GLOBAL MORNING BRIEFING: ECB and BOE Policy Decisions

Thursday’s data is focused on flash PMIs for December, however the key highlights will be the ECB and BOE policy decisions.

Preliminary PMIs

Today’s flash data sees PMIs falling in France, Germany, the Eurozone and UK, with services harder hit than manufacturing. Across Europe, a general theme of supply chain disruptions continues to affect manufacturing PMI readings, whilst customer-facing services are seen to dip more substantially as covid restrictions are reinforced in light of surging case numbers and the news of the new variant. These slowdowns are likely to reinforce dovish decisions in today's policy meetings. In contrast, US PMI’s seem to be on the rise. All values still indicate expansion well above the breakeven point of 50.

France (0815 GMT):
France kicks off the flash PMI round with manufacturing and services both expected to dampen, with the flash manufacturing reading projected to come in at 55.4 in December, down from 55.9, and services dropping to 56.0, down from 57.4 in November.

Germany (0830 GMT):
Analysts predict Germany’s prelim manufacturing PMI to dampen to 56.9 in December from November’s reading of 57.4. German services are set to have the strongest contraction on the back of substantial covid restrictions, predicted to reduce to 51.0 in December from 52.7 last month.

Eurozone (0900 GMT):
For the Eurozone, analysts see December’s flash manufacturing PMI dampening to 57.8 from 58.4 in November. Services are predicted to slow to 54.0 from the previous month’s 55.9, however this forecast is based on a limited sample size.

UK (0930 GMT):
Analysts estimate December’s manufacturing flash PMI to dampen to 57.6 in December, down from last month’s reading of 58.1, whilst UK services flash PMI looks set to decrease to 57.6 from 58.4 in November.

US (1415 GMT):
The flash PMI data for the US paints a different picture, with both manufacturing and services set to expand in December’s reading, however labour shortages continue to apply downward pressure as well as ongoing supply chain disruptions and surging input prices. Despite this, flash manufacturing is forecasted to grow to 58.5, up from 58.3 in November. Flash services are estimated to bump up to 58.8 in December, from 58.0 in the month prior.

ECB decision time as PEPP in final furlong (12:00)

we are likely to see the ECB continue its PEPP as planned until March 2022, whilst exploring options to allow more flexibility with its ongoing programmes for example to smooth into April with more flexible increased APP purchasing.

In line with the ECB’s medium-term inflation outlook, a rate hike in 2022 is all but out of the picture. November’s eurozone headline inflation record of 4.9% y/y coupled with price surges from struggling supply chains put further dovish policy under pressure.

BoE to hold off on hiking (again) (12:45)

The BoE looks set to again postpone their rate hike, maintaining the level 0.1%. In November it seemed almost certain that a 15bp December hike would follow, especially following October CPI hitting a 10-year high of 4.2% y/y and the labour market looking tight.

Friday saw disappointing GDP data, which saw the British economy practically stall in October at a monthly growth rate of 0.1%, whilst Tuesday’s labour market data ans Wednesday's inflation print came in stronger than expected.

As for all central bank policy decisions this week, the recently emerged Omicron variant appears to be commanding more cautionary dovish behaviour, especially with further restrictions and lockdowns looking highly probable. Markets are (just) pricing a hike being postponed to February 2022.