ASX 200 to rise, S&P 500 hits another 2023 high + Crunch week for central banks

Who wants to be a Christmas grinch?

This is the last huge week for central banks for 2023 and its set to challenge aggressive rate cut expectations.

Thursday, 6:00 am – The Federal Reserve:

• Most economists believe the Fed will hold rates this week but it’s what the voting members signal for 2024 that will have markets on edge.
• Bloomberg’s survey of Wall Street economists also suggests there will be 100 basis points of cuts next year but the Fed is not even close to there.
• Its last dot plot in September suggested that a lot of its members believe there will be two or three rate cuts next year at the very most. Either way, they are not where the market is.
• Morgan Stanley’s Ellen Zentner pointed out, the dot plot (aka the Fed’s version of educated dartboard throwing) has been moving much closer to market pricing and there is every chance they will project additional rate cuts next year at tomorrow’s meeting. If that happens… well, happy days.

Thursday, 11:00 pm – The Bank of England

• Another pause is expected although it’s always fun to see which members vote for another hike (in the UK, monetary policy votes are named publicly - a rare outlier and a huge vote for transparency).
• Most economists surveyed by Reuters think the Bank will only cut rates after the Northern summer.
• Morgan Stanley is an early outlier, arguing the first cut from London may come as soon as May 2024 but others like ING think it won’t come until 2025.

Friday, 12:15 am – European Central Bank:

• This is the final decision major central bank decision of the year.
• What’s interesting about the ECB’s path for interest rates is how quickly everyone believes they will cut rates.
• Markets forecast six 25-basis point cuts next year.
• When those cuts start is open to debate but the ECB but like many other central banks (including the RBA from next year), they only meet on monetary policy matters eight times a year.
• Cutting interest rates at 75% of your meetings in one calendar year? It’s not unprecedented but it would be quite something.

Next Tuesday, 2:00 pm – Bank of Japan:

• The reason I mention them in this list is because traders are increasingly betting that the Bank will eliminate negative rates as soon as next week.
• If it happens, the Bank will send an earthquake through global bond markets for the second Christmas in a row (last December, it loosened the 10-year yield target in a surprise move).

KEY EVENTS

ASX corporate actions occurring today: