Weekly Analysis (18-22 Dec)

In the United States, attention is focused on the upcoming Core PCE Price Index, a key inflation metric closely watched by the Federal Reserve. The forecast for November points to a slight slowdown, with the annual rate expected to fall from 3.5% in October to 3.4%. The forecast for the previous month is for a steady rise of 0.2%, in line with the previous month. This data could have a significant impact on the Federal Reserve's interest rate decisions, as futures prices currently indicate a 63% probability of a rate cut in March. The outcome of this data will have a significant impact on market expectations and the Federal Reserve's policy stance.
The UK is struggling with its own inflation problems. The latest data points to a slowdown in year-on-year inflation to 4.4% in November, with the core inflation rate, which excludes volatile items such as energy and food, expected to fall slightly to 5.5%. This follows the Bank of England's recent decision to maintain a hawkish stance, keeping its bank rate at 5.25%. The central bank has indicated the need for rates to remain restrictive to curb inflation, but OIS swaps are currently pricing in around 110 basis points of cuts for 2024, reflecting a mixed outlook.
In Japan, the Bank of Japan is facing heightened expectations of a potential shift away from its current Policy Rate of -0.10%. This speculation was fueled by comments from BoJ Governor Kazuo Ueda, hinting at the increasing complexity of monetary policy management. However, subsequent clarifications implied that an immediate rate change might not be on the cards. A Reuters poll indicates that the Bank of Japan might limit its negative interest rates by the end of 2024, though no changes are expected in the imminent meeting.
Canada's economic outlook is updated with the latest inflation figures, with expectations pointing to a decline in overall inflation. Inflation is expected to fall below 3.0% in the twelve months to November, down from 3.1% in October. The fall is attributed to slowing prices in key areas such as food and petrol. The data follows the central bank's statement on December 6, which indicated a willingness to adjust policy if necessary, with a focus on core inflation and the balance between supply and demand in the economy.
The Reserve Bank of Australia recently left its key interest rate at 4.35%, continuing its policy stance following a 25 basis point hike in October. This decision was made against a backdrop of cooling inflation, which stood at 4.9% year-on-year in October, and an unemployment rate that has risen to 3.9%. The central bank's next quarterly inflation figures, expected on January 31, will be closely watched ahead of the February 6 meeting. Current market sentiment suggests another rate hold in the upcoming meeting.