Week Ahead: Highlights include Fed, US CPI; ECB, BoE, SNB, Norges Bank

• MON: UK GDP Estimate (Oct), Chinese M2/New Yuan Loans (Nov).
• TUE: OPEC MOMR; BoE Financial Stability Report; German CPI Final (Nov), UK
  Unemployment Rate (Oct)/Claimant Count (Nov), EZ ZEW (Dec), US CPI (Nov),
  Japanese Tankan (Q4), New Zealand Current Account (Q3).
• WED: FOMC Policy Announcement, IEA OMR; UK CPI (Nov), Swedish CPIF (Nov), EZ
  Industrial Production (Oct), US Export/Import Prices (Nov), Japanese
  Exports/Imports (Nov).
• THU: ECB, BoE, SNB, Norges Bank & Banxico Policy Announcements, European
  Council (1/2); Australian Employment (Nov), Chinese Retail Sales/Industrial
  Production (Nov), US Retail Sales (Nov), NY Fed Manufacturing (Dec), IJC (w/e
  5th Dec), Philadelphia Fed (Dec), Industrial Production (Nov), Australian Flash
  PMIs (Dec), New Zealand Manufacturing PMI (Nov).
• FRI: Quad Witching, CBR Policy Announcement, European Council (2/2); UK GfK
  (Dec), UK Retail Sales (Nov), EZ, UK & US Flash PMIs (Dec), EZ Final CPI
  (Nov).

NOTE: Previews are listed in day-order

UK GDP Estimate (Mon):

October GDP is forecast to rise 0.4% M/M (prev. -0.6%); the data will be
used to assess whether the UK is in a recession or not. The September data were
distorted by a ten-day mourning period for the funeral of Queen Elizabeth II,
which amplified monthly decline. In October, there was extra working days,
which will help support a monthly rebound. That being said, recent PMI reports
said that “a further steep fall in business activity in November adds to
growing signs that the UK is in recession, with GDP likely to fall for a second
consecutive quarter in the closing months of 2022… the PMI for the fourth
quarter so far is signalling the steepest economic contraction since the height
of the global financial crisis in the first quarter of 2009, consistent with
the economy contracting at a quarterly rate of 0.4%.” The report added that
“forward-looking indicators, notably an increasingly steep drop in demand for
goods and services, suggest the downturn will deepen as we head into the new
year.”

UK Jobs (Tue):

September’s jobs data was mixed, but overall signalled that the labour
market remained tight, though there were some signs of loosening. The
unemployment rate is expected to tick higher to 3.7% in October from the prior
3.6% – which itself increased from August’s 3.5%. Analysts expect the worries
surrounding the economy to continue to slightly loosen labour market conditions.
Investec sees the jobless rate at 3.7%, with a +62k gain in employment, and
also expects wage momentum to persist (headline seen +6.1%, while the regular
pay metric seen at 5.9%.

US CPI (Tue):

The consensus is looking for a mixed release, with the headline rate of
consumer prices seen decelerating slightly to 0.3% M/M in November (prev.
0.4%), although the core rate is expected to pick up a touch to +0.4% M/M
(prev. 0.3%). In October, core CPI fell sharply after hefty readings in both
August and September, and along with other inflation metrics, has resulted in a
reassessment of inflation expectations, with many now more forcefully making
the argument that inflation pressures have turned a corner; Morgan Stanley
itself looks for inflation to remain at these more moderate levels going
forward, as the disinflationary forces continue, and the bank expects the
November report to confirm the slowdown. While the data is unlikely to shift
the dial too much for the December FOMC (the Fed announce is due the day after
the CPI data), where a 50bps rate rise is assumed to be a done deal given the
recent commentary from Fed officials, it could be influential in shaping
expectations of where the terminal rate will eventually be (currently, markets
expect rates to peak at 4.75-5.00% in March 2023, where it is expected to
remain until the November 2023 meeting, after which the market expects rate
cuts).

