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The Week Ahead: Fed Minutes, easyJet, and Kingfisher Earnings in Focus.
U.S. Q3 GDP and October PCE Data — 27/11
The U.S. economy has shown resilience this year, maintaining steady job growth despite numerous challenges and uncertainty surrounding the recent presidential election. Although hurricanes in the southern U.S. caused a notable slowdown in October’s job growth, an improvement is anticipated in November. With the Federal Reserve recently cutting interest rates and unemployment stable at 4.1%, there seems little urgency for further rate reductions. The economy grew by 2.8% in Q2 and appears on track for similar expansion in Q3, based on recent employment and retail figures. However, concerns about bottoming inflation could influence the Fed’s decision-making, with upcoming core PCE deflator data offering critical insights into the likelihood of a December rate cut.
Fed Minutes- 27/11-
The previous Fed minutes revealed a consensus on the need for a rate cut in September, though the debate centered on its magnitude. While some officials favored a smaller 25bps cut, most supported the eventual 50bps reduction. The upcoming November meeting minutes are expected to show a broader consensus. Notably, the September forecasts indicated that seven officials supported 75bps of easing in 2024, two preferred 50bps, and ten leaned towards 1% or more, suggesting strong backing for at least a 25bps cut at the year’s final meeting.
U.S. rates have risen since the November 25bps cut, tightening monetary conditions. Additionally, October’s slightly higher-than-expected CPI inflation and hurricane-affected jobs data have complicated the outlook. Fed Chair Powell’s post-election comments, coupled with the November meeting statement, suggest a December rate cut is less certain than markets anticipate. This week’s minutes could offer further insight into this evolving debate.
EU CPI (Nov)- 29/11
The focus is no longer on whether the ECB will cut rates next month but rather on the size of the cut — 25bps appears likely, though a larger 50bps move remains a less probable option. Having already reduced rates three times this year, the ECB is widely expected to deliver a fourth cut, bringing rates to 3% at its final meeting.
The eurozone faces mounting challenges, with manufacturing mired in an 18-month slump and the services sector also showing signs of deceleration. This week’s flash CPI data for November is expected to show headline inflation ticking up to 2.2%, with core inflation rising from 2.7% to 2.9%, further complicating the ECB’s policy decisions.
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