This week's economic calendar begins on Tuesday with the Reserve Bank of Australia (RBA) delivering its monetary policy announcement, setting the tone for market sentiment in the region.
On Wednesday, attention will shift to the US, where inflation data will be released marking the expected event of the week. This will be accompanied by a Federal budget balance. Meanwhile, in Canada, the Bank of Canada (BoC) will announce its own monetary policy decision.
Thursday brings a series of activities. Australia will release its employment change and unemployment rate figures. Switzerland and the eurozone will see monetary policy announcements from the Swiss National Bank (SNB) and the European Central Bank (ECB), respectively. In the US, m/m producer price index and unemployment claims are also tracked.
Finally, Friday will reveal economic data from Japan, namely the Tankan manufacturing index and the Tankan non-manufacturing index, offering a picture of the country's business sentiment. In the UK, the focus will be on the GDP m/m report.
At this week's meeting, the RBA is widely expected to maintain its current monetary policy stance, as the first rate cut is unlikely before May 2025.
The Bank's attention continues to focus on tight labor market conditions, and Australia has continued inflationary pressures, indicating that the economy is still operating with excess demand. Despite a slowdown in economic growth, there are no signs of a major recession.
Analysts from Wells Fargo note that the stagnation in consumer spending in the last quarter is linked to energy bill discounts, which effectively shifted a portion of household costs to the government. This dynamic highlights the positive factors shaping Australia's economic landscape.
In the US, November's core CPI is expected to rise 0.3% m/m, with the y/y figure expected to increase from 2.6% to 2.7%, driven primarily by higher gas and food prices. It is also expected that Core CPI, which excludes food and energy, will rise by 0.3%, in line with the previous month.
Despite progress in reducing inflation over the past year, the Federal Reserve still faces challenges, as recent data indicate that the momentum of deflation is waning. Last month's CPI data was higher than expected, with annual inflation climbing to 2.6%. Core CPI has risen 0.3% for three consecutive months, and its three-month annual rate of 3.6% now exceeds the 12-month rate of 3.3%. These trends indicate that inflationary pressures continue, and emerging risks, such as potential tariffs and tax cuts, add to the challenges.
On the monetary policy front, the Fed is expected to implement a 25 basis point rate cut at its next meeting, especially after Friday's stronger-than-expected jobs report, which suggests continued resilience in the labor market that despite a slight increase in the unemployment rate. .
For Canada, analysts are still divided on whether the BoC will implement a 25bps or 50bps rate cut at the upcoming meeting. Although some are arguing for a more aggressive cut, a 25bps reduction is more likely at this time.
Economic activity in the country has begun to slow, with overall business sentiment remaining subdued, largely due to concerns about potential US tariffs. Inflation remains, giving the BoC room to move. However, the labor market presents a mixed picture, showing both resilience and emerging signs of softening. This complex background suggests that the central bank will proceed with caution.
In Australia, the consensus for employment change is a gain of 26.0K, up from 15.9K previously, and the unemployment rate is expected to increase from 4.1% to 4.2%. The participation rate is expected to remain stable at 67.1%.
This data print is expected after this week's RBA meeting, with analysts from Westpac suggesting a smaller 20K increase in employment. They also expect the unemployment rate to rise to 4.2%, stressing that any labor market strength could be the result of more hours worked rather than large new hires. This week's figures are not expected to change the bigger picture of a strong labor market moving towards balance, they said.
The outlook for this week's SNB meeting is divided, with analysts debating whether the Bank will implement a 25bps or 50bps rate cut, with the market pricing in a 56% probability of a 50bps cut.
Inflation in Switzerland has decreased faster than expected and is now below the Bank's forecast of 1.0%. However, since the last meeting, the CHF has depreciated, reducing economic pressure. Recent comments from the Chairman of the SNB, suggesting that negative rates are still possible, have also contributed to the weakening of CHF.
The SNB is expected to maintain a dour message with analysts expecting two more rate cuts in 2025.
At this week's meeting, the ECB is widely expected to implement a 25bps rate cut, lowering its deposit rate to 3.0%.
Economic conditions in the euro area remain challenging, with both manufacturing and services PMIs remaining in contraction territory. In addition, uncertainty arising from possible US tariffs and the unstable political situation in France and Germany add to the outlook. While inflation has begun to decline, offering some hope, increased wage pressures remain a challenge.
The ECB is expected to continue with several rate cuts through 2025.
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