Brian BollenThe economic highlight of the coming week is surely the US Federal Reserve Bank's final meeting of 2017. The big question is whether the Fed will continue its gradual tightening of US monetary policy by edging up interest rates another 25 basis points, or whether it will pause in the so-called normalisation process.
Investment house Schroders sees a rise on Friday and three further increases in 2018. The Fed funds rate is now forecast to end 2017 at 1.5%, 2018 at 2.25% and 2019 at 2.5%, it says.
Opinion is divided on the enduring strength or otherwise of economic growth and on the likely trends for inflation. If growth and other cyclical forces pick up, experience shows that inflation will too.
But that experience comes from vastly different economic times and deflation (falling prices) and stagflation (higher inflation but no economic growth) remain on the risk radar. The Goldilocks environment (not too hot, not too cold) is widely expected to fade from the scene.
NY Empire State Manufacturing Index
The New York Federal Reserve is scheduled to publish its most recent manufacturing index, widely known as the Empire State Survey, on Friday. It is keenly watched as an indicator of growth and inflation trends.
Recent reports have confirmed that business activity has continued to grow strongly in New York state. Manufacturing is expanding. Employment and optimism are growing.
PMI - purchasing manager indexes
Markit will publish three separate preliminary US purchasing manager indexes on Thursday: manufacturing PMI, PMI Composite and Services PMI. All are expected to remain in positive territory.
On the same day it will publish the same figures for the European Union as a whole, and France, Germany and Italy
European Central Bank and others
The ECB's latest monetary policy statement and press conference will take place on Thursday. Some investment professionals see a tighter line on monetary policy from the Fed, the ECB and the Bank of Japan. Others agree that the Fed will continue to tighten but not the other two.
The Bank of England's policy as stated several times in recent weeks in high profile speeches by senior representatives is to raise its key rate to 1% by 2020. Its latest decision on interest rates to be announced on Thursday is expected to leave the key rate unchanged at 0.5%.
The Swiss National Bank will be announcing its decision that same day. The consensus there is that the SNB will also leave its key rate unchanged, at -0.75%. In terms of interest rate differentials, the pound could see its recent gradual recovery come to a halt, at least against the US dollar.
On the other hand, in terms purely of sentiment, the pound could be positively affected by the reported progress in Brexit negotiations.
Mario Draghi, courtesy of ECB
While the eurozone is thought to be booming, ECB president Mario Draghi is expected to announce that policy interest rates will remain at their current ultra-low level.
He is almost certain to add that they will remain lower for longer than would be expected in normal conditions and that there will be no significant acceleration in quantitative tightening. On the latter, Schroders says it believes that quantitative easing will end in September 2018.
Best of the rest
Australia is due to issue its mid-year economic and fiscal outlook on Tuesday, along with the quarter-on-quarter and year-on-year house price indexes, previously showing 1.9% and 10.2% price inflation respectively. National Australia Bank reports the same day on business confidence and conditions.
The UK consumer prices index (CPI) for November is also scheduled for Tuesday. The headline CPI is expected to be around 3% or a fraction lower, avoiding the need for the governor of the Bank of England to write a letter to the chancellor explaining why it has exceeded its 2% target by more than one percentage point.
The consensus is that the inflation rate for food and non-alcoholic beverages will also remain broadly unchanged at around 4.1%, the highest level seen since September 2013.
The Ministry of Commerce of the People’s Republic of China will announced its latest foreign direct investment figures on Tuesday. A large figure is seen as being indicative of overall growth and demand in the PRC's economy.
European parliaments will meet on 13/14 December to discuss the progress made in Brexit negotiations which will next move on to the subject of trade. A withdrawal agreement must be in place by October 2018.
A harmonious reaction could prove to be a huge non-event. Acrimonious reaction could unleash utter chaos in the currency and other markets. There is no way of knowing. There is simply no precedent for the withdrawal of a major country from the EU. We are well into uncharted waters.
Corporate earnings
Tuesday is a busy day for corporate results in the US and the UK in a wide range of industrial sectors. Lesser known US names reporting include ACRE Realty Investors, Eco Building Products, Oil-Dri Corp of America and Super Micro Computer.
In the UK Tuesday sees supermarket fresh food supplier Bakkavor Holdings publish its first set of results since it floated on the London Stock Exchange on 16 November at a price of 180 pence.
Other UK companies reporting include Electra Private Equity, retailer House of Fraser and Manchester Airport Group Funding.
