This week is full of central bank meetings including the Fed, BOE and BOJ, and while most of them will deliver no change, all eyes will be on the Fed which will (almost certainly) hike again while making a technical adjustment to the IOER (5bps), but the far bigger question is whether the Fed will signal just two hikes in 2019, one fewer than previously.
As it's also a press conference meeting (the last before every FOMC has one) we will receive fresh economic projections. According to DB economists other than the recent volatility in risk assets, the current-quarter data should not provide a compelling reason for the Fed to completely rethink its growth and core inflation projections at this meeting. Even so, Deutsche Bank economists joined Goldman in revising down their call for the number of hikes next year from 4 to 3, and now have one last hike in the forecast for 2020. Elsewhere the BoJ and BoE should be quiet affairs which is possibly tempting fate.
Meanwhile, China will hold its 3-day economic policy-setting meeting where Chinese policymakers will have occasion to reaffirm their commitment to reform and the measured easing approach while potentially unveiling more fiscal stimulus. Investors will be looking to a speech by China's President Xi Jinping on Tuesday marking the 40th anniversary of China’s reforms and opening up. China - where the economy has been rapidly losing momentum - is also expected to hold its annual Central Economic Work Conference later this week, where key growth targets and policy goals for 2019 will be discussed. The top decision-making body of the Communist Party, the Politburo, said last week China will keep its economic growth within a reasonable range next year, striving to support jobs, trade and investment while pushing reforms and curbing risks. “It’s generally assumed that you will need to expand fiscal and monetary support to achieve those goals,” said Tokai Tokyo Research strategist Wang Shenshen.
In Europe, besides Brexit, the focus may well be the budget bills of France and Italy, whereas the various surveys are likely to show sliding confidence amid elevated political uncertainties. Today, the main data was euro area's final HICP inflation, which disappointed, printing at 1.9%, below the flash estimate of 2.0% even as core inflation printed in line at 1.0%.
As for the data highlights this week, DB's Jim Reid writes that in the US expect much of the focus to be on the November PCE report on Friday where the consensus is for a 0.0% mom and +0.2% mom headline and core reading respectively. A reminder that the healthcare component of the PPI report was strong last week, up +0.27% mom which points to upside risk for the core PCE print: "It would be ironic if inflation started to reignite after a softer quarter just as markets start to price out the Fed for 2019." Given how strong the US economy currently is it wouldn’t be a surprise to see such a scenario. Other notable data due in the US next week includes November housing starts and building permits tomorrow, November existing home sales on Wednesday and the final Q3 GDP revisions (no change from +3.5 qoq saar expected), and preliminary November durable and capital goods orders on Friday. Also in the US, today sees former FBI Director James Comey appearing for more closed-door questioning by House lawmakers. Staying with the US administration, the threat of a partial US government shutdown on Friday looms should President Trump fail to resolve funding for the wall along the Mexican border.
Key US data releases courtesy of Morgan Stanley:
- Housing Starts (Tuesday, 8:30am): Housing starts and building permits should be weaker in November, driven in part by poor weather. Following a 1.5% gain in October, housing starts are set to decline over 4.2%, which would bring the annual rate to 1.18 million units. Building permits are also expected to come in softer.
- Existing Home Sales (Wednesday, 10am): Existing home sales are expected to resume their decline in November after a brief respite in October, where sales rose 1.4% following six consecutive month-over-month declines. MS sees sales falling 1.3% to an annual rate of 5.15 million units.
- Durable Goods (Friday, 8:30am): Durable goods manufacturing production rose by moderate 0.2% in the industrial production report for November, implying a similarly moderate gain in core durable goods orders. MS looks for durables goods orders excluding transportation to rise 0.3% in November,a decent gain after growth of 0.2% in October. The bank also expects overall durable goods measure rising 1.0% on the back of a stronger month of aircraft orders.
