Week ahead: who will lead the Fed?
And what future for Europe?
Blockages are back in Europe and suddenly everyone is analyzing the data to see which countries will be next. Germany may not be far behind as cases are spiraling out of control and more could follow in the weeks and months to come.
Suddenly the topic of the conversation may be about to change. The consequences of not coping with inflation due to the economic blow of the winter closures. Of course, the two are closely related, as central banks are all too aware of this as they attempt to navigate these unusual and uncertain times.
Speaking of central banks, we should soon find out who will head the Federal Reserve when Jerome Powell’s term as chairman ends in February. Powell remains the favorite to secure another term, while Lael Brainard is also very much in the running. There’s reason to think she might be preferred among Democrats, not least because she’s seen as more conciliatory than Powell, who has her appeal. We will soon see who prefers the president.
Wall Street will finally know if President Biden wants to change the head of the Fed. Fed chairman Powell is still expected to be reappointed, but the odds have declined over the past two months. Powell is still around a 2-1 favorite and the impact on the market could be minimal if Biden names Lael Brainard. Brainard at the head of the Fed would be seen as slightly more accommodating, which could delay interest rate hikes. The immediate impact on the markets may well be a drop in short-term interest rates.
On Tuesday, the release of November PMI flash readings should show a modest recovery in the and sectors. Wednesday is primarily about the release of the conciliatory conical announcement of November 3. Some traders will pay close attention to both and data that is expected to show increases from the previous month, reinforcing the fact that the American consumer is still in good shape.
With US bond and stock markets closed to observe Thanksgiving Day on Thursday, liquidity is expected to be low for the remainder of the week. This Black Friday will not normally attract his attention as many retailers will struggle to come up with attractive deals given the high demand and tight inventory situation which is expected to last throughout the holiday season.
Austria delivered a shock to the markets at the end of the week. The country enters a full lockdown for up to (at least?) 20 days. With case and death rates remarkably similar to Germany’s, will they and others follow suit? Investors seem to think so. Recently everyone has been talking about inflation. While lockdowns are sure to exacerbate the problem in the months to come, the topic of conversation may be about to change.
While all central banks are in the spotlight right now, the ECB is in a rather luxurious position by comparison. reaches more than double its target, but is expected to decline at the start of the year, much earlier than in other countries, and then fall back below the medium-term target.
The ECB has spent the last decade fighting the risk of deflation more than inflation, and a history of weak price pressures will serve it well in these troubling times. He is not immune, but he is one of the best placed.
The ECB’s accounts should reinforce the idea that inflation should not become a problem and should fall below target without the need to hike rates next year. The chair will likely reinforce this shortly after Thursday’s minutes, as she has done on several occasions since the meeting. Flash PMIs are next week’s biggest economic releases, alongside German and readings.
The BoE has found itself in a corner in recent weeks. First, he talked about a rate hike before the November meeting, and then voted overwhelmingly against it. Then they blamed the lack of information about the end of the leave scheme for delaying the rate hike.
The first of the leave data came out and it doesn’t look too bad at all. The next jobs report, which will give the full picture, will be released on December 14, one day before November’s inflation data and two days before the next MPC meeting. By then, there may be no more excuses, which is what the market is positioning itself for.
There will be plenty of opportunities for policymakers to back down before that date, if they so choose, with many making appearances this week, including the governor on Thursday. Monday’s Flash PMIs are the only other notable event for next week.
A few notable economic releases over the coming week including and. The index fell over the past week as it broke from its highs and hit a six-week low on Friday.
After interest rates last week and the start of the normalization cycle, all eyes will be on the data this week for further signs of mounting inflationary pressures. More hikes are to come over the next two years, with the current level still well below its neutral rate. The economy still needs support and the process will be gradual.
The CBRT cut interest rates by 100 basis points to 15% and signaled it could do so again in December before assessing its easing cycle. Erdogan’s promise to fight interest rates is doing well; if only he had the same contempt for inflation.
Unsurprisingly, the market does not forgive such unconventional policies, nor a central bank governor who is a puppet to the president, and the spiral has once again abated. The dollar was above 11 against the lira for the first time in its history and there doesn’t seem to be much appetite for taking an opposing view on the currency.
