After a rough week for global financial markets, focus this week is expected to shift squarely to the Federal Reserve.
The broad S&P 500 shed 3.8 per cent last week in its steepest slide since August. At the same time, US crude oil futures tumbled, and the high-yield debt market showed rising signs of strain. Probably not exactly the conditions Fed head Janet Yellen hoped for heading into the final policy-setting meeting of the year.
Nevertheless, economists broadly expect the Fed to increase short-term interest rates for the first time since 2006 as US job growth remains robust and inflation slowly heads closer to the central bank’s target.
The announcement is due at 2pm ET on Wednesday, followed by a press conference from Ms Yellen later in the afternoon. Investors will also get the latest look at policymakers’ forecasts for the unemployment rate, the path of interest rates and other key variables.
A continued point of debate among Wall Street economists is whether the Fed will be able to deliver a message that is sufficiently dovish to avoid sparking turmoil in financial markets.
Michael Feroli, chief US economist at JPMorgan Chase, noted: “…while the notion of a ‘dovish hike’ is somewhat absurd, it may well be the case that next week’s communications come off as dovish, insofar as emphasising data dependency will entail stressing that there is no set commitment to future hikes. This isn’t the same as one-and-done, but rather one-and-wait-and-see-more-data.
On the corporate front, business software heavyweight Oracle reports its fiscal second-quarter earnings on Wednesday after the closing bell. FedEx, the US package delivery company, which is seen as an economic bellwether, is also out with its quarterly earnings that day.
Traders will also get a handful of important US economic reports.
Data on consumer-level inflation due on Tuesday were expected to show prices increased at a year-over-year pace of 0.5 per cent in November amid a continued drag from oil prices. Excluding the food and energy components, prices are forecast to have climbed at a 2 per cent rate, up from 1.9 per cent the month prior.
A report on new home construction is due out on Wednesday. Economists expect new housing starts to have risen by 7.3 per cent in November from the month prior, while permits to build new homes may have fallen 1 per cent.
Elsewhere, on Thursday, European Union leaders meet to discuss the UK’s membership in the bloc. British Prime Minister David Cameron earlier this month abandoned hope to forge a new membership deal by 2016.
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