Weekly Outlook, 6-10 Dec. 2021

Inflation and Omicron!

Market analyst – IFC Markets

Uncertainty of the impact from the Omicron variant will dominate the market sentiment in the week ahead, however, the central banks’ monetary policy meeting and inflation data from US and China also must be followed closely. Last week, despite the fewer created jobs, the unemployment rate fell to 4.2% in the US, and now inflation numbers will be very important to watch! Let’s review the week ahead and the most important data to watch, with an important update from the IFC markets!! 

RBA meeting – Tuesday!

Inflation is increasing and the labor market is fine, therefore in the normal conditions, we could see a step forward with 25 basic point increasing interest rates. And now, with Omicron’s concerns, the Reserve Bank of Australia can be so cautiously in Tuesday’s monetary policy meeting for all of its decisions. For now and by the year-end, it is hard to say they can change the policies. This expected holding policy can hold the pressure on Aussie against its crosses. 

BoC meeting – Wednesday 

The Bank of Canada (BoC) also will hold its monetary policy meeting and interest rate decisions on Wednesday. Canadian unemployment rate eased to 6% in November, and the economy is improving very well. Policymakers abruptly ended the BoC asset purchase program last month, therefore, they already took the big step for this year, and expecting a more tightening policy is a bit avarice for now. BoC will also publish its economic outlook. With the following expected decisions, the Canadian dollar can rally and Canadian bond yields will rise.

Chinese inflation – Thursday 

With the shortage in the energy market and sharply increasing Oil prices, we could see that Chinese producer inflation has been rising, and now it must affect consumer inflation as well. For November, both producer and consumers Inflations expecting to tick higher, respectively to 14% and 1.6%. Along with last week’s weaker PMI numbers, the Chinese economy now has weak signals that must put more pressure on the Chinese Yuan as well. 

US inflation – Friday

In November, US inflation increased to its 30-years high at 6.2%, driven mostly by Goods inflation as the primary contributor, which shows little signs of easing. While we are getting closer to the holiday season, we doubt goods prices can cool in the near term. Therefore we expect to see another strong monthly gain in inflation numbers, with the headline index rising by 6.9% and Core CPI by 5.0% year-over-year. Higher inflation will put more pressure on FED for tightening policies and the Stock market to decrease. 

Related post