All eyes will be on the Fed on Wednesday, to see whether it raises the fed funds rate again. The stock market’s recent fall makes a rise less certain than it seemed few weeks ago, but it remains possible that the Fed will move in response to signs of rising wage growth.
Forthcoming figures will show that, for now at least, the economy is strong enough to take a rate rise. Most strikingly, the Conference Board is likely to report after Christmas that consumer confidence remains close to an 18-year high. But the New York Fed is likely to say that manufacturing activity remains strong, a finding corroborated by a likely bounceback in durable goods orders.
The UK, meanwhile, should show signs of moderate growth. The CBI is likely to say on Monday that manufacturers’ order books are above their long-run average and that companies expect moderate output growth in coming months. Official figures on Thursday should show that retail sales recovered a little in November from October’s fall, and a CBI survey should show that spending growth continued into early December.
This expansion is helping to cut government borrowing. Thursday’s figures should show that public sector net borrowing so far this financial year is more than £10bn lower than last year at under £35bn. This puts the government on course for the OBR’s forecast of a £25.5bn deficit this year.
On Wednesday we’ll get UK inflation figures. CPI inflation should be little changed at around 2.4 per cent. Producer output price inflation should also be flat at around 3 per cent.
Elsewhere, we should see signs of moderate growth. Germany’s Ifo survey could show a drop in both current trading conditions and expectations. While the former will still be quite high, the latter might be near a four-year low. The National Bank of Belgium’s measure of business confidence should be roughly unchanged, albeit at a lower level than earlier this year. And official Japanese data might show that industrial production slipped back in November after a strong October, consistent with a slow expansion.
Equity investors will get an important message from US Treasury figures on Monday. These could show that non-US investors have been net sellers of US shares in recent months. Historically, this has been a strong lead indicator of high annual returns on stock markets generally, as it is a sign of low investor sentiment – and sentiment eventually mean-reverts.