UK CPI (Wed):

Last month’s reading was modestly firmer than expected at 11.1% Y/Y, an
increase which was largely due to the introduction of the Energy Price
Guarantee which caps household energy bills at an average of GBP 2,500 vs
Ofgem’s GBP 1,970 cap. November’s headline is expected to ease to 10.9% Y/Y,
while core CPI is seen steady at 6.5% Y/Y, chiming with the read across from
the month’s S&P Global PMIs, which seemingly suggested that there were
signs that inflation had peaked, though remains historically elevated. More
broadly, the release will factor into the BoE’s Policy Announcement, which is
scheduled for the following day, and is likely to result in a 50bps rate hike
(vs 75bps in November), as the MPC continues to balance managing inflation and
the impending recession. Further out, inflation is likely to remain elevated
for some time, though the latest Citi/YouGov survey is a welcome read for the
BoE, as 12-month consumer inflation expectations eased, though the 5-10yr view
remains stubbornly above the BoE’s 2% target. Note, the ONS will not be
publishing PPI metrics for November, due to previously announced quality
problems.

FOMC Policy Announcement (Wed):

The Fed is expected to lift its Federal Funds Rate target by 50bps to
4.25-4.50%, according to both the analyst consensus, as well as the previous
meeting statement and recent commentary from Fed officials. Analysts will also
be noting the updated economic projections, which are expected to show a higher
terminal rate than assumed in the September projections (4.6%), as has been
alluded to by Chair Powell at the November FOMC and in remarks made in
December. Money markets are implying that terminal is somewhere in the
4.75-5.00% bracket, although have creeped into the 5.00-5.25% range in wake of
some hawkish data prints (like the recent NFP and ISM data, for instance).
Powell will likely be quizzed on how long the Fed intends to hold rates at
terminal; while he might not get drawn into offering any precise guidance, the
chair himself has previously said that rates will have to be held at terminal
for “some time” – a line echoed by many other Fed officials too. For context,
historically the Fed has typically stayed at terminal for between 3-15 months,
with the average being around 6.5 months. It is worth noting that expectations
for the December meeting could be subject to some further volatility, given
that the November CPI data will be released a day before the FOMC meeting;
accordingly, if the CPI data does deviate widely vs expectations, the Fed may
choose to again ‘guide’ expectations via its mouthpieces in the WSJ or NYT.

Australia Employment (Thu):

Analysts expect 17k jobs to be added to the workforce in November (prev.
32.2k), and the unemployment and participation rates are expected to be
unchanged at 3.4% and 66.5% respectively. The October release was influenced by
holidays and floods that hampered a recovery in employment. Westpac says that
“while labour market indicators from both business and household surveys, along
with job ads, have eased a bit over the past few months they remain at very
robust levels consistent with at least sound employment growth,” and adds that
“the November update from Weekly Payrolls suggests jobs growth bounce back in
the month.” The bank expects an above-consensus addition of 27k jobs, while
forecasting another dip lower in the unemployment rate to 3.3%.

China Retail Sales, Industrial Production (Thu):

November’s activity data is likely to have been hindered by
COVID-related lockdowns. Retail sales are expected at -3.0% Y/Y (prev. -0.5%),
while industrial production is seen at 3.8% Y/Y (prev. 5.0%). That said, the
data will not offer any timely or accurate prognosis of the current state of
the retail and manufacturing sectors given authorities’ recent shift in their
COVID policy stance, which has seen several large cities re-open and some
testing rules dropped. Further, the government’s recently announced property
policies has also supported sentiment in the sector. Additionally, the market’s
focus on Thursday (domestically, at least) will likely be on China’s Central
Economic Work Conference, where policymakers will discuss next year’s GDP
targets and budget metrics.

China Central Economic Work Conference (Thu):

Policymakers will discuss next year’s GDP targets and budget metrics,
according to recent reports. Sources have said that officials are looking to
loosen the stance on property policies, with some inferring that authorities
will look to reverse the downtrend in the sector, and could even declare a
completion to China’s campaign to deleverage the property market. President Xi
presided over a Politburo meeting this week, and warned that the global economy
will face difficulties next year. Recent reports have also suggested that
policymakers are mulling a 5% GDP target, in what was described as a
“pro-growth” shift. “As opposed to previous meetings, the latest politburo
meeting pointed to an overall rebound of macro-economic operations in 2023, and
‘attaining effective improvement in quality,’ which indicates that one of the
most important tasks next year is to fire up the economic engine under a new
development pattern,” SGH Macro Advisors said; it also added that one official
“expected that credit growth will be relatively strong in 2023, but the growth
rate may slow down slightly,” and the PBoC could “further cut the reserve
requirement ratio, use reverse repos, Open Market Operations (OMO), the
Medium-term Lending Facility (MLF), pledged supplementary Lending (PSL), and
other instruments to keep liquidity in the banking system reasonable and
ample.”

