This week's two-day Federal Open Market Committee meeting, which concludes on Wednesday, will dominate the markets, with the Fed widely expected to replace its expiring Operation Twist with an expansion of its third round of quantitative easing, or QE3, purchases.
“Alongside its open-ended purchase of $40 billion of agency mortgage-backed securities per month, we expect the Fed to announce that it will begin buying $40 billion to $45 billion of Treasury securities per month with maturities of more than six years,” writes Paul Ashworth, chief U.S. economist at Capital Economics.
Rather than using a fixed calendar date, Ashworth believes the Fed could also switch to framing its commitment to leave short-rates at near zero in terms of numerical thresholds for the unemployment rate and inflation. “However, we suspect it will take a bit longer to reach a consensus agreement on this and if the switch does happen, it won't be until sometime next year.”
According to the so-called “Evans rule” -- suggested by Chicago Fed governor Charles Evans -- the Fed should ease monetary policy as long as unemployment is above 7 percent and inflation is below 3 percent.
Meanwhile, the Fed’s 2013 GDP forecast published in September looks relatively high at 2.5 percent to 3 percent and is at risk of being revised lower this week, according to Aneta Markowska, chief U.S. economist at Societe Generale.
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In Europe, the industrial figures are likely to add to evidence of a deepening recession, while the ZEW survey will likely highlight growing concerns about the German economy. Also, the Eurogroup will decide whether to approve Greece’s bailout installment.
Also this week, the Swiss National Bank will renew its promise to prevent the franc from appreciating further against the euro. But “economic weakness in the euro zone will make this battle harder and harder to fight,” notes Jennifer McKeown, senior European economist at Capital Economics.
In China, policymakers are expected to meet on Dec. 12-14 for the annual Central Economic Work Conference (CEWC) to set the policy framework for 2013. Barclays economists Steven Lingxiu Yang and Yiping Huang expect Beijing to retain its 7.5 percent GDP growth target and 4 percent CPI inflation target for 2013.
Elsewhere, there are scheduled policy rate meetings this week in Indonesia, Korea and the Philippines -- policy rates will likely remain unchanged in all three countries.
Below are entries on the economic calendar between Dec. 11 and Dec. 14. All listed times are EST.
TBA – FOMC first day of 2-day meetings.
7:30 a.m. -- The National Federation of Independent Business’ (NFIB) Small Business Optimism Index likely climbed to a six-month high of 93.5 in November.
8:30 a.m. -- Economists are looking for a widening in the nominal trade deficit in October, to $42.5 billion from $41.5 billion. This should reflect some negative payback in export growth following a sharp jump in September.
10:00 a.m. -- A significantly smaller expansion in petroleum stores, combined with a projected dip in farm-product stocks, likely capped the rise in wholesale inventories at 0.4 percent in October, after a 1.1 percent jump in the prior month.
France -- President François Hollande meets Brazil President Dilma Rousseff.
Indonesia -- Bank Indonesia Reference rate for December.
Japan -- October core machinery orders.
Japan -- October index of tertiary industry activity.
Japan -- November corporate goods price index.
7:00 a.m. -- The Mortgage Bankers Association's (MBA) Mortgage Index for the week ending Dec. 7.
8:30 a.m. -- Economists have penciled in a 0.5 percent month-on-month decline in import prices in November, largely reflecting a drop in petroleum prices, after rising 0.5 percent in the prior month. Export prices are expected to be flat.
12:30 p.m. -- FOMC rate decision. At the December FOMC meeting, economists at Barclays expect the committee to convert its purchases of long-term Treasury securities under the maturity extension program into open-ended purchases. The September FOMC statement, minutes to the October meeting and subsequent FOMC communications indicate that there is widespread support within the committee for this action. Given the wide disparity of views and numerous unresolved issues, economists do not see the committee as ready to release a consensus forecast or move in the direction of replacing its calendar-based rate guidance with explicit thresholds.
2:00 p.m. -- The federal budget deficit will likely widen to $147.5 billion in November, compared with a deficit of $120 billion in October.
2:15 p.m. -- Fed Chairman Ben Bernanke press conference.
E27 -- The Economic and Financial Affairs Council (ECOFIN) meeting.
E17 -- ECB Executive board member Vítor Constâncio presents financial stability review.
Germany -- Final readings of November HICP, CPI.
France -- Final readings of November HICP, CPI.
U.K. -- October ILO unemployment rate.
U.K. -- November claimant count unemployment.
U.K. -- October average weekly earnings.
E17 -- October industrial production.
8:30 a.m. -- Initial jobless claims are expected to hold at 370,000 in the week ended Dec. 8.
8:30 a.m. -- Economists look for a 0.5 percent month-on-month decline in the producer price index (PPI) in November, led by a sharp drop in the gasoline component. The core PPI likely rebounded by 0.2 percent, following a drop of 0.2 percent in October.
8:30 a.m. -- After being depressed by Superstorm Sandy in October, retail sales probably bounced back by 0.5 percent in November from the prior month, driven by a rebound in auto and building material sales. Excluding auto dealers, gasoline service stations and building materials providers, core retail sales -- the portion of the Census Bureau’s report that is used by the Bureau of Economic Analysis to estimate nominal goods spending -- continued on a saw-toothed path, climbing 0.4 percent and erasing October’s 0.1 percent decline.
10:00 a.m. -- Consensus expects total business inventories to increase by 0.3 percent in October.
E27 -- EU Summit in Brussels (to Dec. 14).
Korea – South Korea 7-day repo rate for December.
Philippines -- December BSP policy rate.
Switzerland -- December interest rate announcement.
E17 -- Eurogroup meeting.
E17 -- ECB publishes monthly bulletin for December.
Finland -- CB Governor Erkki Liikanen holds news conference on the outlook for the Finnish economy.
E17 -- ECB Executive board member Peter Praet speaks on “Reforming EU Fiscal Governance” in Frankfurt.
Chile -- December overnight rate target.
Italy -- Final readings of November HICP, CPI.
8:30 a.m. -- Paced by the largest decline in retail energy costs since December 2008, the consumer price index (CPI) is expected to edge 0.2 percent lower in November, marking the first pullback since May. Stripping out the volatile food and energy components, core consumer price pressures likely rose by 0.2 percent in November, placing the core CPI 2 percent above its year-ago level.
8:58 a.m. -- Economists expect the Markit Flash Manufacturing PMI to decline to 52.3 in December, from November’s 52.8.
8:58 a.m. -- Industrial production and manufacturing output likely rose by 0.3 percent in November. This would represent only a modest rebound from declines of 0.4 percent and 0.9 percent, respectively, in October. The Federal Reserve estimated that the effect of Superstorm Sandy subtracted approximately 1 percent from overall industrial production growth in October, so it seems reasonable to expect something of a bounce back in November.
Serbia -- December repo rate.
E17 -- December “flash” manufacturing PMI, composite PMI and services PMI.
E17 -- Q3 employment rate.
E17 -- November HICP, final reading.
Brazil -- October economic activity index.
Sources: Central banks, European Commission, Reuters, Market News, Capital Economics, Barclays, Societe Generale.