The US CPI came in at 0.4%, which was in line with the consensus and the prediction model and the US Retail Sales came in better than the consensus as per the prediction model. However, the US Core CPI missed expectations. The FOMC hiked rates from 1.25% to 1.50% as widely expected. But, the absence of any hawkish surprises from the FOMC and the vote being 7-2, with Fed Evans joining the dissenter camp, favoring to keep rates unchanged weakened the Dollar index. The rate path trajectory was also kept broadly the same despite the fiscal stimulus being incorporated into forecasts. Also, Doug Jones defeated Republican Roy Moore on Tuesday, becoming the first Democratic senator to represent Alabama in two decades and further narrowing the Republican’s slim majority, which will mean Republicans will now only have a 51-49 seat majority in the Senate. The sentiment was further pressured on tax reform after Republican Senator Rubio and Lee said they would not vote for the GOP tax bill unless it expands child tax credit.
- US Gross Domestic Product (Q3) (Thursday): The second reading of US GDP was positive with an upgrade to 3.3% annualized growth, better than expected. The third and final reading is expected to confirm this growth rate. It was expected for the US GDP to remain the same at 3.3% (Consensus: 3.3%). The forecast model is based on a multi-regression analysis by using lagged data and consensus as the explanatory variables to estimate the parameters.
- US Core Personal Consumption Expenditure – Price Index (Friday): This is the Fed’s preferred measure of inflation. The Core PCE ticked up to 1.4% y/y in October. However, the most recent Core CPI number came below expectations, and It was expected for the Core PCE to reflect the same and fall back to 1.3%, which would be below the 2% target of the Fed.
- US Durable Goods Orders(Friday): As per the prediction model, It was expected the US durable goods orders to increase to 1% in November. Durable Goods fell by 0.8% in the final reading for October. The transportation equipment orders, which contributes to more than 30% to the overall orders is expected to increase by 1.5%. Primary Metals (1.5%), Fabricated metal orders (1.9%), Machinery (0.9%), Computers and electronic products (0.38%) and Electrical equipment (1.1%) are all expected to increase from October to November.
- US Government Shutdown(Dec 22): The US government is due to lose some funding at midnight on December 22nd, but extension of funding into mid-January 2018 looks the most likely option.
- Senator Bob Corker, the only holdout on the Senate’s initial tax bill, announced last Friday that he will vote yes on the GOP’s tax cuts bill, less than an hour after Senator Marco Rubio said he will also vote yes. With the Fed Interest Rate decision done, the focus will fall back on the potential tax legislation as the final tax bill is expected to go to the House Rules Committee on Monday, with the House to consider bill on Tuesday and the Senate on Tuesday/Wednesday, before moving to US President Trump’s desk, who has stated that he expects the passage of the US Tax Bill early next week.
ECB kept all three rates unchanged as widely expected. They also upgraded their growth forecasts and see the economy expanding by 2.4% this year from 2.2% and raised their 2018 GDP forecast to 2.3% from 1.8%. They also increased next year’s inflation forecast but left this year’s projection unchanged. However, ECB President Draghi failed to deliver anything too hawkish in his post-decision press conference and with no discussion about a fixed QE end date and inflation pressures still deemed to be muted, the euro weakened further.
- Catalan Elections:The regional Catalonian elections are due on Thursday. The election is seen more of a vote on independence than a traditional election and any response from the Madrid-based government will be closely watched.
- Eurozone CPI (Monday): It was expected for the Eurozone CPI to come in at 1.5% (Consensus: 1.5%). The forecast model is based on a multi-regression analysis by using the Harmonized Index of Consumer Prices from Germany, Consensus and lagged data as the explanatory variables to estimate the parameters.
- IFO – Business Climate(Tuesday): The headline business climate score increased to 117.5 points in November, beating expectations. A small increase up to 117.6 is expected.
- GFK Consumer Confidence Survey (Friday): A score of 10.7 was seen in this survey in November and an increase to 10.8 is expected for December.
- With no tier one data from Eurozone expected in the week ahead, the pair is expected to be driven by political events in Catalonia and by developments in the potential US tax legislation as the final tax bill is expected to go to the House Rules Committee on Monday, with the House to consider bill on Tuesday and the Senate on Tuesday/Wednesday, before moving to US President Trump’s desk, who stated that he expects the passage of the US Tax Bill early next week.
With lack of developments on the North Korea front and with no tier one economic releases from Japan during the past week, the pair was driven by the Risk Off Sentiment as Doug Jones defeated Republican Roy Moore on Tuesday, becoming the first Democratic senator to represent Alabama in two decades and further narrowing the Republican’s slim majority, which will mean Republicans will now only have a 51-49 seat majority in the Senate. The sentiment was further pressured on tax reform discord after Republican Senator Rubio and Lee said they would not vote for the GOP tax bill unless it expands child tax credit.
