The Week Ahead - 16 - 20 December 2024

United States – On Wednesday evening the Fed meets for the final time this year. We expect them to cut by 25 bps to an upper rate of 4.50. As of this Friday, markets have priced in 24 bps, and the Fed is unlikely to surprise. We expect the dot plot to take a hawkish turn compared to September. Before the meeting decision, Tuesday has retail sales and industrial production. We expect headline retail sales to have grown by 0.6% m/m in November, predominantly from higher car sales. Industrial production likely increased by 0.3%, with some rebound effects from the hurricanes and strikes.Friday sees the consumption report. Our nowcast for core PCE inflation puts it at 0.1%, with some upside risk. The year over year will stay at 2.8%, again with upside risk. Headline likely increased by 0.2%, raising the y/y to 2.5% from 2.3% last month. We expect personal income to have risen by 0.6%, on the back of higher hourly wages and longer workweeks. Personal spending followed suit at 0.6% m/m. Eurozone – Next Monday, eurozone PMIs for December will be released as well as German and French PMIs. The eurozone composite PMI is expected to slip slightly further into contractionary territory to 47.9, down from 48.3 in November, primarily due to increased political uncertainty following the collapse of the French government. An offsetting factor is expected to be further increases in consumer demand following rising real incomes. The usual difference between manufacturing and services is visible again. The Manufacturing PMI is expected to remain stable at deep contractionary levels, while the services PMI is expected to remain near neutral but to show a slight decline in activity. UK – We expect the Bank of England to keep policy on hold. Underlying inflation is sticky, and wage growth is still well above levels consistent with the 2% target. We expect the next rate cut to come in February, when the Bank next updates its forecasts. The Netherlands – Thursday the Dutch unemployment rate for November will be published. Unemployment is expected to tick up to 3.8% from 3.7% in October. While we see the unemployment rate marginally increasing in the coming months, the labour market is expected to remain tight by historical standards. As a result, lack of (skilled) labour remains the key constraining factor for businesses in the Netherlands. Asia – November activity data for China (Monday) are expected to show a further improvement in growth momentum, on the back of Beijing’s pivot to more policy support in September. On the policy front, the authorities switched to a ‘moderately loose’ monetary stance this week while the annual Central Economic Work Conference reiterated Beijing’s commitment to step up fiscal support, in line with our views laid out in the 2025 China Outlook. A bank RRR cut may be imminent, and we expect further policy rate cuts to follow soon as well (in line with consensus). Meanwhile in Japan, we expect the Bank of Japan to wait with a 25bp rate hike (to 0.50%) until early 2025, in line with consensus and market pricing, although it is a ‘close call’. Following the market turmoil over the summer, pressure on the BoJ to improve communication before hiking policy rates increased, while recent BoJ communication has been quite mixed. Swap traders currently price in only a ±15% probability of a December hike.