Key events to watch in the week ahead: 11 – 17 December 2023

This week’s overview

Major US indices remain stuck in a broad holding pattern over the past weeks, as the S&P 500 attempts to seek out the catalyst to push to a new year-to-date high. No doubt all eyes will be on the upcoming US non-farm payroll report for further cues, where markets will be hoping to see a softer jobs number to anchor down the dovish expectations of 125 basis point (bp) worth of rate cuts being priced in 2024.

More notable moves were seen in oil prices, with the recent OPEC+ (Organization of the Petroleum Exporting Countries) meeting failing to provide much conviction of a price floor, alongside record-breaking production out of the US. A retest of its year-to-date low is now on the radar. We also have a sharp downside move in the USD/JPY to end the week, as extreme bearish positioning in the JPY continue to be challenged with any hawkish validation from Bank of Japan (BoJ) officials.

Ahead next week, interest rate decisions from the Bank of England (BoE) and European Central Bank (ECB) will be on watch, with both central banks expected to keep rates on hold. The US consumer price index (CPI) and Federal Open Market Committee (FOMC) meeting will be in focus as well, which may be key in determining if the year-end rally can continue.

Heading into the new week, here are four things to note.

12 December 2023 (Tuesday, 9.30pm SGT): US CPI

US inflation has been on a downward trend over the past year, moderating from its peak of 9.1% in June 2022 to 3.2% in October 2023. Similarly, the core aspect has also softened to its one-year low at 4.0% in October 2023.

However, with core inflation still double that of the Federal Reserve (Fed)’s 2% target, the November Fed minutes showed that US policymakers still worry that inflation could be stubborn, leaving the door open for more to be done. Fed Chair Jerome Powell asserted that “if it becomes appropriate to tighten policy further, we (Fed) will not hesitate to do so”.

Further inflation progress will be closely watched to anchor down views of a rate hold in the December FOMC meeting, and more importantly, to validate the dovish market pricing for 125 bp worth of rate cuts in 2024. Consensus are for US headline and core CPI to increase 0.1% and 0.2% month-on-month respectively. Year-on-year, headline inflation is expected to tick lower to 3.1% from previous 3.2%, while core inflation may stay unchanged at 4.0%.

14 December 2023 (Thursday, 8.30am SGT): Australia’s employment report

In October, the Australian economy added 55k jobs versus the 20k expected. The unemployment rate increased to 3.7% from 3.6%, as the participation rate increased to 67% from 66.8%.

Ahead, the market is looking for a +10k rise in employment and for the unemployment rate to rise to 3.8% from 3.7%. The participation rate is expected to remain unchanged at 67%.

The repercussions of the Reserve Bank of Australia (RBA)'s dovish hold and sub-par Q3 gross domestic product (GDP) now have RBA rate cuts priced into the Australian rates market by September 2024. Next week's labour market data has the potential to see the timing pulled forward if the jobs data is cooler than forecast or pushed back if it's hotter than expected.

14 December 2023 (Thursday, 3am SGT): US Fed interest rate decision

As widely expected, the Fed maintained its target rate for the Fed Funds at 5.25%-5.50% at its November meeting. While the FOMC statement left the door open for rate hikes, the Fed noted that tighter financial conditions would likely weigh on activity. It said that the risks of doing too much versus too little on inflation were "more balanced" because policy is "clearly restrictive."

With the Fed widely expected to keep the Federal Funds target rate unchanged at 5.25%-5.50% in December, most of the interest will be on the tone of the Fed’s statement and the summary of economic projections (SEP or Dots).

While it's hard to gauge consensus expectations around the “dots”, if the Fed’s updated forecast shows three rate cuts in 2024, it would go a good way to validating that the Fed finished its rate hiking cycle in July and that the market is on the right track, looking for rate cuts in 2024.

15 December 2023 (Friday, 10am SGT): China’s economic data (Fixed asset investment, industrial production, retail sales)

Recent purchasing managers index (PMI) and trade data continues to show that China’s recovery momentum remains uneven, with the lack of a discernible improvement in economic conditions amplifying calls for more policy support from authorities. Just this week, the Hang Seng Index has pushed to its one-year low, with its performance diverging significantly from other major global indices.

Ahead, consensus is for China’s industrial production to improve to 5.6% from previous 4.6%. November retail sales is expected to bounce to 12.5% from previous 7.6%, while fixed asset investment is expected to tick marginally higher to 3% from previous 2.9%. Some degree of base effects may be at play, while market participants will continue to seek for the conviction of a bottoming in economic conditions over the coming months.