As we approach the week of December 11, 2023, the economic calendar is brimming with key data releases that promise to provide valuable insights into the current state and trajectory of the U.S. economy. Foremost among these events is the Federal Open Market Committee (FOMC) Rate Decision, slated for Wednesday, December 13. This decision is highly anticipated by investors, economists, and policy makers alike, as it offers crucial clues about the Federal Reserve’s ongoing response to the economic landscape, especially in light of recent inflationary trends and global economic shifts.
Alongside the pivotal FOMC meeting, the week also features a variety of significant data releases, including the NY Fed 1 Year Inflation Expectations, NFIB Small Business Optimism, and key indicators such as the Producer Price Index (PPI), Initial Jobless Claims, and Consumer Price Index (CPI). Each of these reports will contribute to a fuller picture of the U.S. economic condition, from consumer expectations and business sentiment to the critical aspects of labor and retail markets.
This week’s economic events are set against a backdrop of complex global dynamics, where understanding the nuances of economic indicators becomes more crucial than ever. The outcomes of these reports and decisions will not only reflect the current economic health but will also set the tone for future policy decisions and market expectations as we move towards the end of the year and into 2024.
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The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
Monday, December 11:
- NY Fed 1 Year Inflation Expectations (Nov): At 11:00 AM, the New York Federal Reserve will release its one-year inflation expectations report for November. This data provides insights into consumer inflation expectations, crucial for understanding future consumer behavior and economic trends.
Tuesday, December 12:
- NFIB Small Business Optimism: The National Federation of Independent Business (NFIB) Small Business Optimism Index will be released at 6:00 AM. The previous reading was 90.7. This index is a significant indicator of the economic health of small businesses, which are a vital part of the U.S. economy.
Wednesday, December 13:
- MBA Mortgage Applications: Mortgage Bankers Association (MBA) will release its Mortgage Applications data at 7:00 AM, reflecting the mortgage application activity, an indicator of housing market health.
- Producer Price Index (PPI) Nov: At 8:30 AM, the PPI for November will be released, with a consensus forecast of a 0.1% month-over-month change. The PPI measures the average change in selling prices received by domestic producers for their output, a key indicator of inflation at the producer level.
- FOMC Rate Decision (Mid-Point): The Federal Open Market Committee (FOMC) rate decision is scheduled for 2:00 PM, with an expected rate of 5.375%. There is anticipation that the Fed might shift from hawkish holds to dovish holds, potentially marking the end of the tightening cycle.
Thursday, December 14:
- Initial Jobless Claims (Week ending 12/09/2023): The report on initial jobless claims for the week ending December 9 is due at 8:30 AM. The previous figure was 224,000 claims. This data is a critical measure of the labor market’s health, indicating the number of new filings for unemployment benefits.
- Empire State Manufacturing (Dec): The Empire State Manufacturing Index for December will be released at 8:30 AM. It’s a leading indicator of economic health as businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy.
- Industrial Production (Nov): At 9:15 AM, the Federal Reserve will release its report on Industrial Production for November. This data provides insight into the production of factories, mines, and utilities and is a leading indicator of industrial sector strength.
Friday, December 15:
- Consumer Price Index (CPI) Nov: The Consumer Price Index for November is scheduled for release at 8:30 AM. The consensus forecast is a 3.1% year-over-year change, indicating the inflation rate for consumer goods and services.
- Advance Retail Sales (Nov): At 8:30 AM, the data for Advance Retail Sales in November will be announced. This report is a key indicator of consumer spending, which accounts for a majority of overall economic activity.
Macro Market
Growth: I’m expecting a soft landing for the U.S. economy. I see growth falling below the trend in 2024 but remaining positive. Following the increase in long-end rates, I’ve revised down the 1Q 2024 growth from 1.0% to 0.5%. Consequently, I anticipate a fall of a tenth to 0.6% in 2024 on a 4Q/4Q basis, with a recovery to 1.7% in 2025.
