As markets approach the closing weeks of 2023, investors are closely monitoring key indicators and events that could shape the financial landscape. Federal Reserve Chair Jerome Powell’s recent statement about the likely conclusion of historic monetary policy tightening and discussions of potential rate cuts have added an additional layer of significance to the market dynamics. Here are the top five things to watch in the week ahead:
1. U.S. Data:
Investors await the final update on U.S. inflation for the year with the release of the personal consumption expenditures report on Friday. Economists anticipate the PCE price index to remain flat for November, while the core measure, excluding volatile food and energy costs, is expected to rise by 0.2%. Additionally, data on consumer confidence, initial jobless claims, durable goods orders, and reports on new and existing home sales will provide insights into the health of the U.S. economy.
2. Santa Claus Rally?:
The Dow Jones industrial average recently achieved another record high close, and the S&P 500 marked its seventh consecutive week of gains. Despite some optimism among investors, caution emerged after remarks from Fed Bank of New York President John Williams, who indicated that it was too early to discuss rate cuts. The possibility of a “Santa Claus rally” is considered, but uncertainties persist as investors assess the implications of Powell’s stance on interest rates.
3. BOJ Inching Towards Pivot:
Expectations are rising that the Bank of Japan (BOJ) might end negative interest rates in the coming months, making it a global outlier as other major central banks contemplate rate cuts. While a change is not anticipated at the upcoming BOJ policy meeting, investors will scrutinize the bank’s rate statement for indications of a potential pivot in January. The expected shift has already influenced the yen, pushing it back to the stronger side against the dollar.
4. Gold on Track for First Annual Gain Since 2020:
Gold is poised to register its first annual increase since 2020, fueled by a weaker dollar and growing expectations for rate cuts in 2024. Despite rising U.S. 10-year yields, gold has surpassed $2,000 an ounce, with investors banking on a series of rate cuts next year amid increasing political and economic uncertainty.
5. U.K. Data:
Wednesday’s release of U.K. inflation data is anticipated to confirm elevated price pressures, currently more than double the Bank of England’s 2% target. The pound’s recent strength against the euro, driven by a drop in euro zone inflation, has sparked speculation about the BoE’s rate-cutting timeline. However, high rates could pose risks to the U.K. economy, potentially influencing the pound’s trajectory based on the BoE’s response to inflation trends versus a longer-term economic outlook.