Most markets are relatively unchanged this morning to start what is likely to be the last busy week of the year. A mixture of inflation readings, central bank decisions, and purchasing data will provide plenty of fodder for market projections heading into year-end through 2024.

Risk-appetite has continued to grow across asset classes with 10-year US Treasuries 75 basis points below the year’s highs (late October), the S&5 500 equity index up 22% YtD (4.35% away from all-time highs), and the USD 3% lower from September’s 2023 peak (but still 4% above July’s 2023 low). Most of these moves have been predicated on future dovishness from central banks that, while officially are all independent from one another, certainly watch one another’s activity closely to limit outlier risk. The US Federal Reserve tends to lead the way and given the hawkish tone of a speech Fed Chair Powell made recently (potentially to counter commensurately dovish speeches by his colleagues) it will be interesting to see if Wednesday’s rate decision and press conference extend his recent sentiment.

Given last Friday’s strong employment data and the Fed’s dual mandate of maximum employment and price stability, tomorrow’s CPI data a day ahead of the FOMC will be watched super closely. The survey expectation is a 3.1% headline print year-over-year, a 0.1% drop from the prior reading (and a full 6% lower than the peak in July of last year).

Additional thematic highlights of the day as well as this week’s event calendar:

• The Yen weakened about 1% against the Dollar after a Bloomberg report suggested BoJ officials are not looking to end their negative rate policy any time soon, countering last week’s market speculation that sent the currency almost 4% lower. USD/JPY has now almost fully retraced the initial move lower.
• Argentina’s new Libertarian President Milei announced his first policy measures today but excluded explicit reference to the dollarization he had mentioned recently.
• Bitcoin and Gold have both retraced significant portions of last week’s strength, as the risk of a hawkish Fed on Wednesday reduces the appeal of the dollar-alternatives
• Ukrainian President Zelenskiy will be in the US for a meeting with President Biden and will address the entire Senate tomorrow

Event Calendar:

• Monday: Oracle Earnings
• Tuesday: US CPI & Average Hourly Earnings; UK Employment; Brazil Inflation
• Wednesday: US PPI & FOMC Rate Decision; UK Industrial Production; Eurozone Industrial Production; Brazil SELIC Rate Decision; Adobe Earnings
• Thursday: US Retail Sales & Weekly Initial Jobless Claims; Canada Existing Home Sales; UK Bank of England Rate Decision; Eurozone ECB Rate Decision; Mexico Rate Decision; Costco Earnings
• Friday: US Industrial Production & PMIs; Canada Housing Starts; UK PMIs; Eurozone PMIs

• EUR/USD is essentially unchanged on the day after last week’s 1% decline, bringing the total decline from November’s highs to 2.35%. Market participants are eagerly awaiting the results of all the data this week, Thursday’s ECB-included with an unchanged level of 4% expected. This would be the third consecutive “unchanged” rate decision for the European Central Bank.
• USD/CAD is essentially unchanged on the day after last week’s 0.7% gain. The pair is still down 2.3% from the highs of the last 30-days. All eyes are currently on foreign data as last week’s fourth consecutive 5% rate decision by the Bank of Canada stabilized the Loonie for the near term.
• GBP/USD is slightly higher on the day although still about 1% lower from a week ago. Cable has retraced somewhat from its 30-day highs but still finds itself 3.35% higher as the market awaits tomorrow’s UK employment data and Thursday’s Bank of England rate decision. The latter is expected to be unchanged at 5.25% for the fourth consecutive time.
• USD/MXN is slightly higher on the day and about 1.25% higher from this time last week. Nonetheless, it is still about 3.5% lower in the last 30 days and is within earshot of its 200-day moving average 0.75% above here. The market is expecting an unchanged Banxico rate decision on Thursday at 11.25%, making it one of the highest rates in the market but also one of the most consistent as this would be the seventh consecutive “unchanged” announcement.
• USD/BRL is higher on the day and about 1.3% higher from this time last week, although it remains 2.3% lower from the highs of the last 30 trading days. The SELIC rate decision is due to be released Wednesday evening with a 50 basis point cut to 11.75 expected. While the Brazilian Central Bank is one of the few that is actually cutting rates, given their lofty 13.75% peak level in August of last year they have been well ahead of most other banks in restrictive monetary policy.