December 16, 2024

“The final busy week of 2024 is jam-packed with data from the UK, the eurozone, and the US. Decisions from the Federal Reserve and the Bank of England are the clear highlights, but we do get some UK inflation data and a wave of PMIs first.”

Tim Hallinan – Trading Director

USD

The Fed’s final decision of the year is the main event for the dollar this Wednesday. The market is fully pricing another 25bp rate cut and the key concern for the dollar is the 2025 rate path, which the consensus now expects to begin with a pause. This is because a) Trump’s policies are likely to add an inflationary impulse, and b) there has been a distinct lack of progress on the disinflationary side over the past four months, although for now the working assumption for both policymakers and the market is that it is more of a bump in the road rather than a more persistent obstacle to further cuts. Eyes will be on the infamous ‘dot plot’, where each official gives their precise view on where rates may be headed, and on Powell’s press conference, where undoubtedly there will be a lot of questions on Trump and the path for inflation.

This afternoon sees the December PMI release, where consensus is looking for a slight cooling for both the services and the manufacturing sectors. Throughout the rest of the week, we also have retail sales, jobless claims, and core PCE inflation.

GBP

A weak GDP report put sterling on the backfoot on Friday and it faces some key events over the next few days. The recent calm in the UK calendar allowed the pound to piggyback on weaker eurozone narratives to climb to 2.5-year highs against the euro over the past few weeks, and so far December’s data tests have not supported these levels. GDP unexpectedly contracted in October and we get a fresh look at the growth outlook in today’s PMIs, where the consensus is hoping to marginally remain within the realms of expansion. In the lead-up to Thursday’s Bank of England decision, there is a wage growth figure tomorrow morning and the November CPI report on Wednesday, although the market is pricing very little risk that either of these are enough to prompt a rate cut at the last minute.

EUR

Improved activity in the services sector have given some support the euro this morning. Admittedly, it is hard to talk about 46.7 (France) and 47.8 (Germany) composite figures as good news, but at the margin the beat on expectations can trim the growth pessimism underpinning rapid ECB cut bets. For Germany, politics is also a highlight today as Scholz faces its no confidence vote ahead of an election likely to come in late February. There is a silver lining to the turmoil here, as a fresh government could ultimately bring some fiscal stimulus next year and improve growth. There are also some speakers today, with the most notable names including President Lagarde, De Guindos, and Schnabel.

Markets

US stocks took a breather last week and the S&P 500 dropped by 0.6%, and Europe’s Stoxx 600 snapped a three-week winning streak after falling half a percent.

Main Economic Events (All Times CET)

9:35am: ECB President Lagarde speaks
10:00am: Eurozone PMIs
10:30am: UK PMIs
3:45pm: US PMIs
9:20pm: BoC Governor Macklem speaks

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