Markets week ahead: Eurozone's inflation figures take centre stage

Last week, stock markets saw a recovery of bullish trends on Wall Street as the Trump Trade continued to fuel the rally. Meanwhile, rising geopolitical tensions pushed up gold, crude oil, the US dollar and the Japanese yen, while pressuring the euro, European equities, and Chinese markets.

Bitcoin flirted around the $100,000 (€96,000) mark, surging as high as above $99,500 (€95,512). Market focus will remain on US politics as the President-elect assembles his administration, alongside ongoing tensions between Ukraine and Russia. 

On the economic front, the eurozone is set to release flash Consumer Prices Indices (CPIs) for November, influencing the European Central Bank's (ECB) future interest rate decision.

In the US, attention will be on the second estimate for the third-quarter GDP, the Personal Consumption Expenditures (PCE), and the FOMC meeting minutes. Elsewhere, investors will keep an eye on the Reserve Bank of New Zealand's (RBNZ) rate decision and Australia's monthly inflation data for the respective regional markets. 

Europe

Inflation has been in a retreat in the region, with the October data rising to 2% from 1.7% in the previous month. However,  the resurgence was mostly due to the base effect of the volatile energy prices.

At a country level, Germany's CPI accelerated to a three-month high of 2% from 1.6% in September. Services inflation was the biggest contributor to the price increase. France and Spain also saw a slight resurgence to 1.2% and 1.8% respectively. Consensus suggests that price pressure may continue to rise in November.

The harmonised CPI in the eurozone is expected to be at 2.3% and the core inflation is forecast to be at 2.8%. Rising inflation is likely to make the ECB cautious about its rate cuts and take a gradual approach. 

Germany's IFO Business Climate index is set to be a critical indicator for the Eurozone's economy. The index increased for the first time in five months to 86.5 in October. Alongside with recovery in the manufacturing and services activities, the data suggested the economic outlook turned brighter amid reducing interest rates and cooling inflation.

However, there is uncertainty ahead amid the recent escalation in the Ukraine-Russia war, which could dampen business confidence again. The November data is expected to decrease slightly to 86.1. 

United States

In the US, the prelim GDP, which is the second estimate, will be a key focus this week. According to the advance reading, the economic growth was recorded at 2.8% at an annualised pace, easing from 3% in the second quarter.

However, the growth pace is still stronger than that of most developed countries, underscoring the likelihood of a soft landing for the US economy. Consensus suggests that the preliminary GDP will be aligned with the initial estimate of 2.8%. 

Additionally, the PCE (Personal consumption expenditures), which is considered as the Fed's favourite gauge of inflation, will be in the spotlight. The data measures goods and services targeted and consumed by individuals, offering a direct insight into affordability. In September, the PCE rose 2.1% year on year, and 0.2% from the previous month.

However, the core PCE, excluding food and energy, was at 2.7%, remaining above the Fed's 2% target. Consensus forecasts a 0.3% monthly increase of the core PCE in October, indicating persistent inflationary pressures and may reinforce the expectation for slower rate cuts by the Fed. 

Asia-Pacific

In the Asia-Pacific region, the RBNZ will decide on its policy rate following a jumbo rate cut of 0.5% in October. The reserve bank is expected to cut the official cash rate by at least 0.5% at the upcoming meeting. According to the ANZ banking group, New Zealand's economy will fall into a technical recession in the third quarter due to prolonged restrictive monetary policy and weakened global demands.

A deteriorating economic outlook may encourage the bank to continue with the out-sized rate cut to support the economy. Notably, swap rates signalled a 22% chance for a 0.75% reduction. 

Australia is poised to release the monthly CPI for October. The headline inflation is expected to increase to 2.5% year on year from 2.1% in the previous month. The data might again strengthen expectations for the RBA to remain hawkish and keep the policy rate steady at 4.35% until April next year.