It is fairly quiet for much of the week on the economic calendar for US announcements. That is until Friday, where once more inflation is in focus with the CPI data, in addition to the prelim Michigan Sentiment. Elsewhere, are two major central banks to announce monetary policy, with the Reserve Bank of Australia and then the Bank of Canada. In Latin America, the Central Bank of Brazil has a tough monetary policy decision as inflation remains elevated whilst the economy slips into a technical recession.
- North America – US trade balance, CPI and Michigan Sentiment, along with the BoC monetary policy decision
- Europe & Asia – Chinese trade balance and CPI, the RBA, German ZEW and final Q3 GDP for the Eurozone and Japan
- LatAm – the BCB interest rate decision and inflation for Chile, Mexico and Brazil
North American data:
- US Trade Balance (Tuesday 7th December, 1330GMT) an improvement in the deficit to -$66.8bn in October (from -$80.9bn in September)
- Canada Ivey PMI (Tuesday 7th December, 1500GMT)
- Bank of Canada monetary policy (Wednesday 8th December, 1500GMT) no change is expected at +0.25%
- US JOLTS jobs openings (Wednesday 8th December, 1500GMT)
- US Weekly Jobless Claims (Thursday 9th December, 1330GMT)
- US CPI (Friday 10th December, 1330GMT) is expected to fall to +5.8% on headline CPI (from +6.2%) and drop to +4.3% on core CPI (from +4.6%)
- Michigan Sentiment - prelim (Friday 10th December, 1330GMT) is expected to improve to 72.4 in December (from 67.4 in the final November reading)
Traders will be looking towards the Bank of Canada monetary policy decision to act as a gauge of response to the omicron variant this week. How the BoC sets its stall out on Wednesday as a central bank that is looking towards raising rates in the next six months will give a key indication to markets.
US inflation dominates the calendar towards the end of the week. US CPI indicators surprised significantly to the upside last month and caused shockwaves through the markets, with a subsequent surge of US dollar strength. Early forecasts suggest that this surge may be about to drop back slightly this month on both core and headline. “One swallow does not a summer make” and the Fed will be looking for more confirmation before thinking that inflation is rolling over.
The prelim Michigan Sentiment will also be watched on Friday. Sentiment is expected to pick up to 72.4 (from 67.4). If the driver of this comes from both current conditions and expectations, then this will be positive. The Fed will also be keeping an eye out for any significant increase in the consumer expectations of inflation data.
- CAD positive if BoC maintains or even guides forward any rate hike potential.
- USD strength on any upside CPI surprise. Also on positive surprises to Michigan Sentiment.
Europe & Asia:
- China Trade Balance (Tuesday 7th December, 0200GMT) the surplus is expected to reduce to +$65.5bn in November (from +$84.5bn in October).
- Reserve Bank of Australia monetary policy (Tuesday 7th December, 0330GMT)
- Eurozone GDP – final Q3 (Tuesday 7th December, 1000GMT) no revision at +2.2% (from +2.1% final Q2)
- German ZEW Economic Sentiment (Tuesday 7th December, 1000GMT) is expected to fall to 27.1 in December (from 31.7 in November)
- Japan GDP – Q3 (Tuesday 7th December, 2350GMT) is expected to be unrevised at an annualised +1.5%
- China CPI (Thursday 9th December, 0130GMT) inflation is expected to drop back slightly to +1.4% in November (from +1.5% in October), with the PPI unwinding to 12.4% (from 13.5%)
- UK GDP – monthly October (Friday 10th December, 0700GMT)
- UK Industrial Production (Friday 10th December, 0700GMT) is expected to improve to +3.1% YoY in October (from +2.9% YoY in September)
According to comments from Governor Lowe a couple of weeks ago, the Reserve Bank of Australia is still unlikely to raise rates in 2022. Lowe said that there was a “very low probability” that the jump in inflation would trigger an earlier rate hike. A recent Reuters poll of analysts suggested that an RBA rate hike would be slightly earlier, in Q1 2023, brought forward from Q2 2023 which was the consensus in October.
Final Q3 GDP data is unlikely to create too many surprises. The Eurozone is expected to be unrevised from the +2.2% growth already announced. Furthermore, Japan is not expected to see the annualised +1.5% revised either. Subsequently, we see the German ZEW Economic Sentiment as having more market-moving potential. After a mild tick higher last month, the ZEW is expected to slip back again to 27.1 (from 31.7) driven by the further deterioration in the current conditions to +5 (from +12.5).
- AUD will be positive on any hint of sooner rate hikes from the RBA.
- EUR moving on the German ZEW.
- GBP will be volatile on Friday with a whole slew of economic data announced early in the European session
- Chile CPI (Tuesday 7th December)
- Central Bank of Brazil interest rate (Wednesday 8th December)
- Mexico CPI (Thursday 9th December, 1100GMT)
- Brazil IPCA inflation (Friday 10th December, 1300GMT) is expected to fall to +1.05% in November (from +1.25% in October)
Inflation remains a hot topic of concern amongst Latin American countries. Central banks continue to use higher interest rates as a tool to control inflation. So any positive surprises in this week’s Chilean and Mexican inflation readings lead to an increased potential for further hikes.
The head of the BCB believes that Brazilian inflation will peak soon before receding next year. We could be getting signs of this coming through in this week’s IPCA. He also believes that the central bank is ahead of the curve on raising rates to control inflation. However, with negative growth again in Q3 (-0.1% in Q3 following -0.4% in Q2), meaning a technical recession, continued rate hikes may not be the best solution to the country’s economic problems.
- CLP and MEX to move on inflation surprises
- BRL traders will be watching the BCB rates decision in addition to Brazilian inflation