Week Ahead – The Festive Season is Upon Us

Fundamental analysis of Forex market

Will markets coast into the new year?

Last week was action-packed, dominated by major central bank announcements that in many cases represented a change of direction as we head into 2022.

From supporting the economy through the pandemic to reining in inflation that has become more intense and widespread than policymakers anticipated earlier this year. Getting it under control will be the primary focus next year.

With policymakers now in holiday mode, and many in the markets likely also, the calendar is looking a little thin. But omicron is continuing to spread at a phenomenal pace which could put investors on edge into the end of the year.


Now that the Fed hawkish reset is complete, whoever is left working on Wall Street will have to focus on several economic data points that will show if the US consumer remains strong.  The latest personal spending should show a decline while incomes maintain modest growth.  Another round of housing data should show existing home and new home sales remain hot.  The Fed’s preferred inflation gauge will show pricing pressures continued to surge in November.

The Fed is done with speaking appearances for the year, so thin trading conditions should settle in once we get past Thursday’s economic data. The biggest risk to the short-term outlook remains Covid and if this omicron wave leads to significant school closures and cancellation of holiday travel plans.


The ECB meeting on Thursday effectively marked the end of the year as far as the euro area is concerned, with the final couple of weeks offering very little of note. The central bank is poised to end new purchases under PEPP in March at which point the APP will be doubled before being pared back to €20 billion again in the fourth quarter.

This modest tightening and phasing out of pandemic era stimulus is all that was deemed necessary by the committee at the moment, with inflation seen returning below target in the forecast horizon. That could change and Christine Lagarde did give the impression that inflation risks are tilted to the upside.


Omicron infections are surging with Covid cases now hitting new highs and not slowing up. Light touch restrictions have been imposed so far but they could become more severe if the healthcare system comes under pressure in the coming weeks.

The Bank of England has started the tightening cycle with a 15 basis point rate hike, the smallest since the late ’80s. Three more rate hikes are now priced in for next year.

Tier three data only next week, with revised GDP the only release with any potential to cause a stir.


With inflation (8.4%) running at more than double its target (4%) and well above the upper end of the range it predicted for the end of the year, the CBR raised interest rates by 1% on Friday to 8.5%. They signaled that more could follow but multiple hikes were less likely than at the last meeting.

The ruble continues to be well supported by the actions of the CBR this year and high oil prices. Geopolitical risk is a big downside risk though, with the US and Europe threatening sanctions in response to troops building up on the Ukrainian border. The risk of an invasion remains significant.

The central bank appears to be moving closer to a blanket ban on investment in cryptocurrencies, it’s been reported this week. They have long opposed them and appear to be keen to follow in the footsteps of China.

South Africa

Fitch upgraded the country’s outlook to stable this week, with the credit rating remaining at BB-, three notches below investment grade. The move was spurred by a faster than expected recovery and strong fiscal performance this year.

There are no data releases or economic events scheduled for next week.


The CBRT took its rate cuts since September to 5% this week as it cut by another 100 basis points on Thursday. The central bank is making a mockery of monetary policy and the lira is continuing to get pummelled as a result, with USDTRY rising over 17 for the first time ever, a little over a month after it hit 10 for the first time.

Five interventions in the currency markets have done nothing to slow the decline and the central bank and government will only get more desperate. More interventions, perhaps even capital controls could follow as the currency spirals out of control.

Thankfully, President Erdogan has the answer. A 50% increase in the minimum wage next year. What could go wrong?

The central bank indicated that it will now pause rate cuts in the first quarter to assess the impact they’ve had but no one would be surprised if they fell further, especially if Erdogan continues to push for more.


China headlines continue to be dominated by the property sector, with more payments still due into the last week of the year. Along with the slump in technology stocks in Hong Kong, China equities will find it hard to sustain a rally next week. One potentially bullish factor would be if China cuts the one or five-year Loan Prime Rates on Monday, but this is a very outside possibility.

With omicron seemingly immune to the China Sinovac vaccine, and a Covid zero policy in place, any headlines implying wider outbreaks of the variant will have an immediate negative impact on Chinese equities.


No significant data this week. Both equity markets and the Rupee are vulnerable to a reversal of hot-money inflows into both markets as year-end books are squared off by international investors.


The Australian Dollar has staged a modest recovery, alongside risk sentiment globally, post-FOMC. The larger technical picture still looks negative, however, and will become more so if US yields finally start reacting to the reality of the Fed taper.

The data calendar is light with RBA minutes and private sector credit the only releases of note. There should be no surprises in the minutes and credit data should show the economy is rebounding quickly from its Q3 lockdowns.

Australian markets remain vulnerable, like China, to news of spiking virus cases (NSW) raising the possibility of new state restrictions.

New Zealand

The NZD/USD remains near to 2021 lows, underperforming the AUD/USD despite a modest recovery in global investor risk sentiment. Omicron has arrived in New Zealand, and with the country fully reopening domestically, a spike in cases will raise the specter of more government restrictions.


No change from the Bank of Japan policy meeting and only tinkering with QE programs leave USD/JPY back at the mercy of the US/Japan rate differential. The Nikkei continues to show a high correlation to directional movements on the Nasdaq.

Inflation data will be benign, but the leading economic index should show Japan is recovering from its delta variant slump, in line with recent data.

Key Economic Events

Saturday, Dec. 18

  • Greek lawmakers to vote on the 2022 budget.

Sunday, Dec. 19

  • Hong Kong holds elections for its Legislative Council.
  • European Commission President Von der Leyen speaks in Milan at Catholic University

Monday, Dec. 20

  • German Chancellor Scholz visits Rome.
  • The EU Environment Council meets in Brussels.

Economic Data/Events

  • US Conf. Board leading index
  • China loan prime rates
  • New Zealand trade, consumer confidence
  • Thailand car sales
  • Euro area, Italy, Greece current account

Tuesday, Dec. 21

  • RBA minutes of its December interest rate meeting.
  • Italy’s parliament begins debating budget law.

Economic Data/Events

  • Canada retail sales
  • Eurozone consumer confidence
  • South Korea PPI, exports/imports 20 days
  • Australia consumer confidence
  • New Zealand credit card spending
  • Hong Kong CPI
  • Mexico international reserves

Wednesday, Dec. 22

  • EU green investment rules for nuclear & gas.

Economic Data/Events

  • US Conf. Board consumer confidence, existing home sales, GDP
  • Russia Industrial production
  • Australia leading index
  • New Zealand consumer confidence
  • Thailand rate decision
  • Malaysia foreign reserves
  • UK GDP
  • EIA Crude Oil Inventory Report

Thursday, Dec. 23

  • Putin annual news conference.
  • BOJ Gov Kuroda speaks at the Councillors of Nippon Keidanren.
  • US fixed income markets close at 2pm

Economic Data/Events

  • US consumer income, new home sales, durable goods, University of Michigan consumer sentiment, initial jobless claims
  • Singapore CPI
  • China Swift payments
  • Thailand trade
  • Mexico unemployment
  • Japan leading index, department store sales, machine tool orders
  • Taiwan industrial production

Friday, Dec. 24

  • US markets are closed. European markets close earlier.

Economic Data/Events

  • Mexico trade
  • Singapore industrial production
  • Japan CPI
  • Japan housing starts
  • Thailand foreign reserves, forward contracts