It looks like investors can finally start to breathe easy after the latest interest rate decisions by the six major central banks. While each reaffirmed analysts' expectations, the real surprise came with Fed Chairman Jerome Powell's words about a planned first interest rate cut next year. This single announcement triggered a storm of US Treasury bond buying, which translated into a drop in the 10-year bond yield from 4.3% to 3.9%. This in turn severely dented the strength of the US dollar. In the coming week, US and UK GDP data could be in the spotlight for investors, potentially determining increased volatility in the markets. In addition, we will also learn the final inflation readings from the Eurozone and the UK.
Table of contents:
- Eurozone consumer price index (CPI) annualised (November)
- UK consumer price index (CPI) annualised (November)
- US quarterly gross domestic product (GDP) (Q3).
- UK quarterly gross domestic product (GDP) (Q3).
- Stocks to watch
Tuesday, 19.12, 10:00 GMT, Eurozone consumer price index (CPI) annualised (November)
The CPI monitors changes in the prices of consumer goods and services. The CPI is an important indicator because it helps us to understand trends in consumers' purchases and the impact of inflation on their purchasing power. It is calculated on the basis of a basket representing typical consumer spending, covering various categories such as food, housing, transport, etc. Regular measurements of the CPI allow us to track how the prices of these products and services change over time. A positive CPI indicates an overall increase in the prices of goods and services.
On the other hand, a negative CPI means that prices are lower than the year before. It is an important tool for economists and policymakers to help them understand the impact of inflation on the economy and take appropriate action. For consumers, it is information about how their money is losing value in the context of rising or falling prices, allowing them to adjust spending, plan savings and make financial decisions.
According to preliminary estimates, the euro area's inflation rate fell to 2.4% in November 2023 from a year earlier, reaching its lowest level since July 2021 and surprising analysts' expectations of 2.7%. This means that the European Central Bank has already almost reached its inflation target of 2%. At the same time, the core rate, which excludes volatile food and energy prices, fell to 3.6%, the lowest level since April 2022 and below forecasts of 3.9%.
The biggest contributor to the fall in inflation was an 11.5% year-on-year reduction in energy costs (compared to an 11.2% fall in October). In addition, inflation also declined in food, alcohol and tobacco (down 6.9%) and non-energy industrial goods (2.9%). On a monthly basis, consumer prices decreased by 0.5% in November, the largest monthly decline since January 2020. Currently, analysts' consensus is for inflation to remain at 2.4%.
Source: Tradingeconomics.com
A higher-than-expected reading could have a bullish impact on the EUR, while a lower-than-expected reading could be bearish for the EUR.
Impact: EUR
Wednesday, 20.12, 7:00 GMT, UK consumer price index (CPI) annualised (November)
In October 2023, the UK inflation rate fell sharply to 4.6%, well below the 6.7% recorded in September. This is a result below market forecasts of 4.8% and the lowest since October 2021. The decline is partly due to the recent reduction in energy prices following the decision to cap household utility charges. This was driven in part by reductions in gas and electricity costs, which recorded their biggest fall since January 1989. Food inflation fell to 10.1% year-on-year, reaching its lowest level since June 2022. The core inflation rate, which excludes volatile food and energy items, fell to 5.7%, the lowest level since March 2022. The current analyst consensus suggests an expected decline in November inflation to 4.4%.
Source: Tradingeconomics.com
A higher-than-expected reading could have a bullish impact on the GBP, while a lower-than-expected reading could be bearish for the GBP.
Impact: GBP
Thursday, 21.12, 13:30 GMT, US quarterly gross domestic product (GDP) (Q3).
Gross domestic product (GDP) indicates the total value of goods and services produced in a country for a certain period. GDP is an important indicator of the health of an economy because it gives an overall picture of how well or poorly it is doing. If the GDP growth is higher than expected, the economy is in good shape and growing faster than expected. On the other hand, if the GDP growth is lower than expected, the economy performs weaker than anticipated. Furthermore, if the GDP growth is negative for two consecutive quarters, it may be considered a technical recession due to contracting economic output.
From the estimates, we learned that the US economy grew at an annualised rate of 5.2% in Q3 2023 compared to the previous quarter, which exceeded forecasts of 5%. This is often mistaken for annualised GDP growth, which was 3% year-on-year.
This was the largest quarterly increase since 2021. The advance was the result of a smaller decline in equipment (-3.5% versus -3.8% in the original estimate) and a 6.9% increase in construction investment (versus 1.6%). Residential investment rose for the first time in almost two years, and much faster than originally forecast (6.2% vs. 3.9% in the initial estimate), and government spending also grew faster (5.5% vs. 4.6%). Consumer spending recorded the largest increase since Q4 2021. Exports grew by 6% (vs. 6.2%) and imports grew slightly slower (5.2% vs. 5.7%). Analysts' consensus is for this pace to be maintained at 5.2% in the final Q3 reading.
Source: Tradingeconomics.com
A higher-than-expected reading could have a bullish impact on the USD, while a lower-than-expected reading could be bearish for the USD.
Impact: USD
Friday, 22.12, 7:00 GMT, UK quarterly gross domestic product (GDP) (Q3).
Gross domestic product (GDP) indicates the total value of goods and services produced in a country for a certain period. GDP is an important indicator of the health of an economy because it gives an overall picture of how well or poorly it is doing. If the GDP growth is higher than expected, the economy is in good shape and growing faster than expected. On the other hand, if the GDP growth is lower than expected, the economy performs weaker than anticipated. Furthermore, if the GDP growth is negative for two consecutive quarters, it may be considered a technical recession due to contracting economic output.
The UK economy has been experiencing a marked slowdown for some time. Estimates show that it recorded a token growth of 0.6% in Q3 this year compared to the same period last year, slightly above forecasts of 0.5%. Several factors contributed to this weak state of the economy. Household spending grew at a faster rate (0.7% versus 0.2% in the second quarter), while there was a slowdown in government spending (0.1% versus 1.3%) and business investment (2.8% versus 9.2%). Over the same period, exports contracted (-6.6% versus an increase of 3.2%), while imports recorded a rebound (0.1% versus a decline of 2.5%). Analysts' forecasts for the final reading now suggest a halt in the economy's growth at 0% year-on-year in Q3 this year.
Source: Tradingeconomics.com
A higher-than-expected reading could have a bullish impact on the GBP, while a lower-than-expected reading could be bearish for the GBP.
Impact: GBP
Stocks to watch
Accenture (ACN) announces financial results for the quarter ending December 2023. Forecast EPS: 3.14. Positive earnings surprise in 10 of last 10 reports. Deadline: Tuesday, 19 December.
Micron (MU) announces financial results for the quarter ending December 2023. Forecast EPS: -1.01. Positive earnings surprise in 8 of last 10 reports. Deadline: Wednesday, 20 December.
Nike (NKE) announces financial results for the quarter ending December 2023. Forecast EPS: 0.834 Positive earnings surprise in 9 of last 10 reports. Deadline: Friday, 21 December.
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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