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2021’s last (major) roll of the data and policy dice

Markets’ focus has in the past three weeks understandably been on the Omicron variant and the reaction function, present and future, of governments and central banks.

The multiplication of social distancing restrictions and acceleration in booster jab programs in many major economies since late-November suggest that policy makers’ conviction that the Omicron variant will prove benign is still quite low.

The central bank policy meeting and in particular macro data calendar was reasonably light last week. But markets’ dovish reaction to in-line with consensus US CPI-inflation data for November are evidence, if any was needed, that macro data still matter.

In contrast, the macro data and in particular central bank policy meeting calendar is very heavy this week.

We estimate that 23 central banks will hold their last policy meetings of the year. These include all the “heavy hitters”, namely the Federal Reserve, Bank of England, ECB and Bank of Japan. A large number of Emerging Market central banks, including in Indonesia, Mexico, Russia and Turkey, also have scheduled policy meetings.

The macro data release calendar is just as heavy, particularly in the US, UK and China. Of course not all central policy meetings and macro data releases will carry the same weight, with markets perhaps more focussed on December data, however preliminary.

The bottom line is that the next four days could prove pivotal for global markets, including major currencies and interest rates, at least until the new year when financial markets could conceivably “re-set” their positions for subsequent weeks and months.

We expect the Federal Reserve to announce a faster pace of tapering for its asset purchases but the devil will be in the detail and updated FOMC “dot-chart”.

We think the Bank of England will once again keep its policy rate on hold at a record-low 0.10%, but the breakdown of the nine MPC members’ votes is up for debate.