing infection levels may stall any rebound in Chinese economic activity.
Stephen Miller, investment strategist at GSFM
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