Week Ahead for FX, Bonds to January 3: Quiet Time For Data Over Holiday Season
The coming two weeks are expected to be very quiet due to Christmas and New Year holidays, but investors will take stock of an eventful year in which Republican Donald Trump was elected U.S. president and chaotic politics emerged in various European countries and in Canada.
A smattering of economic data are due in the U.S., Japan and Europe. These will be watched as investors continue to gauge the next moves in interest rates and assess how divergent countries' interest-rate policies are likely to be in 2025.
U.S.
U.S. data will be watched for signs that the economy is continuing to perform well, which would add to expectations that interest rates are unlikely to fall by much next year.
The U.S. Federal Reserve cut interest rates by 25 basis points in December, but said the pace of rate cuts was likely to slow in 2025. U.S. money markets currently price in a likelihood of just two quarter-point rate cuts in 2025, with a risk of just one.
The best indicators on the current health of the U.S. economy will come from the Conference Board's December consumer confidence indicator on Monday, Dec. 23, and from the ISM survey on manufacturing activity in December due on Friday, Jan. 3.
Other data include durable goods and new home sales data for November on Tuesday Dec. 24, and weekly jobless claims figures on Thursday Dec. 26 and Thursday Jan. 2.
"Few see the U.S. as anything but exceptional as we drift into the holidays," said Bob Savage, head of markets strategy at Bank of New York Mellon.
Durable goods, manufacturing ISM and jobless claims "all matter," he said, adding that there is a possibility that fourth-quarter U.S. gross domestic product growth could be higher than expected.
In the immediate term, investors will be keeping a close eye on whether the U.S. government manages to avoid a partial shutdown over the weekend of Dec. 21 to Dec. 22. This comes after Republicans in Congress failed to pass a pared-down spending bill, which was backed by President-elect Donald Trump.
The U.S. Treasury will auction $69 billion in 2-year notes on Monday, Dec. 23, $70 billion in 5-year notes and $28 billion 2-year floating rate notes on Tuesday, Dec. 24 and $44 billion in 7-year notes on Thursday, Dec. 26.
EUROZONE
Data releases in the eurozone will almost come to a standstill around the Christmas holidays in the week to Dec. 27, before picking up again in the week to Jan. 3
Spain publishes final gross domestic product for the third quarter on Monday, Dec. 23, and then retail sales data on Friday, Dec. 27.
The following week, flash estimate Spanish inflation data for December are scheduled for Monday, Dec. 30.
Final manufacturing purchasing managers' index data for Spain, Italy, France, Germany and the eurozone for December are due on Thursday, Jan. 2.
Spanish and German unemployment data for December are up for release the following day, Friday, Jan. 3.
"The euro area composite PMI output index contracted for the second month in December, and suggests downside risks to near-term GDP growth," Nomura's economists George Buckley and Andrzej Szczepaniak said in a note.
German corporate and investor sentiment in particular "remains remarkably weak compared with pre-pandemic levels, underscoring our more bearish outlook relative to consensus," they said.
Italy and Greece are expected to publish their funding plans for 2025 in the week starting Dec. 23.
U.K.
Focus for the U.K. centers on the release of final third-quarter gross domestic product on Monday, Dec. 23.
These will provide additional data, including current account figures. Analysts said they will watch out for evidence on the household savings rate for indications on how much spending power consumers have.
The final purchasing managers' survey on manufacturing activity in December will be released on Thursday, Jan. 2. This will be followed on Friday, Jan. 3 by data from the Bank of England on consumer lending, mortgage lending and mortgage approvals during November.
TURKEY
Turkey announces an interest-rate decision on Thursday, Dec. 26.
The country's key interest rate stands at 50% but an interest-rate cut this month looks likely, ING analyst Muhammet Mercan said in a note.
"The Central Bank of Turkey's communication suggested that we are nearing a gradual rate-cutting cycle, implying a December move as a real possibility."
ING expects a 250 basis point rate cut, though a smaller reduction is possible given higher-than-expected inflation in November, he said.
JAPAN
Japan's data and events in the coming week could give some fresh hints for the timing of the Bank of Japan's next rate increase.
BOJ Gov. Kazuo Ueda will speak at an event held by the country's biggest business lobby on Wednesday, Dec. 25. He has recently said that the bank is carefully assessing uncertainties about U.S. economic policies and wage trends in Japan.
On Friday, Dec. 27, the Bank of Japan is scheduled to release a summary of opinions at its Dec. 18-19 meeting, where the central bank left its policy rate unchanged at 0.25%. It is likely to show how confident the bank's policy board members have become about achieving its goal of stable 2% inflation accompanied by wage growth. The bank is also scheduled to release the minutes of its Oct. 30-31 meeting on Tuesday.
A wide range of economic indicators will also be available on that day. Consumer inflation in the Tokyo metropolitan area is expected to have picked up in December due to a rise in energy prices. November data on retail sales, industrial production and the job market will be also released that day.
The ministry of finance is scheduled to auction two-year sovereign notes on Thursday, Dec. 26.
AUSTRALIA & NEW ZEALAND
In Australia, the last hurrah for the year from the Reserve Bank of Australia will be the release on Tuesday, Dec. 24 of minutes of its recent policy meeting, which ended in a dovish pivot and sharply strengthened the case for a cut in the official cash rate in February.
The central bank board no longer warns that it wouldn't rule anything "in or out," in the future, nor that it remains vigilant to upside inflation risks.
Instead, the RBA said it is increasingly confident that inflation is returning to target.
The minutes will provide more detail around the RBA's policy stance, and may strengthen bets on a rate cut in February or April.
The RBA's move to a more dovish narrative followed news that the economy barely grew in the third quarter, and wage pressures were easing.
Still, the job market remains tight with unemployment now below 3.9%.
The minutes might be a Christmas present for the Labor government, which is facing a tough battle to win the coming federal election, due before mid-May.
In the week to Dec. 27, only industrial profit figures are due, on Friday.
The November data will give insight into how industrial earnings are holding up in China, as signs of economic recovery continue but so does skepticism about how long momentum will last in the face of an increasingly uncertain outlook in the year ahead.
China's official purchasing managers' data on manufacturing for December are due on Tuesday, Dec. 31, and the Caixin manufacturing PMI on Thursday, Jan. 2.
Any announcements from officials to end the year on a high will also be watched, as expectations for more stimulus persist, though any major announcements are unlikely until well into the next year.
SINGAPORE
Singapore's CPI data for November will be released on Monday, Dec. 23.
Market participants are likely to closely watch whether the data will show another slowdown in core inflation last month following the decline in core CPI to 2.1% on-year in October from 2.8% on-year in September.
November's headline inflation likely rose 1.85% from a year earlier, up from October's 1.4% increase, according to economists polled by the Wall Street Journal. Headline inflation likely rose due to base effects for car prices, among other factors, Nomura economist Charnon Boonnuch wrote in an email.
A further slowing in Singapore's core inflation could add to the case for the Monetary Authority of Singapore to ease its monetary policy stance, which is centered on the city-state's exchange rate.
--Any references to days are in local times.
--Additional reporting by Amanda Lee, Megumi Fujikawa, Ronnie Harui, James Glynn and Emese Bartha
--Write to Jessica Fleetham at [email protected] and Fabiana Negrin Ochoa at [email protected]