Expectations are for December’s HICP print to pick up to 2.4% from 2.2% whilst the super core rate is expected to hold steady at 2.7%. As a reminder, the prior release saw headline Y/Y CPI rise in November to 2.4% from 2.0%, which was largely expected on account of base effects. Super-core inflation remained at a stubborn level of 2.7% whilst services inflation ticked marginally lower to 3.9% from 4.0%. Investec expects the recent trend of headline inflation being driven higher by energy and food inflation, whilst core inflation remains steady to continue into December. Investec’s forecasts are in-line with the consensus and notes that such an outcome would mean that “inflation would have undershot the baseline forecasts in the ECB’s December Staff Projections slightly in Q4 by 0.1% on both headline and core inflation”. As such, an in-line release would bolster calls for further easing by the ECB, particularly if “weak survey data were to be borne out in ‘hard’ economic statistics”. It is worth noting that regional prints will be reported ahead of the bloc-wide print on Tuesday. So far, Spain has reported a Y/Y increase to 2.8% from 2.4% and an acceleration in core price pressures. In terms of current market pricing for the ECB, 27bps of easing is expected for the January meeting with a total of 105bps by year-end.
At its December meeting, the Fed cut rates by 25bps to 4.25-4.5%, as expected. The vote was split 11-1, with Hammack voting to leave rates unchanged. The statement was little changed from the November meeting but added that in considering the "extent and timing" of additional rate adjustments (prev. In considering additional adjustments), the Committee will assess incoming data, evolving outlook and balance of risks, signalling a slowing of easing ahead. A further hawkish skew came in the updated SEPs, where the median dot plot for 2025 and 2026 FFR forecasts were lifted above expectations. Recapping: the median 2025 and 2026 dot rose to 3.9% (prev. 3.4%, exp. 3.6%) and 3.4% (exp. 3.1%, prev. 2.9%), respectively, while 2027 and longer run median dot plots rose to 3.1% (prev. 2.9%) and 3.0% (prev. 2.9%). As such, the 2025 median dot plot signals just two 25bps cuts in 2025; but the FOMC were more aligned this time round - four members see rates above the median, and five see rates below, but ten were in line with the median. Elsewhere, Core PCE inflation is now seen at 2.5% for 2025 (exp. 2.3%, prev. 2.2%) and 2.2% for 2026 (exp. 2.0%, prev. 2.0%). Forecasts for the unemployment rate were largely as expected, with all horizons, ex-longer run, seen at 4.3%, although 2027 was expected. Chair Powell stated that the Fed is squarely focused on its dual-mandate, and that the economy is strong, with the labour market solid, and inflation much closer to its 2% goal. Powell added that the policy stance is now significantly less restrictive, and going forward the Fed can be more cautious. In his Q&A, the Fed Chair said that the decision was a "closer call", but the "right call", suggesting there was a discussion surrounding holding rates at the meeting. Powell added that risks were two-sided, and officials were trying to steer between those two risks. On the statement change, he said that "extent and timing language" shows the Fed is at or near the point of slowing rate cuts, and the slower pace of cuts reflects that expectation. He also said that cuts that are made in 2025 will be in response to data and, as long as the labour market and economy are solid, officials can be cautious as they consider further cuts. Additionally, looking to US President-elect Trump's term, Powell said some people did take a very preliminary step and incorporated conditional effects of coming policies into their projections. Looking ahead, the Fed chief said the Committee will be looking for further progress in inflation to make cuts, and added that from here is a new phase, and the Fed is going to be cautious about further cuts. After the meeting, Goldman Sachs said despite the hawkish message from the dots, they kept their more dovish baseline forecast of three more cuts in March, June, and September 2025 unchanged, though added a bit more probability weight in their Fed scenario analysis to an outcome with a higher terminal rate.
Australian monthly CPI for November is expected to have ticked higher to 2.3% from 2.1% in October. Analysts at Westpac expect a shallower uptick to 2.2% and suggest that “a lift in food and housing prices is anticipated.” The release will be of utmost focus for the RBA after the latest central bank statement suggested “some upside risks to inflation appear to have eased” and the “Board is gaining some confidence that inflation is moving sustainably towards the target”. This was followed by the post-meeting presser in which Governor Bullock said the Board needs to think carefully about policy and needs to see more progress on underlying inflation, while she added that she does not know if RBA will cut rates in February and will have to watch data. As a reminder, the prior release saw monthly CPI below the expected 2.3%, with ABS noting that the most significant price rises at the group level were Food and non-alcoholic beverages (+3.3%), Recreation and culture (+4.3%), and Alcohol and tobacco (+6.0%). Partly offsetting the annual increases in other Groups was Transport (-2.8%).
The consensus currently expects that the US economy will have added 150k nonfarm payrolls in December (vs 227k in November), with the unemployment rate being unchanged at 4.2%. Analysts suggest that the December data will show payrolls normalising after the previous data reflected the rebound from previous weather-related/industrial action disruptions. Labour market proxies have been mixed. "Survey indicators are providing mixed signals on labour demand," Capital Economics writes, "the JOLTS hiring rate has slowed below pre-pandemic levels and job openings have normalised; but both the weighted-average ISM employment index and NFIB hiring intentions indicators picked up at the end of last year." CapEco says that these were a poor guide to payrolls in 2024, but several other measures of labour market slack have also stabilised in recent months; "on balance, this suggests to us that payrolls will sustain their current momentum." The FOMC's latest projections see the jobless rate rising to 4.3% this year, where it is expected to remain throughout the Committee's forecast horizon, before settling around 4.2% in the long-term. However, analysts note that officials have premised their views on different assumptions regarding the policies of the incoming Trump administration, and that suggests that as new policies are enacted, the Fed's view is likely to change in the months ahead. Meanwhile, average hourly earnings are seen rising +0.3% M/M (prev. +0.4%), with the annual rate seen remaining at 4.0% Y/Y. The November data's wage figures surprised to the upside, and analysts will be watching to see if this continues, or normalises; another above-consensus wage metric could fuel concerns about accelerating pay growth, which could limit the Fed's scope to continuing cutting rates ahead, some suggest, despite Fed officials arguing that the current labour market was not a source of inflation pressures. CapEco notes that the JOLTS private quits rate points to average hourly earnings growth dropping to around 3% ahead, "however, other measures of labour market slack have not loosened to the same extent and have also picked up recently, raising the possibility that wage growth may not slow as much as the quits rate seems to suggest in 2025."
CPI for December is expected to remain at 0.2% Y/Y while PPI is seen ticking slightly higher to -2.4% from -2.5%. The release will help deliver a prognosis on China’s economic health against the backdrop of persistently subdued domestic demand, recently announced stimulus, and ahead of US tariffs under incoming President Trump. The latest Caixin PMI release suggested “Since late September, the synergy of existing policies and additional stimulus measures has continued to act on the market, producing more positive factors. The economy in general remains stable, on the path to achieving the main goals set for 2024. That said, it is worth noting that prominent downward pressures remain, with tepid domestic demand and mounting unfavourable external factors… In December, some of the Caixin manufacturing PMI survey’s gauges declined, suggesting more time is needed to assess the consistency and effectiveness of previous policy stimulus.”
Newsquawk.
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