This weekly market outlook offers a packed economic calendar, beginning with China’s industrial output and retail sales, alongside key Eurozone PMI releases and insights from the ECB following its recent rate cut. Midweek, UK inflation, Canadian CPI, and US retail sales will drive trading sentiment. Toward the week’s end, focus shifts to Friday’s pivotal events, including the US Core PCE Price Index, UK and Canadian retail sales, and China’s Loan Prime Rates announcements. These data releases, combined with insights from central bank policymakers, provide traders with vital information for gauging economic trends and market movements across major currencies and sectors.
Monday
The week opened on a subdued note in the Asian session, with traders closely analyzing the latest figures from China. Industrial output showed a slight uptick in growth for November, offering a glimmer of optimism. However, retail sales came in below expectations, spotlighting persisting weaknesses in domestic consumption.
These mixed results underscore challenges for Chinese policymakers as they confront economic vulnerabilities ahead of 2025. The looming specter of deteriorating trade relations with the United States, coupled with a shaky domestic market, increases calls for Beijing to implement further stimulus measures. Economists noted that “despite recent policy easing, China’s economy appears to have slowed last month,” raising more urgency for definitive action.
There will be a flurry of activity in the London session as attention turns to a series of Purchasing Managers’ Index (PMI) releases across the Eurozone. Key data points include the French Flash Manufacturing and Services PMIs, German Flash Manufacturing and Services PMIs, and Britain’s Flash Manufacturing and Services PMIs.
These PMI figures will provide critical insights into business activity and economic health across the region. Adding to the spotlight, European Central Bank (ECB) President Christine Lagarde is scheduled to deliver a speech that could offer fresh clues on the ECB’s monetary stance moving forward.
Last week, the ECB reduced its deposit rate by 25 basis points to 3%, marking the fourth rate cut this year. This move, designed to stimulate the Eurozone’s sluggish economy, lowers the cost for banks to hold overnight deposits. The central bank’s other key rates have also been trimmed, with the main refinancing rate now at 3.15% and the marginal lending facility at 3.4%.
While inflation is gradually approaching the ECB’s 2% target, the Eurozone continues to grapple with lackluster growth. The bloc’s economy is forecasted to expand by only 0.8% in 2024 and 1.3% in 2025. Ever since the ECB began cutting rates in mid-2024, its strategy has revolved around encouraging borrowing and investment to revive the sluggish pace of growth.
Over in the American session, focus will shift to key figures from the U.S. economy. Traders await the release of the Empire State Manufacturing Index, as well as Flash Manufacturing and Services PMIs. These numbers are expected to offer further clues on the strength of U.S. economic activity.
Rounding off the session, traders will tune in to a speech by the Governor of the Federal Reserve, who is set to provide insights into the bank’s future monetary policy. This could serve as a crucial guide for market participants seeking direction amid ongoing uncertainties in the U.S. economic landscape.
Tuesday
UK Data to Influence the GBP
Tuesday kicks off with the release of Britain’s Claimant Count Change and Average Earnings Index 3m/y reports.
The Claimant Count Change measures the monthly change in the number of people claiming unemployment benefits. A higher-than-expected figure can signal weakness in the job market, potentially putting pressure on the GBP. On the other hand, the Average Earnings Index 3m/y reflects the change in worker pay over the last three months and includes bonuses. Rising wages often indicate improved economic conditions and can boost the currency, as higher wages could lead to increased spending and inflationary pressures.
Traders should closely monitor these figures, as they provide insight into the strength of the UK labor market and its potential repercussions on the Bank of England’s monetary policy decisions.
Eurozone Business Sentiment in Focus
Across the Eurozone, Germany will release key data including the ifo Business Climate Index and the ZEW Economic Sentiment Index, both of which are essential indicators of economic confidence.
The ifo Business Climate Index is a leading measure of business morale, derived from survey responses of over 9,000 firms in sectors like manufacturing and construction. A higher reading suggests improved business expectations, which could bolster the EUR, while a weaker number could indicate economic headwinds.
The ZEW Economic Sentiment Index, meanwhile, gauges institutional investors’ views on the German economy. A positive score signals optimism, while a negative number reflects pessimism. Since Germany is Europe’s largest economy, these reports are closely watched as they often set the tone for broader Eurozone sentiment.