Norges Bank Policy Announcement (Thu):

Following a downshifted 25bps rate hike at its previous gathering, the
central bank guided participants towards further tightening ‘most likely’
taking place in December. While Governor Bach did not provide explicit guidance
as to what magnitude to expect, the consensus looks for another 25bps hike,
taking its key policy rate to 2.75%. Since the November 3rd policy meeting, the
most pertinent releases have been October’s and November’s CPI metrics: the
October release was hotter than expected, both for the headline and core
measures, while the November rates of inflation unexpectedly cooled, with the
core (ex-ATE) figure at 5.75% (prev. 5.9%). However, while a good sign, this
compares to (and significantly eclipses) the 4.97% forecast for December within
the central bank’s September’s MPR. The December meeting will be accompanied by
an updated MPR, which is expected to see a significant upward revision to at
least the near-term inflation forecasts. While the inflation backdrop perhaps
justified a more hawkish announcement, the view in November that there are
signs of the economy slowing down – a prognosis echoed by the Financial
Stability Report, Regional Network and Household surveys since. On the latter,
while there are some optimistic points within it on inflation and capacity
constraints, the overall 6-month ahead index deteriorated. For reference,
commentary from the Norges Bank has been very sparse.

SNB Policy Announcement (Thu):

The Swiss central bank is expected to lift rates by 50bps to 1.00%, and
will likely reiterate a two-way willingness to intervene in FX as necessary.
The downshift to 50bps from September’s 75bps move is justified by inflation
printing below both the market and SNB’s forecasts for October and November;
though, given recent rhetoric from Chairman Jordan, a larger magnitude cannot
be ruled out. At the September meeting, the central bank disappointed market
expectations for 100bp, which sparked a pronounced dovish reaction across asset
classes. Additionally, it altered its tiering system, essentially flipping the
prior exemption to account for rates moving into positive territory. Perhaps
the most pertinent aspect of the meeting, rates aside, was the reiteration of
language from the Chair that it can buy or sell FX as needed to weaken or even
support the CHF. Since then, we have seen Jordan double-down on this language,
which hints at further tightening, while stressing a willingness to take all
necessary measures to bring inflation back to stable territory and reiterating
that nominal CHF appreciation is useful in guarding against inflation.
November’s inflation print was in-line with the prior readings and market
expectations at 3.0% Y/Y, a figure that is below the SNB’s forecast from
September of 3.4% for the Q4-2022 period; and while December’s metrics are not
yet available, the numbers for the quarter thus far are comfortably below this
forecast. Accordingly, this could perhaps reduce the need for any ‘outsized’
policy action, a view that derives support from the ECB and Fed potentially
looking to step down the pace of tightening to 50bps in December, a magnitude
the SNB may also enact, although 25bps still should not be ruled out given the
aforementioned inflation developments.

BoE Policy Announcement (Thu):

