Last week, the U.S. dollar reasserted itself amid concerns about Brexit and China, among others that dominated the headlines. While the trade tensions between China and the U.S. dropped with both the countries, especially China, coming up with good gestures, China’s retail sales, and industrial output disappointed. Meanwhile, the Brexit drama touched new highs. Theresa May, the British PM, decided to withdraw the Brexit deal vote as she realized that she was not having the required support. The rebels in her own party challenged her, but she succeeded in winning the vote, even though by a small margin. Further, she made an effort to renegotiate the prickly Irish backstop issue with her counterparts in Europe. However, both the sides could not come to any agreement at all. In the euro-zone, the European Central Bank announced the discontinuance of Quantitative Easing, as expected by analysts, but said that the risk balance is trending to the downside. Moreover, weak PMI data also weighed down the Euro.
The central event in the last week of December and 2018 is the Fed interest rate decision. Here is an outlook on some of the key announcements from around the world for the upcoming week:
#1: U.K. CPI (12/19/2018 Wednesday 09:30 GMT)
In the U.K., the annual inflation reading remained flat at the 2.4 percent level in October, the same rate as in the previous month. Analysts had expected the annual inflation rate to come in at the 2.5 percent level. Transport and food prices eased but housing, utilities, and culture and recreation prices increased. Forecast for the month of November 2018: 2.3 percent
#2: Canada CPI (12/19/2018 Wednesday 13:30 GMT)
In Canada, consumer prices rose by 0.3 percent on a month-on-month basis in October, reversing the 0.4 percent decline reported in September. The reading for the month of October beat analysts’ expectations for an increase of 0.1 percent. Airfares, prices of passenger vehicles, and the costs of travel tours experienced the highest increases. Forecast for November 2018: the inflation rate is expected to come in at -0.1 percent
#3: U.S. FOMC Economic Projections (12/19/2018 Wednesday 19:00 GMT)
The U.S. FOMC’s report gives a projection of the inflation levels and economic growth for the next two years. More importantly, it provides a breakdown of the interest rate predictions of individual FOMC members. The Fed uses this as a tool to communicate the monetary and economic projections to investors.
#4: U.S. FOMC Statement (12/19/2018 Wednesday 19:00 GMT)
The U.S. FOMC usually incorporates some minor changes to the statement at the time of its release. Traders focus on these changes. It is one of the primary tools employed by the FOMC in order to communicate with the investors as regards the monetary policy. It provides the outcome of the members’ vote on deciding interest rates and several other policy measures. The statement also provides a commentary on the economic conditions that impacted their decision. More importantly, the statement discusses the country’s economic outlook and provides clues on future votes.
#5: U.S. Federal Funds Rate (12/19/2018 Wednesday 19:00 GMT)
The Federal Reserve makes the last interest rate announcement of the year this month. It is being viewed as a critical one. It is almost certain that the Fed Chair Jerome Powell and the other FOMC members will agree to raise the interest rates as the economy continues to enjoy robust growth with wages and employment rising. However, a few signs of economic slowdown, typically in the investment and housing sectors. Several Fed officials have also expressed concern as regards global and domestic growth.
Analysts have downgraded their expectations for 2019. They have also expressed doubts as to whether there will be any rate increase. The most recent dot-plot from the Fed points towards three rate hikes. However, it is expected that the fresh dot-plot for the Fed will go through a rate hike downgrade. However, there could be only two increases instead of three. If it is downgraded to just one, it could send the U.S. dollar plunging. On the other hand, maintaining three hikes would be considered as being hawkish.
Apart from the dot-plot, traders will also look out for other changes made to the statement. In the FOMC statement released in November, the Fed had downgraded the wording with respect to investment. It remains to be seen whether they will express worries about other areas. The impact of the interest rate decision by the Fed is likely to be felt through the week in the markets.
In the meeting held in November, the Federal Reserve decided to keep the federal funds target range at the 2.0 percent to 2.25 percent level as the labor market continued to strengthen and economic activity rose at a stronger rate, while inflation remained near the 2.o percent target level. In addition, the Fed reaffirmed the plans to go ahead with raising interest rates gradually.
#6: U.S. FOMC Press Conference (12/19/2018 Wednesday 19:30 GMT)
The U.S. Fed holds a press conference about 30 minutes after the announcement of the federal funds rate. The press conference lasts for about an hour and has two parts. The first part involves the reading out of a prepared statement. The second part involves answering questions from the press. Heavy market volatility can be expected as the questions by the press often result in the Fed providing unscripted answers. Powell often provides straightforward answers as regards the economy and monetary policy. However, he does not provide straightforward answers to the questions that are politically sensitive.
#7: New Zealand GDP (12/19/2018 Wednesday 21:45 GMT)
New Zealand’s GDP expanded 1.0 percent on a quarter-on-quarter basis in the June quarter of this year, higher than the 0.5 percent recorded in the prior. The reading for the month was also higher than analysts’ expectations for a 0.7 percent growth. This is the largest quarterly increase in as many as two years. Fifteen of the sixteen industries reported higher output. Forecast for the third quarter of 2018: New Zealand’s economy is expected to expand by 0.6 percent
#8: Australia Employment Change and Unemployment Rate (12/20/2018 Thursday 00:30 GMT)
On a seasonally adjusted basis, Australia added 32,800 jobs in October. Full-time employment rose by 42,300 and part-time employment declined by 9,500. Unemployment rose by 4,600. The number of jobless people who were looking for full-time jobs decreased by 5,200 and the number of jobless people who were looking only for part-time jobs rose by 9,800. However, the unemployment rate remained steady at the 5.0 percent level.
