The Week Ahead: The Fed, the ECB, and Inflation to Impact Bets on Rate Cuts

Highlights

• US inflation numbers and Fed Chair Powell to impact sentiment toward Fed rate cuts.
• Euro area inflation numbers and ECB commentary to deliver EUR/USD trends.
• Private sector PMI numbers from China will impact market risk sentiment.

The US Dollar

US housing sector and consumer confidence numbers kickstart the week for the US dollar. The housing sector is a litmus test of the US economy. However, consumer confidence numbers will likely draw more interest.

A slide in consumer confidence could signal a weak consumer spending outlook. US private consumption contributes over 60% to the economy. A weak consumption outlook could impact the economy and ease the need for a hawkish Fed rate path.

On Wednesday, Q3 GDP numbers will be in focus. Revisions to the first estimate numbers will influence buyer demand for the US dollar.

However, personal income, inflation, and spending figures will likely have more impact. Softer inflation and a pullback in spending and income could fuel bets on a May Fed rate cut. The numbers are out on Thursday.

On Friday, ISM Manufacturing PMIs wrap up a busy week. While the manufacturing sector contributes less than 30% to the economy, cracks in the US economy could weigh on the US dollar.

Beyond the numbers, Fed speakers also need consideration. Fed Chair Powell is on the calendar to speak on Friday. FOMC members Bowman, Waller, and Williams will also deliver speeches.

The EUR

On Tuesday, German consumer confidence figures will draw investor interest. A pickup in consumer confidence would deliver further signs of an improving macroeconomic environment.

However, inflation figures for Germany (Wed), Spain (Wed), France (Thurs), and the Eurozone will likely have more impact on ECB policy bets. Softer inflation figures could bring forward rate cut talks.

Other stats include German retail sales, French consumer spending, and unemployment data for Germany and the Eurozone. While these reports need consideration, they will likely play second fiddle to the inflation numbers.

On Friday, Manufacturing PMI numbers for France, Germany, Italy, Spain, and the Eurozone wrap up the week. PMI numbers for Italy and the Eurozone will likely garner more investor interest. The Manufacturing PMIs for the Eurozone, France, and Germany are finalized numbers.

With inflation in the spotlight, ECB commentary needs monitoring. ECB President Lagarde is on the calendar to speak on Monday, Tuesday, Thursday, and Friday. ECB Chief Economist Philip Lane will speak on Tuesday.

The Pound

The Pound will be in the hands of the Bank of England in the first half of the week. Bank of England Governor Andrew Bailey is on the calendar to speak on Tuesday and Wednesday. Further references to the timing of interest rate cut discussions would need consideration. Monetary Policy Committee member Johnathan Haskel will deliver a speech on Wednesday.

On Thursday, house price figures will need consideration. A fall in house prices could impact consumer confidence and spending plans. A weaker consumption outlook could affect the UK economy and raise bets on a BoE rate cut.

Finalized Manufacturing PMI numbers for November wrap up the week.

The Loonie

In the first half of the week, market risk sentiment and oil prices will likely influence the appetite for the Loonie. However, Q3 GDP numbers will garner investor interest on Thursday. Better-than-expected GDP numbers could deliver Bank of Canada monetary policy uncertainty.

On Friday, employment figures will move the dial. Last week, the BoC signaled the end of the policy tightening cycle. Tighter labor market conditions could question the dovish outlook.

The Australian Dollar

On Tuesday, retail sales will impact the appetite for the Aussie dollar. A pickup in consumer spending could fuel demand-driven inflationary pressures and support a more hawkish RBA rate path.

A more hawkish rate path would raise borrowing costs and reduce disposable income. The net effect could be a pullback in spending and easing demand-driven inflationary pressures.

Housing sector data will draw investor interest on Wednesday and Thursday. A deterioration in the housing sector could impact consumer confidence and spending.

On Thursday, private new CAPEX numbers for Q3 will also need consideration. However, the CAPEX numbers are unlikely to influence bets on RBA rate hikes.

The Kiwi Dollar

On Wednesday, the RBNZ will influence the buyer appetite for the Kiwi dollar. Economists expect the RBNZ to leave the cash rate at 5.50%. Barring a surprise RBNZ policy move, the press conference will have more impact on the Kiwi dollar. Rate cut talks could impact the Kiwi dollar.

From elsewhere, private sector PMI numbers from China will move the dial.

The Japanese Yen

On Thursday, retail sales figures will impact the appetite for the Japanese Yen. A pickup in consumer spending would support bets on a Bank of Japan exit from negative rates. An uptrend in consumption could fuel demand-driven inflationary pressures.

However, industrial production numbers also need consideration on Thursday. An unexpected slump in production would signal a weak macroeconomic backdrop and give the BoJ breathing room.

On Friday, unemployment and capital spending numbers will also move the dial. However, an unexpected increase in the unemployment rate could have more impact on buyer demand for the Yen. A weaker labor market environment could ease private consumption and delay the need for a BoJ policy move.

Out of China

On Thursday, NBS private sector PMI numbers will garner investor interest. Weaker numbers could impact the market appetite for riskier assets.

The all-important Caixin Manufacturing PMI will likely draw more investor interest. An unexpected fall in the headline PMI could turn investor attention to Beijing.

Investors expect more stimulus to bolster the real estate market and the economy. Disappointing PMI numbers could pressure Beijing to deliver a substantial stimulus package.