Policymakers on the MPC are expected to step down to a 50bps rate hike
pace compared to the 75bps move implemented in November. The decision to “go
big” last month was largely based on the disappointment from the market that
the MPC “only” went for 50bps in September. This time around, and with 290bps
of rate increases under their belts thus far, the MPC is expected to return to
a 50bps adjustment, according to 52 of the 54 analysts surveyed by Reuters, and
market pricing assigns around a 90% chance of such an outcome. The decision to
move on rates is expected to be a unanimous given that headline annualised
inflation advanced to 11.1% Y/Y in October, while the core rate remained at an
elevated level of 6.5%. However, given dissent at the November meeting – where
Swati Dhingra voted for a 50bps hike, and Silvana Tenreyro for 25bps – there is
a risk that the decision might not be unanimous. Credit Suisse touts the
possibility of a 2-5-2 split, where Tenreyro and Dhingra could vote for 25bps,
Haskel and Mann vote for 75bps, and with the remainder opting for 50bps.
Capital Economics notes that there is a risk that Tenreyro could opt for an
unchanged rate, given remarks she made in a recent speech, where she said that
“in the most likely scenario, we had already done enough”; she also published a
central scenario where rates peak at 3% (current levels). It is likely that the
bulk of the focus will centre around this aspect of the decision, and any
adjustment to forward guidance, which currently reads “the majority of the
Committee judges that…further increases in Bank Rate may be required for a
sustainable return of inflation to target, albeit to a peak lower than priced
into financial markets.” Beyond next week’s meeting, analysts surveyed by
Reuters expect the BoE will carry out a further 50bps of rate hikes in Q1,
followed by 25bps worth in Q2, taking the terminal rate to 4.25%; market
pricing takes a slightly more hawkish view and sees the terminal rate at 4.5%.

ECB Policy Announcement (Thu):

Despite softer-than-anticipated headline inflation in November, Eurozone
HICP printed 10.0% Y/Y (exp. 10.4%), and was overshadowed by an unexpected rise
in core inflation 6.6% Y/Y (exp. 6.3%, prev. 6.4%). As such, the central bank
is expected to pull the trigger on another rate hike, despite the uncertain
economic outlook. The 75bps increase at the October meeting was supported by a
“very large majority”, with some members expressing a preference for 50bps
given the potential financial stability and economic activity ramifications of
an “overly aggressive pace of tightening.” This time around, a downshift to a
50bps increment is expected by 45 of the 62 economists surveyed by Reuters,
while market pricing assigns an approximately 87% chance to such a move. Chief
economist Lane has laid the groundwork for a potential slowdown in the cadence
of rate increases by noting that he would be reasonably confident in saying
that “it is likely we are close to peak inflation.” Lane added that in
December, “we should take into account the scale of what we have already done.
So the basis for the decision will be different [compared to September and
October].” That said, the Governing Council does not appear to be unanimous in
stepping-down to a 50bps pace of tightening; Austria’s Robert Holzmann backs
another 75bps increase, whilst the influential Isabel Schnabel of Germany said
that incoming data thus far suggests to her that scope to slow the rate of
adjustments remains limited. ING is of the view that an “earlier and more significant”
form of QT could be the compromise required by hawks in order to back a slower
pace of rate hikes.” Accordingly, the Dutch bank expects the ECB to “announce a
gradual reduction of the reinvestments of its bond holdings under the Asset
Purchase Programme (APP) at the December meeting, with the aim to stop the
reinvestments by end-2023.” It adds that the Italian BTP-German Bund yield
spread being below 190bps is probably where most would have put it before the
ECB embarked upon unwinding its bond portfolio. Looking beyond the December
meeting, a further 75bps of tightening is fully priced in for 2023, and that
would take the deposit rate to 2.75%, into restrictive territory, with
policymakers broadly of the view that rates are “close to neutral.”

US Retail Sales (Thu):

November’s retail sales are expected to fall 0.1% M/M (prev. +1.3%),
while the ex-autos measure is seen rising 0.3% M/M (prev. +1.3%). Credit Suisse
is more pessimistic than consensus, and looks for the headline to contract by
0.5% in the month, reversing some of the upside surprise in the October report.
“Auto and gas spending were likely a drag this month, but we also expect
broader weakness in control group sales,” the bank says, “goods prices are
falling, so the decline should be more modest for real retail sales, which
remain above trend.” The control group measure of retail sales is also likely
to decline, CS thinks, given that high-frequency card spending data fell
sharply in the month. “In recent years, holiday shopping has been pulled
earlier into Q4, leading to strength early in the quarter offset by punitive
seasonal adjustments in November and December,” it observes. CS also thinks
that real retail sales will be under pressure into the new year: “Higher
borrowing costs and weak sentiment are likely to push real retail sales back to
trend,” it writes, “weakness in the housing market is also likely to limit
demand for large durable goods such as appliances and furniture.”

