Market attention next week will be focused on global monetary policy and the UK general election. Here’s what to watch in the coming days.
Federal Reserve decision
The Federal Reserve is widely expected to sit pat when it delivers its monetary policy decision next week bringing an end to the mid-cycle policy adjustment that began over the summer. Policymakers at the central bank have more room to breathe following the blockbuster November non-farm payroll report, which suggested the US labour market and economy are on a firm footing even as the Washington and Beijing remain engaged in a trade war.
Wednesday’s decision will be accompanied by updates to the central bank’s growth and inflation forecasts, the so-called dot plot of interest rate projections and a press conference with chair Jay Powell.
“With financial conditions in ‘easy’ terrain and largely unchanged since the October meeting and a phase one trade deal still seemingly on the table, the Fed is unlikely to make any substantive changes to the forward-looking language in the statement,” strategists at RBC said.
Investors will also closely watch inflation and retail sales figures that will be published this week for a clearer snapshot of economic growth in the final quarter of the year.
European Central Bank
The ECB delivers its interest rate decision on Thursday and expectations are the bank will not make any changes to policy having pushed
through measures at the September meeting. Instead the focus will be on Christine Lagarde at her first governing council meeting.
“What she has to say will be closely watched for indications as to whether she represents continuity from the Draghi era as most market participants have assumed.,” strategists at RBC Capital Markets said.
UK election
Voters head to the ballot box on Thursday for the UK general election. With less than a week to go, polls show Boris Johnson’s Conservative Party leading Labour, however analysts point out there is still a possibility for another hung parliament. “Given the Conservatives’ lack of potential partner parties in Westminster, this scenario could feasibly see Labour form a minority government,” write analysts at ING.
A Conservative majority would take the UK out of the EU at the end of January while a hung parliament could further delay Brexit and possibly result in a second referendum.
Sterling has risen to a seven-month high against the US dollar with polls signalling a lead for the Tories. Economists at Pantheon Macroeconomics caution “further upside for the sterling from here, in the event that the Conservatives win a majority, looks modest”.
