Week Ahead: BoE & FOMC meets plus US retail sales
The week ahead holds meetings for the FOMC in the US and the Bank of England, setting the tone for financial policy to come as the pandemic continues. Europe also releases a new wave of flash PMIs, while we also forecast what could happen in the US retail sector post-Black Friday.
For the final time in 2020, the US Federal Reserve’s Federal Open Market Committee (FOMC) meets to decide the direction of US monetary policy.
The case for further Fed-sanctioned stimulus is being strengthened by disappointing Nonfarm Payrolls. About 245,000 new jobs were added to the US economy in November: great for non-pandemic times, but less than half of those predicted.
Will the US economy start to struggle in December? It’s possible.
Commentators have forecast two financial aspects the Fed could be considering in its next round of meetings: adjustments to its current asset buying programme, and a rejigging of its emergency lending programmes.
First, assets. The Fed is currently hoovering up $80bn worth of Treasury securities and $40bn mortgage-backed securities every month. Yields at the short end of the Treasury curve remain well anchored near all-time lows.
November’s meeting minutes suggest many FOMC members are more inclined to extend the maturity composition of its assets rather than increase the pace of purchases.
With that in mind, it’s likely that the FOMC won’t announce any actual changes to its asset purchasing programme in December, but probably hint at alterations due in the coming months.
Secondly, scaling back lending programmes may be on the agenda. Some $454 billion was approved for lending under the Trump White House’s CARES Act, but uptake was only around $6n. Essentially, the US government might want its money back.
Bank of England meets too
The BoE is gearing up for its final round of 2020 meetings too; meetings that could be coloured by the progress, or lack thereof, on a Brexit deal.
Despite PM Johnson crashing into Brussels last week like Indiana Jones with a big whip in one hand and a skinny latte in the other to try and break the deadlock, “significant divergences” still remain between the UK and Europe.
BoE governor Andrew Bailey has a lot on his plate as is, without the very tangible threat of a no-deal Brexit looming like an economic mushroom cloud. The Covid-19 pandemic continues, even with the UK starting the world’s first mass vaccination regime to combat the virus.
What’s more, the UK’s GDP growth has taken a snail-like character after the cheetah-esque performance earlier in the year prior to lockdown 2.0, crawling up just 0.4% in the last quarter.
The main hues being used to paint the UK’s economic portrait are slowing GDP growth, a no-deal Brexit and the continuing effects of the pandemic.
All of this will no doubt play into the BoE’s talks and December outcomes.
According to remarks he made to a Westminster committee in November 2020, Governor Bailey thinks of the those three, the biggest issue will be falling out of the EU with no deal.
“The long-term effects… I think would be larger than the long-term effects of Covid,” he said.
“It is in the best interests of both sides…for there to be a trade agreement and for that trade agreement to have a strong element of goodwill around it in terms of how it is implemented.”
US retail sales
The latest batch of US retail sales data is released this coming week.
Will they pick up? The previous couple of month’s performance has been less than stellar. October saw a 0.3% rise, hitting $553.33bn. September’s figures have been revised down by three tenths of a percentage to 1.6% growth – which is still strong, but perhaps not as strong as US retailers would hope.
But there is a Black Friday-shaped ace up US retail’s extensive sleeves. American consumers spent $9bn online during the annual shopping frenzy, a y-o-y increase 21.6%.
As ever in this crazy year, there is a twist in the tale. In-store footfall was down over half, according to Sensormatic Solutions, so while the see saw is tipped towards online shoppers, actual, physical shopping will likely be massively lower.
Cyber Monday, though, was the single largest online shopping day on record in the US. Sales on the Black Friday follow up weighed in at $10.8bn, up 15% against 2019’s figures.
Will this be enough to counter the slow growth and put US retail sales back on a positive footing?
It’s time for another round of flash European PMIs, and if the previous round is any indicator of current performance, we’re in for an expected second EU economic downturn.
The return to lockdown has not been kind to Europe financially.
As of November, Eurozone PMI had fallen from 50 to 45.1. Services continue to take the largest hit overall, according to ING, with Service PMI falling from 46.9 to 41.3 in November. Unemployment in the industry continues to rise and will likely do so until lockdowns are lifted. Let’s hope vaccines can start a European rollout soon.