Years one and five are expected to remain unchanged at the start of the week, even as the economy continues to face significant headwinds. The PBOC could opt for a cut in the coming months as an alternative way to stimulate the economy.
The real estate market is one of the main areas of weakness in the Chinese economy as the restructuring of Evergrande (HK 🙂 continues to weigh heavily on the sector. Selling his entire stake in streaming company HengTen Networks (HK 🙂 for $ 273 million will help keep the wolf out of the door for now, but debt repayments will keep coming.
The company manages to save time at a significant cost, but a more sustainable solution is essential, for the rest of the industry and for all those who depend on it, who together account for about 25% of the economy.
No major data or events next week for India.
The RBA continues to push back market expectations for a rate hike next year, with the first currently slated for next summer. This has been a constant theme lately for central banks in general, but the RBA may have done itself a disservice when it was intimidated by its target return policy days before a meeting.
The RBNZ is expected to continue its tightening cycle and rise 25 basis points on Wednesday, taking it to 0.75%. A higher and tighter labor market, however, could prompt policymakers to a 50 basis point hike, with the next meeting not taking place until February.
are also due Monday.
Tokyo’s inflation reading is expected to rise to 0.4% next week, from 0.1%, as higher prices for oil and imported food pushed prices up. The impact should however be temporary and will have no impact on keeping rates at floor levels.
Key economic events
Sunday November 21
The presidential election in Chile
Monday 22 November
- ECB Members Holzmann, Kazaks and Kazimir, as well as Czech National Bank Governor Rusnok, speak at the Austrian Central Bank Conference on European Economic Integration.
- UK Labor leader Keir Starmer delivers keynote address at National Business Organization CBI 2021 annual conference
- US Trade Representative Tai is in India for trade negotiations.
Economic data / Events
- Sales of existing homes in the United States
- Preferential loan rates in China
- Consumer confidence in the euro area
- Confidence of Turkish consumers, arrivals of foreign tourists
- Trade in Spain
- Poland IPP, industrial production, construction
Tuesday 23 November
- BOC Beaudry addresses the Ontario Securities Commission.
- BOE policymaker Haskel speaks at the Adam Smith Business School on “High inflation every now and then.”
- Meeting of the EU General Affairs Council in Brussels.
Economic data / Events
- US Nov Prelim manufacturing PMI: 59.0 ev 58.4 before
- European PMI Flash: euro zone, Germany, France and United Kingdom
- Mexico’s international reserves
- Singapore CPI
- Retail sales in Poland
- Israel main indicator “S”
Wednesday, November 24
Economic data / Events
- FOMC minutes
- US consumer income, wholesale inventories, new home sales, third quarter GDP, initial jobless claims, durable goods, University of Michigan consumer sentiment
- Germany IFO business climate
- RBNZ rate decision:
- Manufacturing confidence in France
- Russian industrial production
- New Zealand rate decision: Expected to increase the spot rate by 25 basis points to 0.75%.
- Singapore GDP
- Confidence of BER companies in South Africa
- Capacity utilization in Turkey, confidence in the real sector
- Industrial production of Russia, IPP, IPC
- BOE policymaker Silvana Tenreyro speaks at the Oxford Economics Society.
Thursday 25 November
- The US stock and bond markets closed on Thanksgiving Day.
- BOE Governor Bailey speaks at a Cambridge Union event.
- ECB Chief Lagarde and Board Members Elderson, Schnabel, Panetta and Lane speak at the ECB Legal Conference on Continuity and Change.
Economic data / Events
- Germany Q3 Final GDP
- Mexico Q3 Final GDP; Minutes published
- New Zealand trade
- Hong Kong Trade
- Rate decisions in Sweden: should keep rates at 0.00%
- Hungary Rate decisions: Expected to raise interest rates again.
- German consumer confidence
- South Africa IPP
- Russia’s gold and currency reserves
Friday November 26
Economic data / Events
- Australia Retail sales
- Sweden Retail sales
- Tokyo CPI
- Trade with Mexico
- Singapore industrial production
- Switzerland GDP
- France Consumer confidence
- Italy Consumer confidence
- Russia’s money supply
- BOE Pill talks with CBI North East about economic outlook.
Sovereign Ratings Updates
- Ireland (S&P)
- Belgium (Moody’s)
- Switzerland (Moody’s)
- Poland (DBRS)