ECB meeting and US inflation the focus this week
Friday’s labour market report in the US was something of a mixed bag, hence the euro and sterling jumped around against the dollar post the data before ending largely unchanged on the day, and indeed on the week, while EURGBP remained within a tight range. The focus this week will be on US inflation data on Wednesday and the ECB meeting on Thursday. The ECB is widely expected to cut the deposit rate by another 25bps to 3.0% and is unlikely to push back against market expectations for a further series of cuts at its meetings in early 2025, which would see the deposit rate close to 2% by late spring. In relation to the US inflation data, they will either help to copper-fasten expectations for a rate cut at next week’s Fed meeting (the market is currently pricing in close to a 75% chance of a quarter-point cut) or else cast doubt on such an outcome. The euro and sterling are trading at $1.0565 and $1.2760 respectively this morning, with EURGBP at £0.8280.
US bond yields ended slightly lower on Friday following the jobs data, while German and UK yields finished broadly flat on the day. In equity markets, European stocks closed out the week on a positive note, adding around half a percent, while the S&P 500 gained around 0.25% to close at a fresh high.
The US economy added 227k jobs in November, in line with the consensus forecast, after a gain of just 36k in October, but the unemployment rate came in a little higher than forecast at 4.2%, up from 4.1% in October and up half a percentage point from November 2023, while annual earnings growth was a touch firmer than expected at 4%. Separately, consumer confidence rose for a fifth consecutive month in December, according to the University of Michigan’s flash reading.
Fed’ s Hammack says in order “to balance the need to maintain a modestly restrictive
stance for monetary policy with the possibility that (interest rates) may not be far from neutral, I believe we are at or near the point where it makes sense to slow the pace of rate reductions,” adding that economic growth and inflation have both been firmer than she had expected.
Bank of England MPC member Dhingra – a noted dove – believes UK monetary policy is “very restrictive at the moment,” saying she is worried about “weak consumption” and “weak investment” and thinks the MPC “should be easing policy more.”
Regarding the day ahead, it is very quiet on the data front with the New York Fed’s latest survey of household inflation expectations the only release of note.