ECB’s chance to guide rate hike views won’t last

(Bloomberg) — If European Central Bank President Christine Lagarde and her colleagues need to hone their guidance on the final rate hike for 2022, the opportunity to do so is closing.

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Wednesday will mark the last chance to hint to investors about an increase in borrowing costs that could be half a point or 75 basis points. A tough deal on how to recover the ECB’s multi-trillion-euro balance sheet is also looming.

A pause before the decision begins on Thursday for policymakers to stop commenting on currency issues before their December 15 meeting. The ECB could break its silence to assuage last-minute expectations, as it did in July, but that is less than optimal.

Just as the US Federal Reserve looks set to switch to less aggressive policy, investors expect euro zone interest rates to rise by 50 basis points after weaker-than-expected inflation data.

While ECB officials have not tried to suggest otherwise, the market still suggests a small chance of a 75 basis point increase for the third time in a row. That can take them a long time to go on such a hike without sending a signal first, even if it causes a lot of surprises.

The crypto markets on Friday priced in a 54 basis point gain, down from the 67 basis point reflected a month ago, showing how they are leaning towards the 50 basis point.

Just a few, final appearances are scheduled for this week, with Lagarde having two: one on climate change, and the second — on Thursday, during a blackout — about financial stability.

What Bloomberg Economics says:

“Decelerating eurozone inflation reinforces our view that the ECB will slow the pace of rate hikes on December 15 to 50 basis points, from 75 basis points. However, any sense of relief at the ECB will be tempered by the fact that fundamental pressures remain strong.”

–For full analysis, click here

In addition to German economic data, officials are awaiting their own survey of consumer inflation expectations, as well as a tally of how much the ECB’s long-term lending program will be repaid when it becomes available. second chance for banks to do so.

If that number, due on Friday, is large, it could point to progress in shrinking the bank’s balance sheet as negotiations to do so intensify. Also relevant will be data on Tuesday showing the flexible use of pandemic emergency rollovers – a tool to defuse speculation in the bonds of economically weaker countries. finance.

Behind the scenes, final steps towards the ECB’s quarterly economic forecast will also be taken in preparation for the upcoming decision.

Elsewhere, further rate hikes from Australia to Canada, and US data showing a slowdown in producer price inflation, will be among the events keeping investors busy.

Click here for what happened last week, and below is our recap of what’s to come in the global economy.

Canada and the United States

The Bank of Canada is set to end one of the strongest rate hike cycles in its history, but markets and economists are divided over whether policymakers, led by Governor Tiff Macklem leading, will increase by half or a quarter of a percentage point before preparing for an impending recession.

In the United States, the economic data schedule is down and Fed officials are in the middle of a blackout ahead of their final policy meeting for 2022 next week.

Central banks will receive more favorable inflation news from the producer price index on Friday. November PPI is forecast to rise slightly more than 7% from a year ago, down from 8% a month earlier. The core measure, which excludes food and energy, is also expected to cool down.

While still elevated, moderate inflation in the manufacturing process could help alleviate price pressures at the consumer level. Also on Friday, investors will analyze the University of Michigan’s consumer sentiment survey to understand household inflation expectations.

Among other data is the Institute for Supply Management’s survey of service providers and the Labor Department’s weekly jobless claims numbers.


Australia’s central bank chief Philip Lowe is likely to raise rates by a quarter of a percentage point on Tuesday as the Reserve Bank tries to engineer a soft landing for the economy with small rate hikes. more, amid early signs that inflation is starting to slow.

Growth figures released the next day will show how the Australian economy performed in the third quarter.

Japanese household spending and wage figures will provide the latest gauge of how the sharpest inflation in four decades is tightening spending and tightening household budgets.

Amid the debate over the Bank of Japan’s 2% price target, BOJ board member Toyoaki Nakamura offered the bank’s latest thoughts in a speech on Wednesday.

Stronger-than-expected capital spending figures showed revised figures to be released on Thursday will show Japan’s economy shrinking less than initially estimated.

India’s central bank is poised to raise key interest rates for the fifth time this year to bring inflation back to target.

Europe, Middle East, Africa

With most observers predicting a recession in Germany, the manufacturing data should show how part of Europe’s largest economy started the fourth quarter. Factory orders are released on Tuesday and industrial production on Wednesday. Going forward, economists expect output to fall in October.

Among the eurozone statistics will be a breakdown of gross domestic product from the third quarter, showing spending components ranging from consumer spending to investment.

A quieter week for the UK will see the RICS house price report on Wednesday, likely reaffirming the ongoing decline there, and the Bank of England’s inflation expectations survey on Wednesday. Six. Policymakers will remain silent on their December 15 decision.

In Norway, where inflation hit a 35-year high in October, data for November will be released on Friday. The strength of price pressures has previously raised speculation that the central bank may need to step up rate hikes.

Meanwhile, Hungary’s inflation on Thursday is poised to accelerate further to the highest in the European Union following the likely removal of fuel and food cost ceilings.

Three European currency decisions will attract attention. Poland’s central bank will likely leave interest rates unchanged on Wednesday for a third month, betting that inflation will start to ease. Its Serbian counterpart could soar even higher, while a decision will also be made in Ukraine.

Turkish inflation data on Monday is expected to ease slightly in November from 85%. This remains the highest inflation rate in the G-20 after Argentina, and the impact on consumer spending is countering the effects of four consecutive rate cuts, which have so far failed to provide impetus. Turkey’s $800 billion economy.

Data on Tuesday will likely show the South African economy growing 2.1% year-on-year in the third quarter and shrinking 0.2% quarter-on-quarter, entering a recession. That’s after Eskom Holdings, the state-owned power company that produces most of the nation’s electricity, made a record electricity distribution.

Egypt’s inflation due on Thursday will show an acceleration after the currency devaluation. Saudi Arabia is expected to release final budget figures for 2023 after a bumper year in oil revenues.

Latin America

Mexico’s November consumer price data is likely to confirm that inflation has peaked, with initial projections showing below 8% year-on-year but a 24th consecutive increase in the indexes. core count up over 8.5%.

In Colombia, the hot developing economy is likely to push consumer prices back up, with initial consensus above 12.3%.

Although the direction of travel is in no doubt, preliminary estimates suggest that Chile’s consumer prices may have rebounded in November after falling significantly from August’s 14.1%.

However that may not be welcome, Banco Central de Chile, led by President Rosanna Costa, will almost certainly keep the main rate at 11.25% on December 6.

In Peru, the surprise price hike in November will likely convince the central bank to raise interest rates for the 17th time in a row on December 7 from the current 7.25%.

For the final meeting of 2022 this week, Banco Central do Brasil pegged at 13.75%, where the 1,175 basis point hiking cycle left it in August. Banks polling expect a long period of restrictive policy with only 225 basis points easing in 2023.

Inflation in Latin America’s largest economy may have slowed to below 6% last month, down from April’s 12.13%, but double-digit core indicators are likely to push the bank central bank into a higher mode for longer periods of time.

–With support from Vince Golle, Erik Hertzberg, Robert Jameson, Benjamin Harvey, Malcolm Scott and James Hirai.

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