It’s going to be a big week for global markets in the run up this week’s crucial end-of-year FOMC meeting after the poor close on Friday left the S&P 500 down 3.5% for the week and the Dow Jones off 3.8%, its worst week since November 2011.
Of most interest to traders in Australia as much as anywhere else is whether the Fed will change its language around the “considerable period” of interest rates bring held at the current super-low levels, and what signals they might give around when rates will head higher in the US.
The markets think the language will change this week – but will the Fed really be the Grinch of Christmas?
Locally Monday is MYEFO day when Treasurer Joe Hockey and Finance Minister Mathias Cormann will deliver the bad news about the state of the Australian Federal government’s finances.
It’s the Treasurer’s chance to reset the failed budget process so there is a real chance all the dirty laundry is aired in order to ensure the Senate and the Australian people understand the true magnitude of the budgetary challenge and the need for medium-term reform. Likely it’s also a chance for Hockey to reframe the measures stalled in the Senate and signal any further changes to be made after last week’s ditching of the hated $7 GP payment.
On the data front it’s getting lighter as we heard toward Christmas, with only motor vehicles, RBA minutes and a speech from Guy Debelle of note on the week. We will be watching the release of the RBA’s foreign exchange transaction data to see if they have been intervening – as unlikely as this may be.
Internationally besides the FOMC meeting we get UK inflation data, Chinese flash manufacturing PMI, German ZEW survey and US CPI on Wednesday morning before the FOMC announcement.
It’s a huge week with many potential outcomes but the weight on stocks and the reaction of the US dollar are the key.
Here Westpac’s excellent weekly diary of all the events that matter and what the market’s expecting.