Weekly Market Outlook
ECB meeting and Brexit to dominate the headlines this week
The economic schedule for the week ahead remains as the markets inch closer to the holiday season. This week will see some important market moving events lined up, starting with the two central bank meetings.
The European Central Bank and the Swiss National Bank will be holding their respective monetary policy meetings over the week. On the economic front, data will see a busy week for the sterling. Reports include the monthly GDP and inflation figures followed by manufacturing and construction data. The labor market data is also due.
The UK parliament will also be holding a vote on the draft Brexit deal. The outcome of which remains highly uncertain.
In the U.S. a somewhat quiet week will focus on the headline inflation data and retail sales. Investors will be closely watching the economic reports out of the U.S. ahead of the Fed meeting next week.
Here’s a quick recap of the leading economic events due this week.
ECB – QE comes to an end
The European Central Bank’s monetary policy meeting this week will be closely watched. Investors anticipate a formal announcement on the Central Bank ending its three-year quantitative easing program as this month’s meeting.
The ECB was purchasing 15 billion Euro in bonds since October this year, marking the final leg of its asset purchase program.
The Central Bank’s decision to end QE, however, comes at a somewhat uncertain time. While the Eurozone experienced one of the most substantial economic expansions in 2017, growth was seen to have fallen significantly in 2018.
The European Commission, at one of its recent economic reports, slashed growth. More recently, inflation estimates also pointed to a slowdown. Headline consumer prices remain steady at 2.0%, which is the inflation target rate set by the ECB. Core consumer prices were still a far way off, hovering near the 1% threshold. The data underpins weakness in the pace of consumer price increases.
As a result, the Central Bank will have to maintain a balancing act. While earlier there was speculation that the ECB would be to hike rates from the middle of 2019, that looks to be further postponed unless the economy and inflation start to pick up.
Therefore, while the ECB’s end to QE might seem hawkish and signal a shift in monetary policy, the Central Bank could signal caution.
Economic reports to keep the sterling busy alongside Brexit
The week ahead will see some financial reports coming out of the UK. Data includes inflation numbers for November and the recently started monthly GDP figures for October. The GDP numbers will signal how the UK’s economy began in the fourth quarter of the year.
Wage data and unemployment figures are also due this week. Amid the host of various economic reports, the UK parliament is set to vote on the Brexit draft agreement on 12th December. Investors are uncertain with many expecting the deal to be vetoed down by the UK’s parliament.
This could bring further uncertainty to the markets. However, in the likelihood of a vote agreeing to the terms, expect to see the sterling rally brushing aside the economic reports.
U.S. inflation and retail sales
Data from the U.S. this week will see the release of the monthly inflation figures. Investors will be watching the consumer price index data which will be followed up the retail sales numbers later in the week.
The two data points come ahead of the Fed meeting next week. The Fed is expected to hike interest rates by a quarter point this December and will also issue fresh economic forecasts and interest rate projections.