This week is chaos for markets, and that’s exactly how it should be. A packed schedule of key events has investors bracing for effects across the global economy.
From US interest rate moves to central bank decisions in Japan and the U.K., nothing about this week is boring. Every single number, decision, and statement matters, and markets will be dissecting them for any sign of what’s coming next.
Fed’s interest rate decision: The main event
The Federal Reserve is center stage on Wednesday. Analysts are almost certain that the central bank will slice interest rates by 0.25%, lowering the range to 4.25%–4.50%. Futures markets aren’t leaving room for debate, pricing in a 95% chance of this happening.
This cut caps a year of aggressive rate hikes meant to hammer inflation back into submission. Inflation, however, isn’t playing nice. Data from the Bureau of Labor Statistics showed it creeping up to 2.7% in November, compared to 2.6% in October.
At the same time, the labor market refuses to crack under pressure. The US economy added 227,000 jobs last month, smashing expectations. Why does this matter? Because even if the Fed trims rates this week, the next move isn’t a given.
With Donald Trump set to re-enter the White House in January, the Fed might want to keep rates steady for a while. The president’s inauguration on January 20 will precede the next Fed meeting on January 29, and the central bank might pause to assess how his policies shake things up.
PMI, GDP, and retail sales: The supporting acts
Monday kicks things off with S&P Global’s Services PMI report. This little number gives us a snapshot of the US services sector, which has been carrying the economy while manufacturing drags its feet.
November’s PMI stood at 56.1, signaling expansion, but expectations for December suggest a slight dip to 55.0. It’s not a catastrophe, but it does suggest that even the services sector isn’t bulletproof.
On Tuesday, retail sales numbers for November drop. These numbers tell us how much consumers spent and where. October saw a modest 0.3% increase, but November, with its holiday shopping season, might nudge that number to between 0.2% and 0.4%.
Still, with inflation and high interest rates hitting wallets, don’t expect a spending spree. Fast forward to Thursday, and we’ve got the final GDP estimate for Q3 2024. The previous number was a solid 4.9% growth, driven by consumer spending and business investment.
Economists now expect a slight revision down to 4.7%. Why? Adjustments in trade balances and inventories are likely culprits.
Also on Thursday, existing home sales data for November will tell us just how bad things are in the housing market. Spoiler: It’s bad. October saw a 1.4% decline, and analysts are bracing for another 2% drop.
Global central banks enter the chat
Across the Pacific, the Bank of Japan is grappling with its next steps. There’s been chatter about a possible rate hike, especially after Governor Kazuo Ueda’s previous attempts at normalization. The yen remains under pressure, and inflation seems to be behaving. But here’s the twist: Politics might ruin the party.
Prime Minister Shigeru Ishiba’s gamble on a snap election backfired, leaving his Liberal Democratic Party stuck in a hung parliament. They’re now leaning on the Democratic Party for the People, a smaller opposition group that isn’t thrilled about more rate hikes.
The DPP wants the Bank of Japan to wait until spring wage negotiations confirm whether this year’s wage increases are the real deal. The result? No hike this week.
On the other side of the hill, the Bank of England is expected to sit tight. On Thursday, the bank is likely to hold its lending rate at 4.75%. November’s inflation data, set to drop the day before, could shake things up.
The economists think annual CPI inflation will rise to 2.5% from October’s 2.3%. That doesn’t sound huge, but inflation in services could hit 5%. Food and energy prices aren’t doing anyone any favors, either.
The Bank of England’s Monetary Policy Committee isn’t expected to make waves this week. Most members will likely vote to maintain the current rate. But there’s a slim chance the vote split could lean toward a more dovish stance, with some members eyeing potential rate cuts in 2025.
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