Danske Research Team
Danske Bank A/S
Market Movers
In terms of data releases, focus will be on the US retail sales in November. This is one of the few remaining figures to be released ahead of the FOMC meeting next week. Consensus expects an increase of around 0.3% but, in our view, there are some downside risks to this forecast as the weekly retail sales from ICSC have been weak.
The US preliminary consumer confidence survey from University of Michigan for December is also released today. While consumer sentiment fell in November, it is still at a high level. Consumers’ long-term inflation expectations are likely to attract attention as they have been trending down for the past couple of years and some FOMC members have expressed concern about this development. Long-term inflation expectations were 2.6% y/y in November.
The US PPI figures for November is also due today. The low commodity prices imply that there is currently no price pressure from the producer side.
Russia’s central bank is due to announce its monetary policy decision and we expect a 50bp cut to the key rate as disinflation continues. That said, the risks for delayed easing have increased as recent geopolitical developments could fuel inflation expectations, see CBR rate decision preview: facing a vicious circle, 9 December 2015 .
There are no market movers in the Scandi markets today.
Selected Market News
The downward sliding oil price remains in the spotlight with Brent trading at USD39.5/bbl at the time of writing. Any hopes of stabilisation in energy markets from OPEC cutting production have been crushed following last week’s OPEC meeting. Instead, a non-OPEC response could stop the current price slide as key producers are struggling despite lower costs. An end to the USD rally in 3M, as we look for, should also stabilise commodities more generally.
Asian stocks are lower this morning driven by lower Chinese equities. The Shanghai composite index is down 0.9% today after a 3% decline since Monday. The CNY has continued to weaken to 6.450. This is likely to reflect speculation on a weakening ahead of next week’s FOMC meeting. Note that Chinese industrial production, fixed asset investment and retail sales are due for release over the weekend.
Ahead of next week’s FOMC meeting, Fed fund futures place an 85% chance of the Fed raising rates. In our view, a Fed hike next week seems like a done deal. Hence, we believe attention will quickly shift to the updated Fed projections and the so-called ‘dots’ illustrating the individual FOMC members’ view on the future rate path. We expect the median ‘dot’ for 2016 to be revised down from four to three hikes, while five hikes should still be included in 2017. This is more hawkish than market expectations, as markets have priced in only a total of approximately five hikes until year-end 2017.
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Editors’ Picks
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EUR/USD steadies above 1.0600, awaits German ZEW and Powell speech
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Key economic and earnings releases to watch
The market’s focus may be on geopolitical issues at the start of this week, but there is a large amount of economic data and more earnings releases to digest in the coming days.