Banxico Policy Announcement (Thu):

After two successive 75bps rate rises, the Banxico is expected to
downshift the rate of interest rate increase in December, as has been suggested
by some of its officials this week. But the central bank is still expected to
tighten policy, with many expecting a 50bps rate rise, following the 600bps of
tightening already implemented this cycle, in order to tame surging consumer
inflation. The slowdown will be supported by a slightly easier tone in recent
CPI data, which showed consumer prices rising 0.6% M/M (exp. +0.7%), and easing
to 7.8% Y/Y (exp. 7.9%) from the prior 8.4%. Traders will be looking for signs
from the central bank that it is close to concluding its hiking cycle; Franklin
Templeton’s analysts expect Mexico’s terminal rate to be at 11% in H1 2023, and
believes that the central bank will then begin to lower rates.

UK Retail Sales (Fri):

The release will cover the Black Friday spending period which, when
accounting for the extra Bank Holiday impact(s) to the October release, may
muddy the month-on-month interpretation of the series. November’s metrics are
expected at +0.4% M/M (prev. 0.6%), matching the increase in consumer spending
reported in Barclaycard’s data, where Black Friday’s volume of transactions
were up 3.2% Y/Y. Note, the ONS has previously incorporated the Black Friday
event into the December release, and as such, it advises looking at the
November and December series in combination (when both are available) for a
more accurate read into retail activity. From the month’s PMIs, both the
manufacturing and services releases noted a further contraction, with
respondents to the surveys highlighting weak demand – though, this was
accompanied by tentative upbeat commentary on the inflation front. More
broadly, the data will be scoured for any indication that the real economy is
beginning to feel the dual impact of BoE tightening and the first stages of a
recession, particularly in the context of the likely dovish dissent at
December’s BoE (Note, the Policy Announcement occurs in the session prior to
retail sales being released) given Tenreyro and Dhingra used domestic headwinds
as justification for their dovish dissent in November.

EZ Flash PMI (Fri):

The Eurozone Flash PMIs are expected to match the prior month’s
releases, according to Reuters, with the manufacturing print expected at 47.1,
the services gauge is expected at 48.5, while the composite measure is seen at
47.8. The previous surveys registered a surprise improvement as supply
constraints eased, whilst the overall theme of the findings was one of subdued
demand. “A fifth consecutive monthly falling output signalled by the PMI adds
to the likelihood that the Eurozone is sliding into recession,” S&P Global
said, “however, at present, the downturn remains only modest, with an easing in
the overall rate of contraction in November means so far the region looks set
to see GDP contract by a mere 0.2%.” The survey also highlighted signs of
inflation peaking.

UK Flash PMI (Fri):

The flash December metrics are expected to portray a deterioration in
sentiment, with the services gauge expected at 48.5 (prev. 48.8), manufacturing
at 46.0 (prev. 46.5), and composite at 48.0 (prev. 48.2). November’s PMI data
surprised to the upside, with one potential factor being a stabilising
political backdrop following the mini-budget fiasco, though subdued economic
conditions were telegraphed in the prior release. “A further steep fall in
business activity in November adds to growing signs that the UK is in
recession, with GDP likely to fall for a second consecutive quarter in the
closing months of 2022,” S&P Global said. On the inflation front, the prior
release suggested “price pressures meanwhile remain elevated but show further
signs of cooling, often linked to weakened demand, which – combined with the
growing recession signals – suggest that the Bank of England may start to make
less aggressive interest rate hikes in the coming months.” That said, the
December month sees the end-of-year holiday period alongside a series of
workers’ strikes which could distort sentiment across the manufacturing and
services sector, whilst energy could be a source of concern as winter weather
approaches and demand for energy rises.

CBR Announcement (Fri):

Analysts continue to expect Russia’s central bank to hold its key rate
at 7.5% through the end of this year, according to Reuters’ monthly poll. The
central bank’s own monthly analyst poll notes that the economy has overcome the
short-term slump in wake of the partial mobilisation, with the disinflationary
impact of that mobilisation having now disappeared. Over the next couple of
years, these analysts see GDP growth being capped by a reduced labour force,
however, which is likely to have a pro-inflationary effect, with these risks
expected to become more apparent in the medium-term. Ahead, the CBR is expected
to have lowered rates to 6.75% by the end of 2023, according to the latest
Reuters poll.