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Key Focus This Week: U.S Retail Sales & U.S. -Japan Monetary Policy
Last week, U.S. equity markets experienced sector-wide volatility. Driven by gains in technology stocks, the Nasdaq Composite Index reached a record high of 19,926.72, while the S&P 500 Index fluctuated and closed at 6,051.08. In the bond market, the yield on the U.S. 10-year Treasury ended its three-week decline and rebounded to approximately 4.4%. Similarly, the U.S. Dollar Index rose to around 106.9.
Key Economic Data from Last Week
U.S. November CPI: The U.S. Consumer Price Index (CPI) for November recorded a year-over-year increase of 2.7% (prior: 2.6%) and a month-over-month increase of 0.3% (prior: 0.2%). Core CPI maintained a year-over-year growth rate of 3.3% (unchanged) and a month-over-month increase of 0.3% (unchanged).
The uptick was primarily attributed to a narrowing decline in energy and core goods prices, alongside base effects. However, core services inflation continued to decline at a slow pace, remaining the key obstacle to further easing in overall inflation.
Overall, the CPI data aligned with market expectations, increasing the likelihood of a Federal Reserve rate cut in December to approximately 98%.
China November CPI: China’s CPI rose by 0.2% year-over-year (prior: 0.3%) and declined by 0.6% month-over-month (prior: -0.3%) in November. Core CPI registered a year-over-year increase of 0.3% (prior: 0.2%) and a month-over-month decrease of 0.1% (prior: 0.0%).
The decline was largely driven by further decreases in food prices, which saw a year-over-year drop of 2.0 percentage points to 0.9%. Non-food prices showed modest improvement due to a slowing decline in crude oil prices, while service prices remained flat.
Overall, China’s recent accommodative policies have yet to significantly boost consumer and business confidence. Economic experts indicate that China urgently needs larger-scale stimulus measures to support its economy.
Euro Area Rate Decision: In its December meeting, the European Central Bank (ECB) reduced the deposit facility rate, main refinancing rate, and marginal lending facility rate by 25 basis points each, to 3.0%, 3.15%, and 3.4%, respectively.
The ECB also lowered its GDP and Harmonized Index of Consumer Prices (HICP) growth forecasts for 2024-2026, reflecting weaker economic growth due to a slower recovery in consumption. Consequently, market expectations for ECB rate cuts in 2024 have increased to 125-150 basis points (previously 100-125 basis points).
Key Economic Data for This Week
U.S. November Retail Sales (December 17): Driven by the Thanksgiving holiday shopping season, U.S. retail sales are expected to maintain steady growth. Market consensus forecasts a 0.6% month-over-month increase (previous: 0.4%) and a 3.2% year-over-year increase (previous: 2.8%).
Federal Reserve Rate Decision (December 18): Although nonfarm payrolls stabilized in November, rising unemployment and a declining labor force participation rate highlight lingering vulnerabilities in the U.S. labor market. With inflation aligning with expectations and labor market risks persisting, the Federal Reserve is widely expected to lower rates by 25 basis points in December.
The meeting will also include the release of the Summary of Economic Projections (SEP), with markets anticipating a narrowing of 2025 rate cut expectations to 50-75 basis points (from 100 basis points in the September SEP).
Japan Rate Decision (December 19):
The Bank of Japan is expected to maintain its current policy stance in December, given its continued focus on wage-driven growth in consumption and inflation, alongside uncertainties surrounding global trade policies. Markets anticipate the next rate hike to occur by the end of Q1 2024.
