A look at the week ahead
US stimulus and activity The Senate votes on the fiscal package Monday at 3:00 pm. Assuming it passes, the House of Representatives is likely to vote later in the week. Congress plans to adjourn for the year December 17. Fiscal policy remains very important for the medium term USD outlook due to the building tension between stronger demand and potentially widening twin deficits. There will also be some focus on the Philly Fed and Empire surveys next week, which sent a very divergent message on US manufacturing activity last month. Also next week, there will be $24 worth of Fed-given liquidity courtesy of 4 POMOs on every day except Tuesday.
Central banks Following the Fed’s resumption of QE in November, this week’s FOMC meeting will be quiet. Elsewhere, central banks meetings are taking place in Chile, Colombia, India, Norway, Sweden and Switzerland. Both the CBC in Chile and the Riksbank in Sweden will hike by 25 bps, in line with consensus, reflecting a desire by these central banks to continue normalizing policy rates given relatively strong growth. Central banks in Colombia, India, Norway, and Switzerland will remain on hold, with the SNB especially important to watch given that EUR/CHF is close to its historic lows on the back of ongoing tensions in the Euro zone.
EU Summit EU leaders aim to agree a limited EU treaty change in order to set up a permanent rescue mechanism for countries in financial difficulty. Foreign affairs ministers meeting in Brussels on Monday and Tuesday (13-14) under various formats will prepare the summit's draft conclusions.
United States Senate The Senate votes on on the fiscal package Monday at 3:00 pm. Assuming it passes, the House of Representatives is likely to vote later in the week. Congress plans to adjourn for the year December 17.
India WPI (Nov) We expect WPI inflation to come in at 7.6%, above the consensus expectation of 7.5% but significantly lower than the 8.6% in October, mainly due to base effects.
UK CPI (Nov) We forecast 0.2% mom inflation in November, a decline from the 0.3% mom pace in October. Consensus expects inflation to remain unchanged from its October level.
US retail sales (Nov) Consensus calls for a MoM change of 0.6% for headline retail sales, down from the very strong 1.2% mom in October. For retail sales excluding autos consensus is 0.6%.
FOMC With the Fed having resumed quantitative easing at its November meeting, we expect this meeting to be uneventful.
Sweden central policy meeting In line with consensus, we expect a 25bp increase in the repo rate, from 1.0% to 1.25%. The Riksbank decision is likely to be split, with Svensson, and most likely Ekholm, voting against any hike (citing widening interest rate differentials and their effect on the SEK). These factors remain the key downside risk to our call, but we believe a majority will see these as secondary to the need to normalise the policy rate given the strength of the Swedish economy. We forecast the policy rate to reach 2.5% by end-2011.
Norway central bank meeting We expect Norges Bank to keep rates on hold at 2%, in line with consensus.
United States CPI (Nov) We are forecasting headline inflation of 0.28% mom, above consensus of 0.2% mom and above the October reading of 0.2% mom. Excluding food and energy, however, our forecast is 0.07% mom, against consensus of 0.1% mom, and relative to a flat reading in October.
United States Empire survey (Dec) Consensus expects this survey to rebound to 5.0 in December after the sharp drop to -11.1 in November.
United States TIC data (Oct)
United States industrial production (Nov) We are expecting growth of 0.5% mom, above consensus at 0.3% mom and up from a flat reading in October.
Chile central bank meeting We expect the CBC to hike the policy rate to 3.25%, in line with consensus, up from 3.0% previously.
India central bank meeting In line with consensus, we think the Reserve Bank of India will pause on hiking rates before resuming in early-2011. The probability of a cash reserve ratio cut has increased given the tightness in the banking system’s liquidity.
Switzerland central bank meeting We expect no change in rates at the SNB’s meeting next week, and the tone of the communication is likely to remain just as cautious as it was in September, with particular concerns expressed about the Euro-zone periphery and the dampening effect of further CHF strength on Swiss exporters. EUR/CHF currently trades very close to the historic record lows. Interestingly, these critical factors for Swiss monetary policy are beyond the SNB’s control. We expect the SNB to make no material changes to its already very dovish path for inflation in the quarters ahead.
Euro zone flash PMIs (Dec) Consensus expects the flash reading of the manufacturing PMI to fall to 55.2 from 55.3 in November. It expects the same level for the services flash PMI, down from 55.4 in November.
Euro zone CPI (Nov) We expect the harmonized CPI to register 1.9% yoy inflation, in line with consensus and unchanged from the October reading.
EU summit (Dec 16-17) EU leaders set to agree a limited EU treaty change in order to set up a permanent rescue mechanism for countries in financial difficulty. Foreign affairs ministers meeting in Brussels on Monday and Tuesday (13-14) under various formats will prepare the summit's draft conclusions.
United States current account (Q3) Consensus expects the current account deficit to measure $126 bn, roughly the same magnitude as the Q2 deficit of $123.3 bn.
United States initial claims (Dec 11) Consensus expects initial claims to be 425k, against 421k last week. United States Philadelphia Fed survey (Dec) Consensus expects a reading of 14.5, following a reading of 22.5 in November.
Colombia central bank meeting The central bank is expected to keep the policy rate unchanged at 3.0%. Germany IFO (Dec) Consensus is looking for a reading of 109.0, against a reading of 109.3 in December.
Compiled using Goldman data