The main event this week is the FOMC meeting on Wednesday at 19.00 GMT. This is set to be a potentially momentous occasion swith a good chance of a taper being annoucned of the Fed’s QE programme.
Yen traders should note the significant amount of news from Japan, including the BOJ monthly rate meeting on Friday, the trade balance and various other indices.
Sterling has been range-bound recently, but that too could change as the week ahead features a lot of U.K data, including the BOE minutes, inflation data and Retail Sales.
Tuesday – Inflation data for the pound could mould BOE policy expectations
November CPI on Tuesday at 9.30 (GMT) could lead to a reaction from the pound. Inflation is expected to show a 2.2% rise y/y which is the same as previously. If it is higher, then it could strengthen the pound because it would raise expectations that the BOE might increase rates. The data-dependent forward guidance states that the BOE will only revise policy if unemployment falls to 7.0% – however there is an inflation opt-out clause which states that if inflation rises much above 2.0%, and is expected to “surge” the BOE can intervene regardless. Given the rate is already at 2.2% further rises would begin to suggest the opt-out might be invoked.
US and Euro-zone CPI will also be released on Tuesday. The U.S result will be closely followed as if it is excessively low or high that could influence the Fed’s decision to taper or not on Wednesday. A lower-than-expected figure will make them less likely to taper as it will raise fears about growth and deflation.
For those who trade the yen Trade data is out during the Asian session overnight.
Wednesday – happy FOMC day!
More column inches have been written about this month’s FOMC than I care to think. Will they – won’t they? There are compelling reasons to believe the Fed may make a small taper and equally compelling reasons they may not. It’s a million dollar question with about a 50/50 chance of either happening.
One barometer for the likelihood of a taper is how stocks are trading. They are trying to resume their up-trend today (Monday), which would suggest current expectations are biased towards the Fed taking no action, however, this might change as we get nearer to Wednesday.
St Louis Fed Jim Bullard’s recent comments about economic conditions now warranting a “small taper” suggested a fairly radical shift in stance for one of the Fed’s key decision-makers, however, given history tells us that most of the time stocks rally over Christmas (the Santa rally) this may indicate Bernanke and co may wish to avoid ‘pooping’ markets before Christmas – who would want to? Instead they may decide to keep everyone happy by maintaining the status quo.
In 2014, however, the possibility of such a cut might rise as more hawkish members adopt voting positions, since Fed Presidents rotate. There are, however, more events restricting the possibility of a taper, since arch-dove Janet Yellen will take the helm of the Fed at the start of 2014 and the debt-cieling will need to be extended beyond its current deadline on February 7th.
The U.K also releases relevant data on Wednesday. At 9.30 GMT there is the release of the minutes of the previous BOE meeting as well as unemployment data at the same time.
Thursday – more Japanese data overnight, U.K Retail Sales, Jobless Claims
There is plenty of Japanese news on Wednesday evening (23.30 GMT) including data showing the amount spent by investors buying Japanese and foreign stocks and bonds. This is followed by the All-Industry Activity Index m/m in October, which is forecast to fall by -0.3% and the final estimates for the Coincident and Leading Indexes.
U.K Retail Sales is released at 9.30 GMT, and is expected to rise, potentially giving another boost to sterling.
U.S Jobs data is expected to show a fall in Jobless Claims which – depending on the result of the FOMC – could either help sculpt the outlook for tapering o be a fait acomplis. Existing Home Sales and the Philadelphia Fed at 15.00 GMT could also further impact the outlook for the U.S economy.
Friday - BOJ meeting, U.K borrowing data, U.S GDP revisions
A heavy week of Japanese data will culminate in the BOJ monthly rate meeting on Friday morning at 01.00 GMT. There is not expected to be any change in policy but accompanying statements will be combed for any hints of more easing in the future as Japan prepares for a slow-down in 2014 which may require further monetary stimulus to offset.
Public Sector Net Borrowing in the U.K is published at 09.30 GMT, could affect sterling and is expected to have shown a rise in November; 3rd quarter GDP final estimates are released at the same time.
Finally U.S 3rd quarter GDP estimates are also released at 13.30 GMT and end an exceptionally busy week for financial markets.