Big Week for Global Markets: All eyes on US Fed’s FOMC meeting

ING analysts

The main focus in the US next week will be the Federal Reserve policy meeting, where we aren’t expecting any change to policy rates. The ECB will be eagerly awaiting inflation and GDP releases in the eurozone, while over in the UK, all eyes will be on Thursday’s Bank of England meeting.

It’s a busy week ahead in the US next week, and the Federal Reserve’s upcoming meeting will be the main focus. We don’t expect any change to policy rates after the recent spike in Treasury yields prompted a tightening of financial conditions throughout the economy.

The market seems to be doing the heavy lifting, so there isn’t any need for the Fed to do much more – despite growth and the jobs market remaining hot and inflation still well above target. Fed Chair Jerome Powell has also acknowledged that long and variable lags between the implementation of rate hikes and the real-world impact point to the possibility that the full impact of policy tightening could still be yet to take full effect.

The key data report to keep an eye out for will be jobs numbers. Following September’s leap of 336,000, the market is expecting a much weaker outcome of 175,000 in October. Recent jobless claims numbers have suggested that while firing remains historically low, the rise in continuing claims hints at increasing difficulties with finding new work.

We expect unemployment to remain at 3.8%, but wage growth could slow to 4% year-on-year, which would mark a post-pandemic period low. This should offer encouragement to the Fed that pipeline price pressures are easing and that it doesn’t need to raise interest rates any further.

Watch out for the quarterly refunding statement from the US Treasury, which will outline plans for forthcoming debt issuance – and in an environment of 6% of GDP deficits, it’s expected to be significant.

The European Central Bank (ECB) decided to hold on Thursday and will eagerly look out for new numbers about GDP and inflation ahead of the December meeting. It won’t have to wait long, as Tuesday’s inflation and GDP figures will provide key information about current performance.

Inflation is expected to drop further on base effects, while month-on-month developments are also set to move more favourably in the final months of the year. GDP will be interesting to watch, as the question now remains whether or not it has turned negative.

Famous last words, but next week’s Bank of England meeting looks set to be among the least unpredictable since the current tightening cycle began in late 2021. That’s certainly true when compared to the last decision taken in September which ended up on a knife-edge, and ultimately the committee opted to keep rates on hold in an unusually tight 5-4 vote. But we’ve had very little data since that September meeting, and what we have had is unlikely to have moved the needle.

The Bank of Japan’s upcoming policy meeting is set to take the spotlight over the week ahead in Asia, and we see a slightly higher chance of another YCC tweak with forward guidance changes.

Other key releases to look out for include PMIs in China, Singapore’s retail sales, and inflation figures in Indonesia.

The outcome of the Bank of Japan’s meeting will be quite interesting. Market consensus suggests that it is unlikely for the current policy settings to change, but we see a slightly higher chance of another YCC tweak with forward guidance changes.

The market will also pay more attention to the BoJ’s quarterly outlook for growth and inflation. If the central bank revises up its fiscal year 2024 inflation forecasts to above 2%, the market is likely to take this as a hint that policy normalisation is fast approaching.

China’s manufacturing and service activities continue to show expansion

The release of more timely activity indicators following the recent third-quarter GDP data will indicate whether China’s recovery is indeed gaining momentum or not. We expect both the official and Caixin numbers to show very moderate growth.

The official manufacturing PMI will likely consolidate a little higher than the previous 50.2 reading, with some improvement also possible for the non-manufacturing PMI, which edged slightly higher to 51.7 last month. The Caixin figures due out slightly later will likely echo the improvements in the official numbers.

India’s fiscal deficit

India’s recent monthly fiscal data has shown the deficit coming in below what is needed to keep on track for the government’s 5.9% full-year deficit target. There is still a long way to go before this might start to encourage thoughts of a sovereign debt upgrade, but the direction of travel is positive and we expect it to remain so for the foreseeable future.

(Source: THINK economic and financial analysis)