- Personal Income and Spending (Friday, 10am): Income growth is expected to moderate slightly in November to a still robust pace of 0.4% after a 0.5% gain in October. Nominal personal spending, meanwhile, should slow in November to a pace of 0.3% after posting a large 0.6% gain in October. For the price indices, this month's CPI and PPI inputs point to November core PCE inflation of 0.18%M, raising the year-over-year rate to 1.9% from 1.8% (1.86% vs. 1.78%). Headline PCE inflation should rise 0.08%, lowering the year-overyear rate to 1.8% from 2.0% (1.83% vs. 1.98%)
Meanwhile, in Europe we'll also get Germany's December IFO survey tomorrow, the UK's November inflation data dump on Wednesday, November retail sales on Thursday, and the final Q3 GDP revisions on Friday. Finally it's quiet in Asia with only Japan's November CPI report late on Thursday worth flagging.
Below is a daily summary of the key events in the week ahead from Deutsche Bank:
Summary of key events in the week ahead:
- Monday: It's a quiet start to the week for data on Monday with the only releases of note in Europe being the UK’s CBI trends total orders along with the Euro Area October trade balance and final November CPI revisions. In the US, we get the December Empire manufacturing index and NAHB housing market index. Away from that, former FBI Director James Comey appears for a second day of closeddoor questioning from lawmakers.
- Tuesday: It stays quiet into Tuesday with Germany's December IFO survey and November housing starts and building permits data in the US the only releases due. Late in the evening we'll get Japan's November trade balance. Elsewhere, ECB Vice President Guindos will participate in a panel discussion.
- Wednesday: The main highlight on Wednesday is the outcome of the FOMC policy meeting and Fed Chair Powell's press conference. Prior to that, we get Germany's November PPI and the UK's November inflation data docket. In the US, we get the latest weekly MBA mortgage applications, Q3 current account balance and November existing home sales. Away from that the ECB's Hansson is also due to speak. Also worth flagging is the European Commission meeting to discuss Italy's budget and Chinese leaders beginning their three-day annual economic policy-setting meeting.
- Thursday: The BoJ and the BoE monetary policy meetings are the two big highlights on Thursday. Data wise we get the Euro Area's October current account balance and the UK's November retail sales report. In the US we get the latest weekly initial jobless and continuing claims prints along with the December Philadelphia Fed PMI and November leading index. In Asia, we get Japan's November CPI in the evening.
- Friday: It's a busy end to the week for data on Friday with the November PCE report and final Q3 GDP revisions in the US the highlights. Prior to that, we'll also get Euro Area December consumer confidence, the UK's final Q3 GDP revisions, Germany January consumer confidence and France's final Q3 GDP. In the US, we get preliminary November durable goods and capital goods orders, November personal income and real personal spending data, the final December University of Michigan survey results and the December Kansas City Fed manufacturing activity index. It's worth noting that Friday is also the day that a partial US government shutdown could kick in.
Finally, here is Goldman's preview of the week ahead together with consensus expectations: the key economic data releases this week are the durable goods and core PCE reports on Friday. In addition, the December FOMC statement will be released on Wednesday at 2:00 PM EST, followed by Chairman Powell’s press conference at 2:30 PM.
Monday, December 17
- 08:30 AM Empire State manufacturing index, December (consensus +20.0, last +23.3)
- 10:00 AM NAHB housing market index, December (consensus 60, last 60)
Tuesday, December 18
- 08:30 AM Housing starts, November (GS -1.5%, consensus +0.2%, last +1.5%): Building permits, November (consensus +0.4%, last -0.4%): We estimate housing starts declined 1.5% in November after a small increase in October. We expect a moderate drag from winter weather that also appears to have weighed on November construction employment. Over the next few quarters, we expect higher interest rates and tax reform to continue to weigh on homebuilding.
