Top 5 things to watch in markets in the week ahead

Top 5 Things to Watch in the Markets in the Week Ahead By

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By Noreen Burke — The world’s biggest central banks are set to end 2022 with big rate hikes as their battle against inflation continues. With expectations of a half-point hike from the Federal Reserve at Wednesday’s meeting, investors will instead focus on indications of how lofty rates could ultimately rise. Tuesday’s US inflation data will provide further clues to the Fed’s plans. The double whammy of inflation data and the Fed meeting will likely set the tone for US equities for the rest of the year and beyond. Meanwhile, the Bank of England and the European Central Bank are expected to make half-point rate hikes when they meet on Thursday. Here’s what you need to know to start your week.

  1. Fed meeting

point to a 78% chance of the Fed hiking 50 basis points on Wednesday, with a 21% chance of a 75 basis point hike, with those odds little changed after Friday’s data showed a slightly larger increase to expectations last month.

The U.S. central bank has raised interest rates by 375 basis points this year, including four consecutive 75 basis point hikes, in the fastest rate hike cycle since the 1980s, to combat soaring inflation.

Fed Chairman Jerome Powell will hold his last press conference of the year after recently indicating that it might be time to slow the pace of rate hikes.

Although the Fed has indicated that the pace of increases should slow, interest rates should end up at a higher level than those indicated by officials in September, so attention could turn to signals indicating how high rates could eventually rise in 2023. .

  1. US CPI

The United States is due to release consumer price inflation data for November on Tuesday, with economists expecting the annual inflation rate to slow to 7.7% the previous month.

Recent strong US jobs data has reignited inflation fears, following the acceleration in wage growth in November.

Friday’s data showed it rose slightly more than expected last month amid rising service costs, but the underlying trend is moderating as supply chains loosen and demand declines. of goods decreases.

“While CPI prices for basic goods are still very likely to fall in November given the fall in used car prices, a further increase in the basic goods PPI underlines that there is still underestimated upside risks to property prices next year,” Veronica Clark, an economist at Citigroup in New York, told Reuters.

  1. US stocks

Equity markets will be prepared for the double dose of CPI data and the Fed decision that will define the direction of the markets for the rest of this year and into 2023.

The latest rebound in the came to a halt last week as stronger-than-expected PPI data fueled fears that the Fed may have to keep interest rates higher for longer, which could lead to a recession.

A higher-than-expected CPI could heighten fears of more aggressive Fed action, putting pressure on equities.

“If the CPI is above expectations or even not falling at all, it will not be positive for the market,” Tom Hainlin, national investment strategist at US Bank Wealth Management, told Reuters.

With Wednesday’s rate hike widely seen as a foregone conclusion, Wall Street will focus on the Fed’s projections of how high rates will eventually rise.

Powell’s views on inflation and the possibility that the economy could slip into recession next year will also be key – an idea that has dominated market sentiment this year.

  1. bank of england

A deterioration in the economic outlook is unlikely to stop the rate hike 50 basis points to 3.5%, which would be the highest since 2008, when it meets on Thursday.

The UK is due to release data for November on Wednesday that could show inflation has peaked after hitting a 41-year high of 11.1% in October, more than five times the UK’s 2% target. BoE.

Much of the increase is due to the energy price shock resulting from Russia’s war in Ukraine, but other factors such as labor shortages caused by Brexit and the coronavirus pandemic COVID-19 could slow the decline in inflation.

The UK economy is heading into a recession and households are facing historic pressure on living standards after the government presented a tough budget in an attempt to restore Britain’s fiscal reputation.

  1. ECB

Market watchers are expecting a 50 basis point rate hike at its meeting on Thursday after data last month showed annual inflation slowed for the first time in a year and a half, from 10, 6% in October. .

The ECB has hiked rates by 200 basis points since July, its fastest pace on record, but inflation remains well above its 2% target.

While a slowdown in the pace of rate hikes could be expected, the ECB is far from done and markets will be looking for clues as to where the key 1.5% deposit rate will end.

“They (policymakers) will continue to look hawkish and aggressive because they want inflation expectations to stay anchored,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, told Reuters.

–Reuters contributed to this report

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