Market Outlook for the Week of 9th – 13th December | Forexlive

This week’s economic calendar kicks off on Tuesday with the Reserve Bank of Australia (RBA) delivering its monetary policy announcement, setting the tone for market sentiment in the region.

On Wednesday, the spotlight shifts to the U.S., where inflation data will be released marking the most anticipated event of the week. This will be accompanied by the Federal budget balance. Meanwhile, in Canada, the Bank of Canada (BoC) will announce its own monetary policy decision.

Thursday brings a flurry of activity. Australia will release its employment change figures and unemployment rate. Switzerland and the eurozone will see monetary policy announcements from the Swiss National Bank (SNB) and the European Central Bank (ECB), respectively. In the U.S., the producer price index m/m and unemployment claims will also be watched.

Finally, Friday will feature economic data from Japan, namely the Tankan manufacturing index and the Tankan non-manufacturing index, offering a snapshot of the business sentiment in the country. In the U.K., the focus will be on the GDP m/m report.

At this week’s meeting, the RBA is widely expected to maintain its current monetary policy stance, with the first rate cut unlikely before May 2025.

The Bank’s attention remains focused on tight labor market conditions, while Australia continues to experience persistent inflationary pressures, indicating that the economy is still operating with excess demand. Despite a slowdown in economic growth, there are no indications of a significant downturn.

Analysts from Wells Fargo note that the stagnation in consumer spending during last quarter is linked to energy bill rebates, which effectively shifted a portion of household expenditures to the government. This dynamic highlights the nuanced factors shaping Australia’s economic landscape.

In the U.S., headline CPI for November is projected to rise by 0.3% m/m, with the y/y figure expected to increase from 2.6% to 2.7%, driven primarily by higher gas and food prices. Core CPI, which excludes food and energy, is also forecasted to rise by 0.3%, consistent with the previous month.

Despite progress in reducing inflation over the past year, the Federal Reserve still faces challenges, as recent data suggests that disinflationary momentum is waning. Last month’s CPI data exceeded expectations, with annual inflation climbing to 2.6%. Core CPI has risen 0.3% for three consecutive months, and its three-month annualized rate of 3.6% now surpasses the 12-month rate of 3.3%. These trends indicate that inflationary pressures are persisting, while emerging risks, such as potential tariffs and tax cuts, are adding to the challenges.

In terms of monetary policy, the Fed is expected to implement a 25 basis point rate cut at the next meeting, especially following Friday’s stronger-than-anticipated jobs report, which suggests ongoing resilience in the labor market despite the unemployment rate seeing a small rise.

For Canada, analysts remain divided on whether the BoC will implement a 25bps or 50bps rate cut at its upcoming meeting. While some argue in favor of a more aggressive cut, a 25bps reduction appears more likely for the time being.

Economic activity in the country has begun to slow down, with overall business sentiment remaining subdued, largely due to concerns over potential U.S. tariffs. Inflation remains contained, providing the BoC with room to maneuver. However, the labor market presents a mixed picture, reflecting both resilience and emerging signs of softening. This complex backdrop suggests the central bank will proceed cautiously.

In Australia, the consensus for employment change is a gain of 26.0K, up from the prior 15.9K, while the unemployment rate is expected to edge higher from 4.1% to 4.2%. The participation rate is projected to remain steady at 67.1%.

This data print is expected after this week’s RBA meeting, with analysts from Westpac suggesting a more modest 20K increase in employment. They also anticipate the unemployment rate to rise to 4.2%, emphasizing that any perceived labor market strength may stem from increased working hours rather than substantial new hiring. This week’s figures are not expected to change the larger picture of a solid labor market that’s moving towards balance, they said.

The outlook for this week’s SNB meeting is split, with analysts debating whether the Bank will implement a 25bps or 50bps rate cut, with the market pricing in a 56% probability of a 50bps reduction.

Inflation in Switzerland has declined more sharply than anticipated and now sits below the Bank’s forecast of 1.0%. However, since the last meeting, the CHF has depreciated, alleviating some economic pressure. Recent remarks from the SNB Chair, suggesting that negative rates remain a possibility, have also contributed to the CHF’s weakening.

The SNB is expected to maintain a dovish message with analysts expecting two additional rate cuts in 2025.

At this week’s meeting, the ECB is widely expected to implement a 25bps rate cut, lowering its deposit rate to 3.0%.

Economic conditions in the eurozone remain challenging, with both manufacturing and services PMIs staying in contractionary territory. Additionally, uncertainty stemming from potential U.S. tariffs and the unstable political situation in France and Germany further clouds the outlook. While inflation has begun to decline, offering some optimism, elevated wage pressures continue to pose a challenge.

The ECB is anticipated to pursue multiple rate cuts throughout 2025.