The Week Ahead: Fed, ECB, Bank of England all to hike

Big weeks for central banks don’t come much bigger than this one: the Federal Reserve, European Central Bank and the Bank of England are all set to raise rates for the final time in 2022, capping a year of aggressive monetary tightening. But it’s not over yet: all eyes are on how much more tightening the central banks signal is on the way in 2023.

Here are the week’s key events:

Monday

The week kicks off with the latest UK GDP data, which is likely to show further slowing in economic activity. Recent data showed the UK economy shrank in the third quarter and it is all but certain the country is heading towards recession. The OECD warned the UK is lagging G7 peers since the pandemic, with the economy shrinking by 0.4% since the final quarter of 2019. A recession is baked into consensus thinking, but the data will reveal how bad it might get before the trend changes.

Tuesday

Key US inflation data for November is the highlight as the two-day FOMC meeting kicks off. A slowing in CPI inflation last month was taken as a buy signal for investors hungry to push beaten-down stocks higher into the year end. Annual consumer price growth slowed to 7.7% in October, the lowest since January and well beneath the 8% expected. There was also a welcome slowing in core inflation, which rose 0.3% month-on-month, well under the 0.6% recorded in September. UK employment data and the German ZEW sentiment survey are also to be watched.

Wednesday

FOMC decision day: the question is whether the Fed hikes by 75 or 50bps. Markets favour the latter but inflation figures from the previous day will reveal which way the Fed is likely to swing. Chair Jay Powell recently said it would make sense to “moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down … The time for moderating the pace of rate increases may come as soon as the December meeting.” Also watch for UK CPI inflation.

Thursday

Central bank bonanza: The European Central Bank is likely to raise rates by 50bps, but traders are looking for signs of a creeping dovishness evident in the remarks of some policymakers. The Bank of England is also expected to raise rates by another 50bps but continue to pull the dovish lever by saying markets are still pricing in too many hikes. And after terminating negative rates in September, traders will be on the lookout if the Swiss National Bank hikes again. Also watch US retail sales, Empire State manufacturing index and weekly unemployment claims.

Friday

After the central bank hangover, the market is straight into flash PMI survey data from Europe, the US and the UK. These diffusion indices have been flashing recession red lights – whilst this is likely to continue, traders will watch out for any shift in this trend to a more expansionary view as China looks to reopen and inflation signals ease. Also look out for UK consumer confidence and retail sales data.