Markets on hold: central bank decisions, US inflation data due this week

Equity markets

Equity markets were hesitant on Monday, and volatility was little changed as investors positioned themselves for a set of interest-rated decisions and a string of macroeconomic data due throughout the week.

Chinese consumer price index

In China, consumer prices fell the fastest in three years last month, consumer price index (CPI) dropped 0.5% month-on-month and year-on-year. That was more than the median forecast in a Reuters poll of a 0.1% decline on a monthly basis and a 0.2% fall on an annual basis. Factory-gate deflation also deepened, falling for the 14th consecutive month.

Producer Price Index (PPI) fell 3% year-on-year against a 2.6% drop in October. Economists had predicted a 2.8% fall in November. This latest data can be seen as yet another headwind for the country's policymakers. Analysts interpret this set of data as a warning about persistently sluggish demand and supply gluts.

The US Federal Reserve

The US Federal Reserve will start its two-day meeting on Tuesday and conclude it with its last decision of the year. Since the Fed's last meeting, the labour market has shown signs of cooling off, and consumer inflation has decelerated further. The Fed funds rate target range is widely expected to remain at 5.25%–5.5% for a third consecutive time. The market is now looking for clues on how soon the Fed will start cutting rates. Currently, the CME Fedwatch tool forecasts a 90% chance of a Fed rate cut by May 2024, with a 60% possibility of a cut at the March meeting.

The Bank of England

Thursday will also be a key day for the markets, as both the Bank of England (BOE) and European Central Bank (ECB) will decide on rates. The BOE board members are widely expected to keep the policy rate unchanged at 5.25%. The market also anticipates the MPC to stick to its previous "higher for longer" approach in response to persistently high inflation. BOE governor Andrew Bailey also said last month that it is too early to be thinking about rate cuts.

The European Central Bank

45 minutes after the Bank of England (BOE) decision, the European Central Bank (ECB) will deliver its own. The main refinancing rate is forecast to remain at 4.5%; no change is expected for the deposit facility rate or the marginal lending rate. ECB's Isabel Schnabel, in charge of market operations, highlighted in a recent Reuters interview that eurozone inflation has declined faster in October and November, and therefore she does not rule out a rate cut in the first half of 2024.

The UK GDP

The market is also likely to react to a set of macroeconomic data throughout the week. Here in the UK, the unemployment rate is anticipated to rise to 4.3% in October, which would set a new high since September 2021. The UK monthly gross domestic product (GDP) should have contracted by 0.1% in October. The three-month average should be flat. And Gfk consumer confidence is seen rising to -21 in December. In the US, the consumer price index is expected to rise by 3.1% in November year-over-year (YoY), one notch lower than in October. Core consumer price index (CPI) growth is expected to remain at 4%.

Oracle

Oracle earnings are due tonight after the US closing bell. The Street expects earnings of $1.32 per share, which would be a 9% increase on the same quarter last year. Revenue is also anticipated to rise by 6.3% to $13.06 billion. Cloud services and licence support remain by far the main contributors. Revenue in that segment is expected to grow 24.7% year-over-year to $10.72 billion. Like many others, Oracle has joined the artificial intelligence race. An increasingly crowded space in which Oracle wants to play a major role.

At the start of the year, Oracle's vice president of Al and data science services said it wanted to become "the Netflix of Al" by allowing companies 'to bring the best Al software and hardware to Oracle Cloud Infrastructure. Last month, Oracle disclosed a multi-year agreement with Microsoft to support Al Services growth. Also scheduled this week are quarterly earnings from Adobe and Costco Wholesale.

Oil

Oil prices were rising on Monday as the US was working on rebuilding its strategic reserves. Concerns about crude oversupply and softer fuel demand growth next year persist. Last Friday, Baker Hughes total rig count rose by one to 626. The number of oil rigs in operation fell to 503 from 505.