Central banks in the spotlight

This article is more than 12 months old

Global monetary policy decisions from various countries set to be announced this week

It's going to be all about the central banks this week with the big picture of global monetary policy decisions from the US, UK, Europe to Asia demanding full attention from the market, although it would appear that no one is expecting big surprises.

For starters though, the Singapore bourse could be set for a relief rebound after shedding 25 points over the previous week, spurred by last Friday's gains in US stocks on the back of robust hiring data for November and the prospect of tax cuts.

The solid payrolls report cemented optimism over the prospects of the US - the world's largest economy - and raised expectations for an interest rate hike from the US Federal Reserve this week.

With the Dow Jones Industrial Average up by almost 25 per cent for 2017, this is one of the biggest stock market rallies of the current cycle, said Bank of America Merrill Lynch Global Research in a note.

"The rally is almost certain to continue this week, fuelled by seasonal bias and the likely outcome of a central bank meeting. Emboldened by the strong jobs report, the Federal Reserve is expected to raise interest rates for the first time since June and that will likely push shares of banks, among the leaders of the Dow's rally, higher still," the house added.

On the home front, the local bourse's key Straits Times Index has generated a 23 per cent total return in 2017 as at Dec 8, with five sectors - information technology, financials, real estate, consumer discretionary and industrials - outperforming the key index. The index is up 19 per cent this year.

Further optimism could also be fuelled by negotiations on the post-Brexit Irish land border that hit a breakthrough last Friday, eliminating a major obstacle for the UK opening trade talks with the European Union.

Get ready for a great deal of central bank speak with the market's attention chiefly glued to the FOMC meeting on Wednesday. A hike from the Federal Reserve next week is widely anticipated, with the market shifting its attention to the Fed's rate hike path for 2018.

"The FOMC will likely capture the bulk of the attention and is expected to deliver their last rate hike of the year and also serve up an updated version of their summary of economic projections. Having firmed up on the likelihood since late September, reactions towards the announcement may be next to none," said IG Markets strategist Jingyi Pan.

The item that could hold an element of surprise would be the Fed's summary of economic projections, one that looks primed for upward surprises in growth, potentially generating a lift for the US dollar by strengthening future rate hike expectations, she added.

"Underpinning this likelihood includes the resilient economic figures and to a very small extent, the acceleration in tax overhaul pace raising the prospect of improved growth momentum," said Ms Pan.

Similarly, traders will also be watching for any hints of the monetary stances at the Bank of England and European Central Bank meetings on Thursday.

On tap in Asia are the central bank meetings in the Philippines and Indonesia with pundits expecting decision makers to maintain their current policy stances.

Japan will release its tankan business sentiment survey for the December quarter, which is largely expected to be firm.

"The mood amongst Japan's largest manufacturers reached a decade high in the September quarter as they brushed aside the threat of North Korea and enjoyed the sustained lift from buoyant global demand... However, we expect a slight pullback in sentiment in the final quarter on the back of cooler manufacturing conditions," said Moody's Analytics.

The docket also includes key economic data such as manufacturing activity and retail sales of the world's two largest economies, the US and China.

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