Top 5 things to watch in the markets in the week ahead Investing.com

Investing.com – The end of the year is approaching, but before that, the Fed will make its final policy decision for 2024, along with the Bank of Japan and the Bank of England. Here’s your look at what’s happening in the markets in the coming week.

1. The decision of the Fed

It is widely expected to deliver another 25 basis point rate cut after its final meeting of the year on Wednesday, which would be its third straight cut.

With the cut already fully factored in, investors are focusing on any guidance on how much further rate cuts could be made in 2025.

An updated summary of the Fed’s economic projections released at the meeting will provide one indication of where policymakers see rates heading. In a possible sign of support for a slower rate cut next year, Fed Chairman Jerome Powell said this month that the economy is now stronger than the central bank expected in September.

“In our view, the risks to the meeting are skewed relative to market expectations,” Citi analysts said in a note on Friday.

“Chairman Powell is likely to reiterate that rate cuts may slow if inflation picks up, but they may also accelerate if the unemployment rate continues to rise and the soft jobs report, along with slowing inflation, may prompt officials to hike a bit more again.” attention to the employment mandate”.

2. BOJ meeting

The Bank of Japan will hold its 2024 final on Thursday and while market expectations have shifted sharply in the past two weeks as the decision approaches, the consensus is forming that officials will hold firm.

Reuters reported on Thursday that policymakers were leaning toward a pause, waiting for further wage data and clarity on Donald Trump’s policies before raising rates for a third time.

A day earlier, Bloomberg reported that BOJ officials see “small costs” in delaying additional tightening.

But market volatility could be high in the encounter, and the outcome is still uncertain. One potential risk is that the Fed backs off from cutting rates on Wednesday, causing the dollar and yen to jump.

But analysts noted that it would be very rare for the Fed to move in the opposite direction when market expectations for tapering are so strong.

3. The BoE is expected to hold

It is widely expected to hold rates at 4.75% on Thursday and is seen to delay the delivery of the third rate cut of 25 basis points until February. Markets are currently discounting rates by three quarters by the end of next year.

Data on Friday showed the UK economy shrank for a second straight month in October, adding to concerns about the outlook after recent business surveys pointed to weakness and a contraction in retail sales.

The BoE is unlikely to be concerned enough about GDP to cut rates this week.

The central bank last month cut its annual growth forecast for 2024 to 1% from 1.25%, but forecast a stronger 2025 with growth of 1.5%, reflecting a short-term boost to the economy from Chancellor Rachel Reeves’ budget.

4. PMI data

Global PMI numbers this week will give investors a fresh look at the state of the world economy after data from November showed sluggishness in the manufacturing sector spilling over into service sector activity.

November’s eurozone composite PMI, considered a good indicator of overall economic health, sank to 48.3 from October’s 50.0.

Britain’s PMI for all sectors fell to the lowest of the year at 50.9 – just above the marker that separates contraction from expansion. Even US service sector activity has slowed.

Uncertainty over US tariffs, along with political turmoil in France and Germany, could hurt business activity.

5. Oil prices

Oil prices ended at their highest level in three weeks on Friday amid expectations that additional sanctions on Russia and Iran could tighten supplies and that lower interest rates in Europe and the US could improve the outlook for demand.

gained 5% for the week, while posting a 6% gain for the week to finish at its highest level since November 7.

The European Union has agreed to impose a 15th package of sanctions on Russia over its war against Ukraine, targeting its shadow tanker fleet. The US is considering similar moves.

The European Central Bank cut interest rates again on Thursday and hinted that further rate cuts are on the cards in 2025, provided inflation settles to the bank’s 2 percent target as expected.

Meanwhile, investors are betting the Fed will cut rates again on Thursday with further cuts to follow next year.

Lower interest rates can boost economic growth and demand for oil.