The Economic Week Ahead

Main Macro Events This Week

The recent decisions by the FOMC to tighten policy and the ECB to extend stimulus reflect the widening divergences of monetary policy. And the uncertainties over the macroeconomic outcomes from government and central bank actions, along with geopolitical tensions, will keep the markets choppy ahead. So buckle up for a bumpy ride into the new year.

United States: The rally on Wall Street took a breather on Friday, especially after news China seized a Navy drone motivated profit taking. The declines were slim, however, with the Dow at 19,843 and looking down the barrel of the psychological 20,000. Traditionally, the final two weeks of the year are very positive for equity markets. Hopes for increased fiscal stimulus and reduced regulations have underpinned a surge in the feel good factor, which have boosted confidence and manufacturing figures for the month. The calendar is back ended and compressed into the end of the week. Thursday’s slate is heavy; Personal income and consumption for November should show respective gains of 0.3% and 0.2%. The PCE chain price index is expected to rise 0.2%, with the core rate up 0.1%. November durable goods orders will also be of interest, though the volatility in the data limit its overall usefulness. The third version of Q3 GDP should show a small upward revision to 3.3% (median 3.3%) from the prior 3.2% pace, and up from 2.9% in the Advance report. The price index should hold at 1.4% (median 1.4%). November existing home sales (Wednesday) and new home sales (Friday) will also be of interest. Existing home sales are expected to edge up 0.4% to a 5.62 mln. New home sales should rebound 2.1% to 575k (median 575k) after October tumbled 1.9% to 563k. The final reading on consumer confidence (Friday) should hold near the 98.0 print (median 98.2) after surging 4.2 to that level in the preliminary reading amid optimism following the Trump election. Initial jobless claims (Thursday) for the week ended December 17, expected to rise 11k to 265k, This week’s survey is important as it coincides with the BLS survey week. Also on tap is the preliminary December Markit services PMI (Monday). It dipped 0.2 points in November to 54.6, though it was the 9th consecutive month of expansion. There is the October FHFA home price index (Thursday). Then it’s the KC Fed manufacturing survey (Thursday).

Canada: GDP for October (Friday) is expected to improve 0.1% after the 0.3% gain in September. October wholesale trade (Tuesday) is seen rebounding 0.7% m/m in October after the 1.2% drop in September. Retail sales (Thursday) are projected to expand 0.5% in October after the 0.6% improvement in September. CPI (Wednesday) is anticipated to slip 0.2% in November after the 0.2% gain in October.

Europe: The ECB effectively confirmed its policy parameters for the whole of 2017 last week. It will be political events, including the start of official Brexit talks, as well as elections in Germany, the Netherlands and France, that will dominate next year. This week’s focus is on the Ifo Business Climate index where expectations are for another marked improvement to 110.8 from 110.4 after the strong orders number and the better than expected manufacturing PMI. There is also likely to be a modest improvement in the flash reading for Eurozone consumer confidence to -6.0  from -6.1, with German GfK consumer confidence to 9.9 from 9.8. Last but not least is the final release of French Q3 GDP, expected to confirm the quarterly growth rate at 0.2%.

UK: As 2016 draws to a close, the fundamental picture of the UK is looking pretty good, contrary to widespread fears following the June 23 vote to leave the EU. The BoE reaffirmed its neutral policy bias, but warned of a more “fragile” global outlook, highlighting the troubled Italian banking sector and rising debt in China, signaling that the policy rate could “move in either direction” in 2017. Brexit-related uncertainty remains a blot on the landscape. An FT article on Friday reported that Japanese banks have warned the government that they will start downsizing London operations within six months unless there is clarity on the UK’s future relationship with the EU. The UK calendar features the CBI distributive sales survey for December (Tuesday), November government borrowing figures (Wednesday), December consumer confidence (Thursday), and the third estimate of the Q3 GDP, which is expected to remain unrevised at 0.5% q/q and 2.3% y/y.

China: No data releases this week.

Japan: The BoJ starts its two-day meeting on Monday, and will announce its policy intentions on Tuesday. No changes in policy are expected, with short term rates kept steady a -0.10%, and bond purchases continuing at a JPY 80 tln rate. The October all-industry index (Wednesday) is penciled in at up 0.1% m/m from up 0.2% previously, which was the first positive reading since July.

Australia: The calendar is empty of top tier data this week. The only event of note is the Reserve Bank of Australia’s minutes to the November meeting (Tuesday).


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Market Analyst


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