Forecast for November 2018: Australia is expected to add 20,000 jobs in November while maintaining the unemployment level at 5.0 percent
#9: Japan BoJ Policy Rate (12/20/2018 Thursday 03:00 GMT)
In the meeting held in October, the Bank of Japan decided to leave the key interest rate steady at the -0.10 percent level. The central bank also maintained the target yield for the 10-year government bond at around 0.0 percent. This widely anticipated by the market. In addition, the central bank revised inflation forecasts downward once again and said that the momentum in achieving the targeted level of price stability is not firm enough in spite of monetary easing for many years. Forecast for December 2018: -0.10 percent
#10: Japan BoJ Monetary Policy Statement (12/20/2018 Thursday 03:00 GMT)
The Bank of Japan uses the Monetary Policy Statement as one of the primary tools for communicating with investors as regards monetary policy decisions. It provides the outcome of the members’ decision with respect to asset purchases and offers a commentary on the economic conditions that impacted their decision. More importantly, the statement provides a projection of the economic outlook and offers clues on future decisions.
#11: Japan BoJ Press Conference (12/20/2018 Thursday 04:00 GMT)
The Bank of Japan uses the press conference as a tool to communicate with the investors as regards the monetary policy. It talks about the factors that impacted the most recent policy rate decision, inflation, the country’s economic outlook, and offers clues on future monetary policy decisions.
#12: U.K. Retail Sales (12/20/2018 Thursday 09:30 GMT)
In the U.K., retail trade fell 0.5 percent on a month-on-month basis in October after the reading for the prior month was revised downward to a decline of 0.4 percent. The reading for the month missed analysts’ expectations for an increase of 0.2 percent. The highest contribution to the decline came from non-food stores as the purchase of household goods (home appliances and electronics) declined the most ever since December. Further, clothes sales declined. Additionally, receipts at fuel stations declined, but mail-order and online retail trade remained unchanged. Spending at food stores increased 0.4 percent. Forecast for November 2018: retail trade is expected to increase by 0.2 percent
#13: U.K. BoE MPC Official Bank Rate Votes (12/20/2018 Thursday 12:00 GMT)
The members of the Monetary Policy Committee of the Bank of England voted unanimously 0-0-9 to maintain the key Bank Rate at the 0.75 percent level. In addition, the committee voted unanimously to keep the stock of U.K. government bond and corporate bond purchases at the same level.
#14: U.K. BoE Monetary Policy Summary (12/20/2018 Thursday 12:00 GMT)
Released on a monthly basis, the Bank of England uses the Monetary Policy Summary as a tool to communicate to investors as regards the monetary policy decisions. It provides the outcome of the members’ vote on key interest rates and several other policy measures. In addition, it includes a commentary on the economic conditions that impacted their votes. More importantly, it provides the economic outlook and clues on future votes.
#15: U.K. Current Account (12/21/2018 Friday 09:30 GMT)
In the U.K., the current account gap widened to £20.3 billion in the June quarter of this year from the downwardly revised figure of £15.7 billion for the previous quarter and. Analysts’ had expected the deficit to come in at £ 19.4 billion. This is the largest current account deficit ever since the June quarter of last year. The goods deficit recorded the largest increase ever since the September quarter of 2016. The services surplus narrowed and deficit in primary income increased. Forecast for third quarter 2018: a deficit of £22.2 billion is expected
#16: Canada Core Retail Sales (12/21/2018 Friday 13:30 GMT)
In Canada, core retail sales, which exclude autos, rose by 0.1 percent on a month-over-month basis in September after the 0.4 percent decline in August. Forecast for October 2018: core retail sales are expected to increase by 0.3 percent
#17: Canada GDP (12/21/2018 Friday 13:30 GMT)
Canada’s economy shrank by 0.1 percent on a month-over-month basis in September after the 0.1 percent expansion in the previous month. GDP contracted for the first time since January. Goods-producing industries declined by 0.7 percent. Forecast for October 2018: Canadian economy is expected to expand by 0.2 percent
#18: U.S. Core Durable Goods Orders (12/21/2018 Friday 13:30 GMT)
In the U.S., core durable goods orders, which exclude transportation, rose by 0.10 percent on a month-over-month basis in the month of October after the reading for the prior month was revised downward to a decline of 0.6 percent. Analysts had expected core durable goods orders to increase by 0.4 percent.
#19: U.S. Final GDP (12/21/2018 Friday 13:30 GMT)
The American economy grew at an annualized rate of 3.5 percent on a quarter-on-quarter basis in the September quarter, according to the second estimate. The 3.5 percent growth follows on the 4.2 percent expansion in the prior period, the highest ever since the September quarter of 2014. The private inventory investment and non-resident fixed investment were revised upward but that was offset by the state as well as local government spending and personal consumption expenditures. Forecast for the third and final estimate: 3.5 percent
#20: Canada BoC Business Outlook Survey (12/21/2018 Friday 15:00 GMT)
The Bank of Canada’s business outlook survey for autumn 2018 showed that businesses expect sales growth to rise further. The investment indicator rebounded and increased to a higher level driven by both capacity constraints and strong demand. Though hiring intentions have receded, they remained positive across the sectors and regions. Further, the Business Outlook Survey index remains close to the record levels.