Weak results from either indicator can weigh on the EUR, while strong data could drive gains in the currency as confidence in the region’s economic recovery grows.
Canadian CPI Could Shake the CAD
Later in the day, Canada’s Consumer Price Index (CPI) report will be released. The CPI measures the average price changes of goods and services purchased by households and acts as the primary gauge of inflation.
Inflation numbers carry critical implications for the Bank of Canada (BOC), which relies heavily on CPI data to adjust its interest rate decisions. A higher-than-expected CPI print can signal growing inflationary pressures, increasing the likelihood of a rate hike and boosting the CAD. Conversely, a softer reading may weaken the currency as it points to sluggish price growth and reduces the urgency for tightening monetary policy.
US Retail Sales Data to Drive the USD
To wrap up the day, the U.S. will release its Core Retail Sales m/m and Retail Sales m/m reports.
Retail Sales m/m captures the total sales made at retail stores, excluding services. The Core Retail Sales figure excludes volatile items like automobiles. These reports are critical because they provide a snapshot of consumer spending, a key driver of the U.S. economy.
Stronger-than-expected retail sales data can bolster the USD, as it reflects robust consumer activity and could signal more aggressive monetary tightening from the Federal Reserve. On the flip side, weaker retail sales may suggest a slowing economy and could weigh on the currency.
Traders should stay alert during Tuesday’s sessions as these economic releases have the potential to move markets significantly. Be prepared for volatility in currencies like the GBP, EUR, CAD, and USD as the data rolls out.
Wednesday
UK CPI Report and Its Implications for the GBP
Wednesday begins with a key focus on Britain’s Consumer Price Index (CPI) y/y, which measures the change in the price of goods and services over the past year. This annual inflation report is a critical metric for the Bank of England (BOE) in shaping its monetary policy.
The BOE targets an inflation rate of 2%, and CPI readings above this mark typically lead to tighter monetary policy, such as rate hikes, to control inflation. On the other hand, weaker CPI figures could signal a dovish monetary stance, as falling prices may reflect slowing economic activity.
For traders, the CPI report can heavily influence the GBP. A higher-than-expected print could support the currency, as it increases the likelihood of a hawkish BOE decision. Conversely, a softer reading might pressure the pound as it reduces the urgency for additional policy tightening.
US Building Permits and Their Dollar Impact
The Building Permits m/m report is a leading indicator of economic health in the United States, tracking permits granted for new housing construction. A rise in permits suggests growing confidence among builders and developers, signaling economic strength. On the flip side, a decline may point to issues like higher interest rates or faltering consumer demand.
For the USD, a positive building permits figure could reinforce optimism in the U.S. economy and support the greenback. However, weaker results might prompt concerns about a potential slowdown in economic activity, weighing on the currency.
Crude Oil Inventories and Their Effect on the Dollar
The Crude Oil Inventories report measures the weekly change in barrels of crude oil held by commercial firms. While not directly tied to currency markets, the data can impact the USD due to the strong link between the dollar and global energy markets.
Higher inventories typically signal weaker demand or overproduction, often leading to lower oil prices. This can weigh on the energy sector and reduce inflationary pressures in the economy. Conversely, tighter inventories may push oil prices higher, which could boost inflation expectations, influencing the Federal Reserve’s policy trajectory. Traders often monitor this report for ripple effects on the dollar, especially in energy-sensitive sectors.
Federal Funds Rate and FOMC Statement Insights
The day’s highlight will be the Federal Reserve’s decision on the Federal Funds Rate. Current expectations suggest a 25 basis-point rate cut, lowering the rate to a range of 4.25%-4.50%, with a strong consensus of 95% probability for a cut.
The decision follows mixed economic signals. US CPI data for November came in line with forecasts, keeping inflation in check yet below the Fed’s long-term target of 2%. However, robust non-farm payroll additions of 227,000 in November, coupled with resilient labor markets highlighted in the latest JOLTS report, indicate underlying economic strength.
Federal Reserve Chair Jerome Powell recently stated that while inflation is moderating, the Fed remains cautious about cutting rates too aggressively to avoid reigniting price growth. The rate cut also aligns with policy shifts under President Donald Trump’s administration, which has emphasized tax cuts and deregulation to stimulate economic activity.