Still, manufacturing signals are stronger as a buoyant Germany helps keep things afloat. ING says the manufacturing PMI merely indicated a slowing of output growth, but not contraction.
German export sales continued to the boost nation’s manufacturing growth in November in Germany, suggesting that the milder second wave outside of the eurozone is helping exporters to recover ground.
Let’s wait and see what December’s flash PMIs bring.
At the time of writing, we’re still yet to hear a decision on Brexit. A tete a tiny tete between Johnson and Ursula von der Leyen couldn’t shift the deadlock. As it stands, we’re still waiting for an end to this long, trying saga.
Webinars to watch
Trading pro Mark Leigh is once again holding a suite of educational trading-focussed webinars this week to help you get further insights into the nitty gritty of trading. Highlights include:
Mark Leigh’s Trader Clinic
Monday 14th December 2020 – 2.00pm GMT
See how a professional uses the ups and downs of trading to hone their strategy and improve their returns with our Trader Clinic. Join Mark Leigh as he demonstrates the procedure he uses to evaluate his winning and losing trades and build a better strategy.
Ten Trading Rules for Every Level of Trader
Tuesday 15th December – 6.00pm GMT
Trading is not an exact science, the markets are live and often unpredictable, that is why you need a set of rules as a basis for making educated and calculated trading decisions.
Where is the Rand Going in 2021?
Thursday 17th December – 5.00pm GMT
In light of Fitch’s recent downgrade of South Africa, there are increasingly question marks over whether the rand can hold current levels against the US dollar. Fitch’s downgrade reflected what is sees as high and rising government debt, exacerbated by the economic shock triggered by the COVID-19 pandemic. Does this mean a weaker currency next year?
Major economic data
|Mon Dec 14th||Ongoing||CNH||Foreign Direct Investment ytd/y|
|10.00am||EUR||Industrial Production m/m|
|Tue Dec 15th||12.30am||AUD||Monetary Policy Meeting Minutes|
|2.00am||CNH||Retail Sales y/y|
|2.15pm||USD||Industrial Production m/m|
|10.00pm||AUD||Flash Manufacturing PMI|
|10.00pm||AUD||Flash Services PMI|
|Wed Dec 16th||12.30am||JPY||Flash Manufacturing PMI|
|8.15am||EUR||French Flash Services PMI|
|8.15am||EUR||French Flash Manufacturing PMI|
|8.30am||EUR||German Flash Manufacturing PMI|
|8.30am||EUR||German Flash Services PMI|
|9.00am||EUR||Flash Manufacturing PMI|
|9.00am||EUR||Flash Services PMI|
|9.30am||GBP||Flash Manufacturing PMI|
|9.30am||GBP||Flash Services PMI|
|1.30pm||USD||Core Retail Sales m/m|
|1.30pm||USD||Retail Sales m/m|
|2.45pm||USD||Flash Manufacturing PMI|
|2.45pm||USD||Flash Services PMI|
|3.30pm||USD||US Crude Oil Inventories|
|7.00pm||USD||FOMC Economic Projections|
|7.30pm||USD||FOMC Press Conference|
|Thu Dec 17th||12.30am||AUD||Employment Change|
|9.00am||CHF||SNB Press Conference|
|12.00pm||GBP||MPC Official Bank Rate Votes|
|12.00pm||GBP||Monetary Policy Summary|
|12.00pm||GBP||Official Bank Rate|
|3.30pm||USD||US Natural Gas Inventories|
|Fri Dec 18th||Tentative||JPY||Monetary Policy Statement|
|7.00am||GBP||Retail Sales m/m|
|1.30pm||CAD||Core Retail Sales m/m|
|1.30pm||CAD||Retail Sales m/m|
Key earnings data
|Tue Dec 15th||Nordson||Q4 2020 Earnings|
|Inditex||Q3 2020 Earnings|
|Wed Dec 16th||Lennar||Q4 2020 Earnings|
|Thu Dec 17th||Accenture||Q1 2021 Earnings|
|FedEx||Q2 2021 Earnings|
|Cintas||Q2 2021 Earnings|
|General Mills||Q2 2021 Earnings|
|Fri Dec 18th||Nike||Q2 2021 Earnings|
|Carnival||Q4 2021 Earnings|
|Darden Restaurants||Q2 2021 Earnings|
|Oracle Japan||Q2 2021 Earnings|