Wednesday, December 19
- 10:00 Existing Home Sales, November (GS +0.3%, consensus -0.4%, last +1.4%); We estimate existing home sales increased 0.3% in November after its first increase in six months in October, noting modest improvement in regional sales data. Existing home sales are an input into the brokers' commissions component of residential investment in the GDP report.
- 02:00 PM FOMC statement, December 18-19 meeting: As discussed in our FOMC preview, we expect the FOMC to raise the target range for the funds rate by 25 basis points in the December meeting. In the post-meeting statement, we expect a dovish tilt to the language, reflecting a substantial tightening in financial conditions. We expect the growth characterization to be downgraded (to “solid” from strong”) and the funds rate guidance (“further gradual increases”) to be replaced with something less committal (“some further increases”). In the Summary of Economic Projections (SEP) we look for: (1) a downgrade to the median GDP growth projections; (2) a slight downgrade to the median NAIRU estimate; and (3) a new median policy path of 2 hikes in 2019, 1 hike in 2020, and no hikes in 2021 (down from 3-1-0 in the September SEP).
Thursday, December 20
- 08:30 AM Philadelphia Fed manufacturing index, December (GS +14.0, consensus +15.0, last +12.9); We estimate the Philadelphia Fed manufacturing index increased 1.1pt to +14.0 in December. Other indicators of manufacturing activity such as the ISM manufacturing index have been fairly firm in recent weeks.
- 08:30 AM Initial jobless claims, week ended December 15 (GS 220k, consensus 219k, last 206k); Continuing jobless claims, week ended December 8 (consensus 1,650k, last 1,661k): We estimate jobless claims increased by 14k to 220k in the week ended December 15, with some scope for mean reversion following a sharp 27k decline in the prior week.
Friday, December 21
- 08:30 AM GDP (third), Q3 (GS +3.5%, consensus +3.5%, last +3.5%); Personal consumption, Q3 (GS +3.6%, consensus +3.6%, last +3.6%): We do not expect a revision in the third vintage of the Q3 GDP report (previously reported at +3.5% qoq saar), although we note some scope for upward revisions to business investment or inventories. We also forecast an unchanged reading for personal consumption (+3.6% qoq ar).
- 08:30 AM Durable goods orders, November preliminary (GS flat, consensus +1.7%, last -4.3%); Durable goods orders ex-transportation, November preliminary (GS flat, consensus +0.3%, last +0.2%); Core capital goods orders, November preliminary (GS flat, consensus +0.2%, last flat); Core capital goods shipments, November preliminary (GS +0.1%, consensus +0.2%, last +0.3%): We expect durable goods orders to remain flat in the November report, given another month of soft commercial aircraft orders. Manufacturing production growth was below expectations in November, and we expect a drag on mining equipment orders from lower oil prices to weigh on core capital goods orders.
- 08:30 AM Personal income, November (GS +0.3%, consensus +0.3%, last +0.5%); Personal spending, November (GS +0.4%, consensus +0.3%, last +0.6%); PCE price index, November (GS +0.05%, consensus flat, last +0.18%); Core PCE price index, November (GS +0.13%, consensus +0.2%, last +0.10%); PCE price index (yoy), November (GS +1.80%, consensus +1.8%, last +1.98%); Core PCE price index (yoy), November (GS +1.82%, consensus +1.9%, last +1.78%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose 0.13% month-over-month in November, or 1.82% from a year ago. Additionally, we expect that the headline PCE price index increased 0.05% in November, or 1.80% from a year earlier. We expect a 0.3% increase in November personal income and a 0.4% gain in personal spending.
- 10:00 AM University of Michigan consumer sentiment, December final (GS 97.4, consensus 97.5, last 97.5); We expect the University of Michigan consumer sentiment index to edge down 0.1pt from the preliminary estimate for December due to renewed stock market declines. The report’s measure of 5- to 10-year inflation expectations stood at 2.4% in the preliminary report for December.
- 11:00AM Kansas City Fed manufacturing index, December (last +15)
Source: DB, MS, SocGen, Goldman