The Economic Week Ahead

Main Macro Events This Week

Global equities continue to charge ahead as the Trump reflation rally brings glad tidings and cheer to investors heading into the holidays. This week’s calendar is highlighted by the long-awaited December FOMC meeting, the last of 2016, and a rate hike should not be a surprise given the rhetorical smoke signals of late and the underpinnings of growth, jobs and even nascent signs of inflation recovering. With the ECB meeting now out of the way, focus in Europe will turn to policy decisions in the UK and Switzerland, where unchanged policy settings are forecast. For Japan the calendar ramps up with PPI, machine orders, Tankan and industrial production, while in China, FDI, production, retail and fixed investment data are due.

United States:  The FOMC decision is the key data release of  the week. U.S. import prices are projected to sink 0.4% in November vs +0.5% (Tuesday), while export prices are also seen -0.4% vs +0.2%. MBA mortgage market indices (Wednesday) may continue to feel the strain of rising mortgage rates. Retail sales are forecast to rise 0.6% in November vs 0.8%, or 0.7% ex-auto, as rising gasoline prices boost gas station sales. Headline PPI may remain muted at 0.1% in November or 0.2% core. Industrial production is set to dip 0.1% in November, while capacity use may slip slightly to 75.2%. October business inventories are expected to sink 0.2%. CPI kicks off a busy (Thursday), with a headline forecast of 0.3% in November, while the core reading is seen 0.2% higher for a 2.1% y/y gain. The Philly Fed index may rise to 9.0 in December from 7.6, while the Empire State index is forecast to jump to 4.0 in December from 1.5. Also on tap is the Q3 current account deficit, projected to narrow to -$112.1 bln from -$119.9 bln. Initial jobless claims may slip 8k to 250k for the week ending December 10 and the NAHB housing market index is expected to hold steady at 63 in December. The week wraps up with housing starts (Friday) seen retreating 6.3% to a 1,240k unit pace in November after the 25.5% surge to 1,323k in October.

The markets are fully priced for a rate hike Wednesday. So, key for price action will be what’s inferred for the 2017 trajectory in the policy statement, and more importantly in the forecasts. FOMC forecast revisions to be released Wednesday after the FOMC meeting should reveal boosts in the PCE chain price forecasts for 2016, downward 2016 jobless rate revisions, and a narrowing in 2016 GDP.

Canada: Highlights are on Thursday, when the October manufacturing survey and the Bank of Canada’s Financial System Review (FSR) are released. Manufacturing is expected to improve 0.5% in October after the 0.3% gain in September. The FSR, which is published twice a year, will be followed by a press conference with Governor Poloz and Senior Deputy Governor Wilkins. The Q3 national balance sheet and financial flow accounts report is dueWednesday, which will provide a key measure of household leverage. Housing data is also due, with the Teranet/National HPI for November scheduled for Wednesday and the November existing homes sales report is due out Thursday.

Europe: With the ECB announcement out of the way and effectively setting policy parameters for the whole of 2017, by extending the QE program through to December next year, data releases won’t change the overall outlook. The data calendar has the German December ZEW reading, which we expect to have picked up again following Draghi’s early Christmas present and expectations are for a rise in the future expectations index to 14.3 from 13.8 in the previous month. The rest of the calendar focuses on final November inflation data with the German reading expected to be confirmed at 0.7% y/y, the French also at 0.7% y/y, the Spanish at 0.5% y/y, the Italian at 0.1% y/y and the overall Eurozone number at 0.6% y/y. Inflation is ticking higher, but not sufficiently apparently for the ECB. Eurozone production data for October meanwhile could correct again after weaker than expected German and French data and the Eurozone trade surplus is expected to ease slightly. Events include an EU leaders summit, with Brexit strategy discussions likely to be high on the agenda, but unlikely to be discussed much publicly, as the official line remains the same as before the U.K.’s referendum.

UK: Signs, via give-away remarks from government ministers and leaks, have suggested that the UK government is steering the economy to a soft Brexit. ary Policy Committee meets for the final time in 2016 (announcing Thursday), where unanimous decisions to leave the repo rate at 0.25% and the QE total at GBP 435 bln, is widely anticipated, coupled with a tone in the minutes that reaffirms the neutral stance that was established last month. The data calendar is headlined by inflation data for November (Tuesday), where we expect the headline CPI rate to lift to a cycle high of 1.1% , which would more than reverse the unexpected dip in October to 0.9% (from September’s 1.0% rate). Monthly labour market data, covering October and November, is also up (Wednesday), where we expect the unemployment rate to remain unchanged at the cycle low of 4.8% y/y in October, while the more timely jobless claimant count is seen rising 5k, which would build on the 9.8k rise seen in the month prior. Official retail sales for November (Thursday) has us anticipating a modest 0.2% m/m expansion, which would follow the solid, weather-influenced 1.9% m/m rise in October.

China: November industrial production (Tuesday) is expected little changed at 6.0% y/y from 6.1% in October, while November retail sales (Tuesday) are forecast to rise 10.2% y/y from 10.0% previously. November fixed investment (Tuesday) is predicted at 8.2% y/y from 8.3%.

Japan: Quiet week for data. The BoJ’s December Tankan index (Wednesday) should see the large manufacturer’s component improve to 8 from 6 and the large non-manufacturers component at 20 from 18. Revised October industrial production is also due Wednesday.

Australia: The calendar features November employment (Thursday), expected to rise 15.0k after the 10.9k gain in October. The unemployment rate is at 5.6% in November, matching the 5.6% reading seen in October. The Q3 house price index is due Tuesday. There is no Reserve Bank of Australia speaker this week. The minutes to the December meeting (December 20) are the next event of note from the bank.