For traders, the FOMC statement will be crucial in gauging the Fed’s outlook. A dovish tone could weaken the USD as markets anticipate further cuts into 2025. However, if Powell strikes a balanced note or hints at fewer cuts ahead due to strong jobs data, the dollar could find support.
Wednesday promises significant volatility across major currency pairs as these critical reports are released. Keep an eye on the GBP, EUR, and USD for trading opportunities influenced by inflation data, housing market trends, and central bank policy shifts.
Thursday
New Zealand GDP and the Kiwi Dollar
Kicking off Thursday’s economic calendar, New Zealand will release its GDP q/q report. This metric measures changes in the nation’s economic output compared to the previous quarter and is a key indicator of overall economic health.
For the Kiwi dollar (NZD), a stronger-than-expected GDP figure could bolster the currency as it highlights economic resilience, which may influence the Reserve Bank of New Zealand’s future rate decisions. On the contrary, a weaker print could pressure the NZD, signaling an economic slowdown that might warrant more dovish policies.
Bank of Japan Policy Rate in Focus
The Bank of Japan (BOJ) will announce its policy decision on interest rates. The BOJ is widely expected to hold its benchmark policy rate steady at 0.25%, maintaining its ultra-loose policy amidst lingering uncertainties in global economies and domestic wage growth.
The yen’s (JPY) performance hinges on this announcement. If the BOJ provides any hints of hawkish adjustments down the line, it could strengthen the yen. However, reaffirmation of the current dovish stance might weaken the currency further, particularly against higher-yielding counterparts.
The Bank of Japan (BOJ) last raised its policy rate in July, marking a significant shift after years of ultra-loose monetary policies. While maintaining caution, the BOJ has indicated its readiness to tighten further if wage growth and inflation align with its projections.
Governor Kazuo Ueda, in a recent media interview, stated that the possibility of another rate hike is “nearing” as economic data remains on track. However, he flagged potential risks, including uncertainties in wage trends for next year and the impact of evolving U.S. economic policies, which could ripple through global markets.
Japan’s interest rates remain among the lowest in the developed world, the result of the BOJ’s long-standing strategy to bolster a traditionally sluggish domestic economy. This policy has kept the yen (JPY) weak against most major currencies, a scenario that has significantly benefited exports and tourism.
Additionally, Japan’s low rates have fueled the carry trade, a popular strategy where investors borrow in yen to invest in higher-yielding assets abroad. This has provided liquidity to global markets while maintaining downward pressure on the yen.
The landscape could shift as the BOJ pivots toward higher rates while other major central banks, such as the U.S. Federal Reserve, edge toward rate cuts. Rising Japanese rates may reduce the attractiveness of the carry trade, potentially strengthening the yen and dampening export-led growth.
As traders, keeping an eye on Japan’s monetary shifts will be key. The balance between domestic wage growth, inflation progress, and BOJ policy adjustments will shape JPY movements, creating both opportunities and risks in currency markets.
Bank of England Official Bank Rate and Its Impact on the Pound
The Bank of England (BOE) is set to announce its Official Bank Rate decision. Following a rate cut last month, the current rate stands at 4.75%, marking gradual moves towards easing monetary policy. However, inflation remains mildly above the BOE’s 2% target, with forecasts suggesting average inflation of 2.6% in 2025.
The BOE’s Monetary Policy Committee (MPC) votes on rate decisions, with each member casting a vote for a rate hike, cut, or hold. The breakdown of this vote often offers insights into the overall sentiment of the committee.
Traders should watch for hints on the BOE’s future trajectory. If inflationary pressures persist, the BOE may signal a pause on further cuts, which could offer support to the GBP. Conversely, dovish signals could weigh on the pound as markets price in additional easing.
US Economic Data and Its Dollar Impact
Rounding off the day, a series of U.S. economic reports will be released, each carrying implications for the USD:
- Weekly Jobless Claims: This measures the number of people filing for unemployment benefits for the first time. A higher-than-expected reading could signal weakness in the labor market, which might pressure the USD. A lower print, however, would reflect economic resilience and could support the dollar.
- Final GDP Price Index q/q: The GDP Price Index measures changes in the prices of goods and services included in GDP. An uptick here might raise inflationary concerns, potentially prompting hawkish Federal Reserve policy shifts that could strengthen the USD.
