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by Charalambos Pissouros

Weekly Outlook: Dec 24 – Dec 28: German and Tokyo CPIs The Most Notable Indicators

After two weeks packed with central bank decisions, economic data and political developments, we finally entered the Christmas week, with the agenda looking very light. The most notable releases we get are the Tokyo CPIs for December and Germany’s preliminary inflation data for the same month.

On Monday, markets will be closed, or close early, in most major economies in celebration of Christmas Eve. The only release on the economic calendar is the Chicago Fed National Activity index for November, which passes unnoticed, at least by the market, almost every time.

Tuesday is Christmas! Apart from China and Japan, major bourses will be closed, and the agenda is empty.

Wednesday is also a holiday for most nations we follow. The exceptions are US, Japan and China. However, we get data only from the US. We have the S&P/Case-Shiller house price index for October and the Richmond manufacturing index for December. However, both are second-tier indicators and usually, they are not market movers.

On Thursday, stock exchanges will return to “business as usual”, but the economic calendar remains light. We have the US Conference Board consumer confidence index for December, which is expected to have declined to 133.7 from 135.7. That said, bearing in mind that the UoM consumer sentiment index for the month rose to 98.3 from 97.5, we view the risks surrounding the CB forecast as tilted to the upside. New home sales for November are also coming out and expectations are for a 2.5% mom rebound after the 8.9% tumble in October.

Finally, on Friday, during the Asian morning, we get the usual end-of-month data dump from Japan. The unemployment rate for November is expected to have held steady at 2.4%, while the jobs/applications ration for the month is forecast to have ticked up to 1.63 from 1.62. Preliminary data on industrial production for November are also due out, and expectations are for a 1.9% mom slide after a 2.9% increase the previous month.

As far as inflation is concerned, we have the Tokyo CPIs for December. No forecast is currently available for the headline rate, while the core rate is expected to have ticked down to +0.9% yoy from +1.0% yoy. Something like that could raise speculation that the core National rate for the month may decline further as well.Further slowdown in inflation could add more credence to our longstanding view that BoJ policymakers have still a long way to go before considering a meaningful step towards normalization. The summary of opinions from the latest BoJ meeting is also scheduled to be released. That said, bearing in mind that the Bank maintained its ultra-loose policy unchanged, without making any major changes to the accompanying statement, we don’t expect the summary to result in any fireworks.

During the European trading, Germany’s preliminary inflation data for December is set to be released. Expectations are for both the CPI and HICP rates to have declined to +2.0% yoy and +1.9% yoy from +2.3% and +2.2% respectively. This could raise speculation that Eurozone’s headline inflation, due out on the following Friday, may slow down as well.

At the press conference following the latest ECB decision,President Draghi noted that “The risks surrounding the euro area growth outlook can still be assessed as broadly balanced.” However, he added that the balance of risks is moving to the downside due to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.

The following day, Eurozone’s preliminary PMIs for December disappointed, with the bloc’s composite index hitting its lowest since November 2014. This may have increased concerns over the bloc’s economic performance, perhaps raising speculation that, if data continue to come in on the soft side, Draghi and co. will have change their language around the economic outlook at the turn of the year, noting that the risks have shifted to the downside. So, having that in mind, a slowdown in Eurozone’s inflation metrics, and especially the core one, could prompt investors to add to those bets, and perhaps push further back the timing of when they expect the ECB to start raising rates.

Later in the day, from the US, we get the Chicago PMI for December, which is expected to have declined to 62.5 from 66.4. Pending home sales for November are also scheduled to be released and the forecasts suggests a rebound by 0.5% after a 2.6% decline in October.


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