- Geopolitics: In the previous week, it was noted that US and South Korea agreed to postpone their joint military exercise to late April as South Korea asked US to postpone them till after the Winter Olympics. Also, a UN Official stated that North Korea’s leadership agrees it is important to avoid war.
- BOJ Interest Rate Decision & Monetary Policy Statement(Thursday): The BOJ is widely expected to keep its interest rates unchanged. However, the focus is expected to fall on the post-meeting comments from BOJ Governor Kuroda.
- Even though the BOJare expected to keep the interest rates unchanged, It was expected that the post meeting comments to have a dovish tone as a new dissenter on the Bank of Japan board calling for more stimulus has prompted the BOJ to adjust its communications to flag risks of additional easing.
Canadian Dollar initially strengthened after BoC Governor Poloz’s comments that he was increasingly confident that less stimulus is needed in the future. Also, news of the Forties Pipeline System, which carries more than 40% of the UK North Sea’s oil and gas, being shut down for “weeks” rather than days to repair a crack in the pipe strengthened oil prices. However, the pair reversed on Friday entirely by the U.S. dollar’s reaction to progress on the U.S. tax bill.
- Consumer Price Index (Thursday): The CPI is expected to increase to 2.0% Y/Y from 1.4%, driven mainly by an increase in gasoline and energy prices. Core inflation, which removes the energy prices, is expected to remain stable at 1.6%.
- Retail Sales(Thursday): The Retail Sales for the month of October are expected to come in flat, after a 0.1% increase seen for the month of October.
- Gross Domestic Product(Friday): Canada publishes its GDP every month. The Canadian GDP increased to 0.2% for the month of September, after dropping 0.1% in August.
- Oil: Oil prices recorded their third-consecutive weekly loss amid concerns over rising production in the U.S. U.S. crude oil production rose by 73,000 barrels per day (bpd) last week. In the week ahead, weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday will be watched closely.
- BOC Governor Poloz stated that the economy is close to reaching full capacity and while uncertainties remain necessitating cautiousness on rates, his view on less labor market slack and early signs of firms offering higher wages has increased the chance of a rate hike next year. If the tier one data scheduled for release in the week ahead shows strong numbers, this could strengthen the Canadian dollar further.
The BoE voted 9-0 to keep the interest rates unchanged at 0.5% as expected. Despite the strong data that saw Inflation ticking up, wage growth hitting a 1-year high and retail sales beating expectations in the month of November, the pair was driven entirely by Brexit headlines in the previous week. The UK government was defeated in parliament in a 309-305 vote, meaning MP’s will get a meaningful vote on the final Brexit deal. Also, on Friday, the pound came under selling pressure despite the official EU approval that Brexit talks will now enter the second phase, which was negated by worries about the stability of the government and the difficulty in the next phase of trade talks.
- Brexit: On Tuesday, UK PM Theresa May meets with her cabinet ministers to begin mapping out UK’s trade relationship with the European Union. On Wednesday, the European Commission is expected to unveil its latest stance on the issue.
- BOE Governor Carney Speech (Wednesday): Carney is expected to give his latest thoughts on Brexit when he answers lawmaker questions at Parliament’s Treasury Committee along with other BOE financial-stability officials.
- UK Gross Domestic Product(Friday): As per the prediction model, It was expected that the UK Q3 GDP reading to be unrevised for both the Q/Q and Y/Y at 0.4% and 1.5% respectively.
- The pound is expected to come under pressure as the week ahead is expected to highlight the complexity in the next phase of Brexit talks, as the negotiators now move on to the more complicated stage of discussing trade. Also, recent comments from EU President Jean-Claude Juncker and German Chancellor Angela Merkel, have stated that the next stage of the U.K.-EU negotiations will be even harder than the first.
The pair had a strong week, mostly supported by strong employment numbers that saw the Unemployment Rate coming in at 5.4% for the month of November. The Australian Employment Change increased by 61.6K against the 19K expected, with Full Time Employment at 41.9k and previous readings also revised higher.
- RBA Meeting Minutes & RBA Bulletin (Tuesday): The recent labor market report from Australia highlighted a strong year for jobs in the Australian economy which saw employment expand at the pace of 3.2% in 2017. 80% of the jobs added, have been full-time jobs suggesting broader GDP growth. However, in their recent Meting Minutes they stated that the Australian dollar remains within the range that it has been in over the past two years and an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast. A reiteration could push the currency lower.
The Swiss National Bank left interest rates unchanged and upgraded their growth and inflation forecasts. However, they still want to see the Franc lower and deemed the currency as highly valued and stated that they will continue to intervene to curb safe-haven demand on any sudden rise in risk aversion.
- With no tier one data from Switzerland expected in the week ahead, the focus will fall back on the potential tax legislation as the final tax bill is expected to go to the House Rules Committee on Monday, with the House to consider bill on Tuesday and the Senate on Tuesday/Wednesday, before moving to US President Trump’s desk, who has stated that he expects the passage of the US Tax Bill early next week.
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