- Philly Fed Manufacturing Index: This regional gauge of manufacturing activity offers insights into industry health. A higher reading indicates expansion, which could boost confidence in the dollar. A disappointing figure, however, might cast doubts on the broader economic outlook.
- Existing Home Sales: This report tracks the annualized number of homes sold during the previous month. A decline in home sales could signal softening economic conditions or higher borrowing costs due to previous rate hikes, potentially weighing on the USD. A rise, on the other hand, could provide a boost to the dollar.
Friday
China’s Loan Prime Rates and the AUD
On Friday, China will announce its 1-year and 5-year Loan Prime Rates (LPR). These are key benchmark rates for corporate and household loans in China. The 1-year LPR, currently at 3.1%, is the reference for most business loans, while the 5-year LPR, used for mortgages, influences the housing market.
These rates are pivotal in shaping China’s economic activities, which include industrial output, retail sales, and fixed-asset investments. Given Australia’s significant trade ties with China, any adjustments to these rates could directly impact the Australian dollar (AUD). For instance, a cut to the LPR could signal stimulus, potentially boosting demand for Australian exports like iron ore and coal. Conversely, steady or higher rates might suggest economic stability but could temper market enthusiasm.
Recent data from China shows mixed economic performance. While industrial output has shown signs of growth, weak retail consumption and soft property prices continue to drag on the broader recovery. Beijing’s next move on monetary policy will be closely watched as it attempts to balance stimulations with avoiding over-leverage in the economy.
UK Retail Sales m/m and the GBP
The UK will also release its Retail Sales m/m report, which measures changes in the total value of sales at the retail level. This data offers a glimpse into consumer spending, a critical driver of the British economy.
For the pound (GBP), a stronger-than-expected reading could indicate solid consumer confidence and resilience, bolstering the currency. On the other hand, weak retail sales could signal economic strain, likely pressuring the GBP due to reduced growth prospects.
Canadian Retail Sales and the CAD
Canada’s Retail Sales report will also be a focal point. Tracking monthly changes in the value of sales at retail establishments, this metric reflects consumer spending’s strength in the Canadian economy.
For the Canadian dollar (CAD), strong retail sales could highlight economic robustness, potentially reinforcing expectations of a hawkish stance from the Bank of Canada. Conversely, weak sales data could trigger concerns over slowing economic growth, weighing on the CAD. Traders should watch for this data, especially considering global factors like commodity prices that often influence the Canadian economy.
USA Core PCE Price Index and January 2025 Fed Decisions
A key highlight on Friday will be the release of the Core Personal Consumption Expenditures (PCE) Price Index m/m. This is the Federal Reserve’s preferred measure of inflation, as it excludes volatile food and energy prices, providing a clearer picture of underlying price trends.
The Core PCE is instrumental for the Fed’s monetary policy. If inflation comes in higher than expected, it could push the Fed to keep rates elevated or even consider additional hikes in early 2025. Conversely, softer inflation data might support the growing case for a rate cut, aligning with the Fed’s goal of steering the economy toward a soft landing without overshooting inflation.
As of now, markets are split on the Fed’s January 2025 decision. Recent economic reports, including the robust non-farm payrolls and cooling JOLTS data, as well as declining inflation figures, add complexity to the outlook. Jerome Powell has signaled a data-dependent approach, making Friday’s inflation reading particularly critical.
UoM Consumer Sentiment and the USD
Finally, the Revised University of Michigan (UoM) Consumer Sentiment report will be released. This index measures consumer confidence in the economy based on household surveys.
A higher-than-expected sentiment reading could boost the dollar (USD), as it reflects consumer optimism and potential strength in spending—an important driver of the U.S. economy. However, weak sentiment could signal economic concerns, weighing on the USD as traders anticipate slower growth or lower demand.
Trading Outlook
Friday’s lineup of economic releases offers significant trading opportunities. From the AUD reacting to Chinese rate decisions to the GBP, CAD, and USD responding to domestic data, traders should prepare for potential volatility. Keep an eye on these releases to inform trading strategies and anticipate central bank policy shifts for early 2025.
Conclusion
The week is set to unveil critical developments shaping global markets. From China’s domestic activity to key inflation data and consumer sentiment, traders will find ample opportunities in this volatile landscape. Monitoring economic indicators and central bank policies will be essential for navigating the dynamic trading environment and staying ahead of market shifts.
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