Inflation: I now project PCE inflation to fall to 2.0% y/y by 4Q25. I believe core PCE will likely drop below 3% y/y by 2Q24. However, the journey to 2% might be slower due to sticky core services ex-housing inflation. I expect core PCE to decline to a slightly above-target 2.2% y/y by 4Q25.
Federal Reserve: I don’t foresee any further rate hikes from the Fed. My expectation is for the first rate cut in June 2024, followed by quarterly 25bp reductions in the policy rate, totaling 75bp of rate cuts in 2024 and 100bp in 2025.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Global Spotlight
Navigating Diplomacy: Xi in Vietnam
In a strategic diplomatic move, Chinese President Xi Jinping plans a state visit to Vietnam from December 12 to 13. This visit is particularly notable as it follows closely on the heels of U.S. President Joe Biden’s September visit to the same nation. The U.S. trip had significant implications, elevating Vietnam to a top-tier diplomatic partner, a status that brings it on par with China. This shift has understandably spurred China to strengthen its own ties with Vietnam, aiming to counterbalance the growing U.S.-Vietnam relationship and enhance its supply chain connections. Vietnam, on its part, is leveraging this situation to reduce potential military and economic pressure from its powerful northern neighbor, China. The visit is expected to symbolize an enhanced partnership, potentially echoing the “community of common destiny” agreements China holds with other Southeast Asian nations, further deepening the economic interdependencies.
Egypt’s Electoral Crossroads
The spotlight turns to Egypt as the presidential election unfolds from December 10 to 12. Incumbent President Abdel Fattah al-Sisi is widely expected to secure reelection, despite concerns about political freedoms. With the Israel-Hamas conflict and its economic repercussions lingering in public consciousness, these elections are set against a backdrop of regional instability and domestic challenges. Should al-Sisi win, he is likely to undertake crucial economic reforms in line with International Monetary Fund directives, such as further devaluation of the Egyptian pound—a strategy employed multiple times since 2022. These reforms aim to stabilize the economy and attract investment, though they might exacerbate inflation and reduce purchasing power, intensifying the ongoing economic struggles faced by many Egyptians.
EU’s Unity Challenge on Ukraine
The European Council is set to convene in Brussels on December 14 and 15, tackling a range of critical issues, with a particular focus on maintaining unity in supporting Ukraine amidst its conflict with Russia. Discussions will also touch upon EU enlargement, budget revisions, and the volatile Middle East scenario. A key agenda item is the proposal to initiate formal membership talks with Ukraine and boost the EU’s joint budget, including significant financial and military aid packages for Ukraine. However, these ambitious plans face hurdles, including Hungary’s opposition, increasing war fatigue among member states, and financial constraints highlighted by a recent German court ruling. Balancing these diverse interests and demands, especially regarding funds allocation for Ukraine, will test the EU’s collective resolve and diplomatic acumen.
Putin’s Media Spotlight
Russian President Vladimir Putin is set to reinstate his annual end-of-year press conference on December 14, under a revamped format titled “Results of the Year with Vladimir Putin.” This event merges elements of his traditional year-end media engagement and the “Direct Line” session, where Putin interacts directly with Russian citizens. The 2023 edition assumes added significance as it marks Putin’s first extensive public engagement in nearly two years, given the hiatus in 2022. The conference is anticipated to cover a wide range of topics, both domestic and international, with Putin likely using the platform to cast Western support for Ukraine in a negative light and to set the tone for his 2024 presidential campaign.
Argentina’s Libertarian Shift
Argentina witnesses a historic political shift with Javier Milei assuming the presidency on December 10, marking the world’s first libertarian head of state. Milei’s ambitious agenda focuses on sweeping economic reforms, including drastic cuts in public spending, deregulation to boost private enterprise, tax and labor reforms, and plans for privatizing state-owned entities. However, Milei’s lack of a legislative majority suggests that these bold reforms will face significant challenges and negotiations in the legislature, leading to potential dilutions or dismissals of some proposals. These proposed changes are likely to spark protests and union strikes, especially among lower-income groups, signaling turbulent times ahead for Argentina’s political and economic landscape.
Stratfor.com
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