Economic Update
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A big week for central banks
7 minute read11 December 2023
Bloomberg Economics said that the global economy is set for its slowest growth since the dot-com bubble burst — apart from the crisis years of 2009 and 2020. The world's GDP is expected to grow 2.7% in 2024, down from 3.1% this year, and indications that the US will slip into a shallow recession from now until early next year are becoming more apparent.
We'll see a significant number of data releases across the major economic regions this week. This week's first significant release for the pound is the Claimant Count Change, which is out on Tuesday morning at 7am. Forecasts expect the number of people claiming unemployment-related benefits during the previous month to rise from 17.8K to 20.3K. We'll also see the latest growth data on Wednesday at 7am. Forecasters expect the UK economy to shrink, with monthly GDP predicted to fall to -0.1% from 0.2%. Perhaps the most impactful event of the week is Thursday's Bank of England interest rate meeting. As of this morning, markets have priced in a 99.9% chance of a hold in rates and anticipate rates will begin to come down in 2024. As it stands, markets have fully priced in a rate cut in June next year, with a chance the BoE could begin cutting rates in May. The UK's sticky inflation will likely drive these forecasts over the coming months. Finally, this week, the UK's Flash Manufacturing and Services PMIs will be released at 9:30am on Friday. The data is currently forecast at 47.6 and 51.0 for manufacturing and services, respectively; both readings are marginally up from last month, with the services potentially marking the second month of expansion in a row. GBP
EUR
The European Central Bank is also meeting this week and will announce its rate decision on Thursday at 1:15pm.
According to Bloomberg's world interest probabilities, there is only a 2.7% chance of a rate cut at this meeting despite inflation falling to 2.4% across the region. Since the CPI inflation data release, however, markets have increased bets on ECB rate cuts in 2024 from around 85 basis points to 140 over the last two weeks. We can therefore expect as many as six quarter-point cuts, with the first of these expected as early as March.
French and German Services and Manufacturing PMIs are also due for release on Friday at 8:15am. French flash manufacturing and services PMIs are forecasted at 43.3 and 46.1, respectively, representing an increase from last month's readings. German flash manufacturing and services PMIs are forecasted at 43.1 and 49.9, which is also up from last month, although marginally. The US's CPI Inflation data is expected to remain relatively stable when it is released on Wednesday. The month-on-month figure is forecasted to stay at 0.0%, and the year-on-year figure is forecasted to fall modestly from 3.2% to 3.1%. The Federal Reserve's preferred inflation metric is also set to be released on Wednesday at 7am. PPI is projected to increase from last month's figure, rising from -0.5% to 0.1%. The Fed is also meeting this week at 7pm on Wednesday. Similarly to the BoE and ECB, markets expect no action and are pricing in a hold at 98.5%. The Fed is currently expected to begin its rate-cutting cycle in May 2024, with 110 basis points of cuts expected during the year. The Fed has, however, maintained the narrative it's not looking to cut rates. Wednesday's economic projections and the Fed's dot plot should shed some further light on that. Other data releases in the US include Retail Sales on Thursday at 1:30pm, which is expected to remain at -0.1% and Unemployment Claims on Thursday at 1:30pm, which is also expected to come in more or less at last month's figure at 223K. On Friday, the Empire State Manufacturing Index is expected to fall from 9.1 to 1.7, and the Flash Manufacturing and Services PMIs are forecasted to fall to 49.3 and 50.5, respectively - marginally down from last month's readings. USD
- Louis Kolliari, Corporate Dealing
This commentary does not constitute financial advice. All forecasts are taken from Bloomberg.
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