Week Ahead: Calmer week into the festive period

After the fireworks of last week, when several major central banks finally acknowledged the threat posed by high inflation amid the Omicron variant, the next few days have less significant calendar risk. But in the wind down to the holiday period, liquidity will start to thin which means we could see whipsaw price action.

We are now entering a world of tighter monetary policy, with the Fed indicating that interest rates may need to rise three times next year if inflation proves persistent. The ongoing uncertainty about the Omicron variant is being looked through for now, though lockdowns in Europe and elsewhere will hit activity and spending.

Stock markets are seeing growth sectors like technology and consumers stocks lag. Small-cap and value stocks have both entered correction territory over the past four weeks and the average US stock is down 28% from its highs according to JPM Chase, even as the benchmark indices are up 20% or more year-to-date. This is unprecedented and a continuation will see more volatility in risk assets.

Risk of events of the week

20 December 2021, Monday:

-PBoC Meeting: The bank has already been proactive in increasing liquidity in recent weeks with broad-based RRR cuts and targeted SME lending. It is highly unlikely we see a cut in policy rates. Any major moves other than those seen recently may help China-sensitive currencies like AUD.

21 December 2021, Tuesday:

-Eurozone Consumer Confidence: Analysts see a drop in the index as Omicron concerns and more social restrictions weigh. Rising price pressures may also affect consumer activity.

23 December 2021, Thursday:

-US Core PCE: Consensus sees the Fed’s preferred measure of inflation ticking up to 4.5% from 4.1% in October. Consumption is also expected to remain strong. The Fed is now on a mission to bring inflation under control, though there is some uncertainty about when policymakers will begin hiking rates.

-US Durable Goods: Orders are set to rebound impressively to 2% in November after a fall in the prior reading. This points to a very positive outlook for capex in the first half of next year.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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