Introduction

Traders may still be recovering from one of the busiest weeks of the year, so it might come with some relief that the calendar seems to be winding down for the holiday period this week. There are a few loose ends to tie up, but there is still time for a little more tier-one inflation and growth data before markets quieten down for the Christmas and New Year holidays.

Watch for: 

  • North America – US core PCE, GDP, Consumer Confidence and Michigan Sentiment; along with Canadian GDP
  • Europe & Asia – Eurozone Consumer Confidence, UK GDP and Japanese CPI.
  • LatAm – Mid-month inflation for Mexico and Brazil

North American data: 

  • US GDP – Q3 final (Wednesday 22nd December, 1330GMT) is forecast to be unrevised from the Prelim at +2.1%
  • US Existing Home Sales (Wednesday 22nd December, 1500GMT) are expected to increase by 3.8% to 6.54m in November (from 6.30m in October)
  • US Consumer Confidence (Wednesday 22nd December, 1500GMT) is expected to improve to 111.6 in December (from 109.5 in November)
  • US core Personal Consumption Expenditure (Thursday 23rd December, 1330GMT) is expected to increase by +0.4% MoM in November which would increase YoY inflation to 4.5% (from 4.1% in October)
  • US Durable Goods Orders (Thursday 23rd December, 1330GMT) consensus is expecting core durables to be at +0.3% MoM in November (after an increase of +0.5% in October)
  • Canadian GDP - November (Thursday 23rd December, 1330GMT) 
  • Michigan Sentiment  - final December (Thursday 23rd December, 1500GMT) is expected to see a mild downward revision to 69.7 from the prelim of 70.4 (final November was 67.4)
  • US New Home Sales (Thursday 23rd December, 1500GMT) are expected to increase by 2% in November to 760,000 (from 745,000 in October)

There is a sense of tying up the loose ends to the US data this week. Q3 GDP is a final reading and is expected to be unrevised at +2.1% so we are not anticipating a great deal of action there. Monthly growth of core Durable Goods is expected to be slightly reduced but still positive in November. Michigan Sentiment is a final reading but is expected to be slightly revised back lower, although would still be up from the November reading. This rebound from November is also expected to be reflected in the Conference Board’s Consumer Confidence. However, given the sharply rising Omicron infections, this may suggest a negative surprise.

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The Fed’s preferred inflation gauge, the core PCE is expected to follow the CPI data continuing higher. CPI was in line with forecasts a couple of weeks ago, and it is rare for core PCE to surprise. 

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Market Reaction: 

  • USD volatility will begin to settle down in the run-up to Christmas.
  • Core PCE rarely does much for trading direction and GDP is also unlikely to do much, but Omicron infection rates may create a negative surprise on Consumer Confidence and hit broad sentiment 

Europe & Asia: 

  • Reserve Bank of Australia meeting minutes (Tuesday 21st December, 0030GMT) 
  • Eurozone Consumer Confidence (Tuesday 21st December, 1500GMT) is forecast to improve slightly to -6.7 in December (from -6.8 in November)
  • Bank of Japan meeting minutes (Tuesday 21st December, 2350GMT) 
  • UK GDP – Q3 final (Wednesday 22nd December, 0700GMT) is expected to be unrevised from the second reading at +1.3% (Q2 final +5.5%)
  • Japan CPI (Thursday 23rd December, 2350GMT) forecasts are pointing to an increase in core inflation to +0.4% in November (from +0.1% in October)

It is fairly quiet on the European data front this week. The Aussie may see some elevated volatility off the RBA minutes, but the BoJ minutes are unlikely to do a great deal. UK GDP is a final Q3 reading and is expected to be unrevised from the second reading. Eurozone Consumer Confidence has been slipping back over recent months. The consensus expectation is for a slight tick higher, but with Omicron spreading fast, there will be a downside risk to this forecast.  

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It will be interesting to see whether Japanese core inflation begins to follow other countries and track higher. Core inflation ticked back above zero recently and is expected to move higher again to +0.4% in November. This could help support JPY.

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Market Reaction: 

  • Volatility is likely to be falling as markets wind down towards Christmas.
  • EUR bulls may struggle with any negative surprises on Eurozone Consider Confidence.
  • JPY will be reactive to core inflation.

Latin America: 

  • Mexico Retail Sales (Wednesday 22nd December, 1200GMT) 
  • Mexico half month inflation (Thursday 23rd December, 1200GMT) 
  • Brazil half month inflation (Thursday 23rd December, 1300GMT) 

Rising levels of inflation have been major factors driving tighter monetary policy across Latin America in recent months. Double-digit annual inflation in Brazil has forced the central bank to hike rates from 2% to 7.75% and is expected to hit 9.25% by the year-end. Mid-month inflation is announced this week and something below the 1.17% from November would be a relief. 

In Mexico, the central bank hiked rates by 50 basis points last week to 5.50%, more than expected, as an attempt to get to grips with its inflation problem (which hit 7.37% in November). Anything less than the +0.69% MoM increase was seen last month would be somewhat of a relief. The Mexican peso has recovered to a four week high since the central bank decision. Any sense that inflation was stabilising would help this performance of MXN. 

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Market Reaction

  • MXN and BRL to react to inflation data. Sharp increases to inflation would be negative for both