Week Ahead: Is the 'Santa Claus' Rally Almost Here?
The past few days were certainly intense for financial markets.
Investors witnessed a flurry of central bank decisions, topped up with key economic data from major economies. Markets offered an initial positive reaction to the hawkish Federal Reserve announcement while the Bank of England’s surprise rate hike turbocharged Sterling. There was also some action in the commodity arena with gold blasting through the psychological $1800 level, before surrendering gains on Friday afternoon as the dollar appreciated.
As the Christmas break looms, activity is expected to decelerate in the week ahead with investors getting into the holiday mood. Even the economic calendar is slightly lighter with People’s Bank of China (PBoC) stealing the spotlight on Monday followed by some important reports during the week.
Monday
- NZD: New Zealand November external trade, Q4 consumer confidence
- CNH: China loan prime rates
Tuesday:
- AUD: RBA minutes and weekly consumer confidence
- EUR: Eurozone December consumer confidence
- CAD: Canada October retail sales
Wednesday:
- NZD: New Zealand December consumer confidence
- GBP: UK 3Q GDP (final)
- US crude: EIA weekly US crude oil inventory report
- USD: US 3Q GDP and December consumer confidence
Thursday:
- JPY: Bank of Japan Governor Haruhiko Kuroda speaks
- USD: US initial weekly jobless claims, November personal income and spending, November PCE deflator and December consumer sentiment
On Monday, all eyes will be on China’s loan prime rates decision which are expected to remain unchanged in December. However, recent economic data from China suggests slowing growth with the ongoing drama in the troubled property sector rubbing salt into the wound. Should the PBoC end up lowering rates, this could weaken the Yuan – essentially making the country’s exports more competitive in the global markets which in turn may raise China’s output.
Later in the week, we have some key economic reports from major economies but the market shaker could be the November core PCE deflator - the Fed’s preferred measure of inflation. Should the core personal consumption expenditure deflator post a further increase for November, this could fuel speculation around the Fed tapering its stimulus even faster in the coming months. Back in October, the PCE deflator hit a 30 year high of 5%, a jump from 4.4% in September. According to Bloomberg estimates, it is expected to hit 5.7% in November. In regards to the core, which strips out food and energy costs, it is forecast to rise to 4.5% from the 4.1% in October.
Given how Christmas is just a few days away, there is much chatter about the Santa Claus rally. This refers to the phenomenon of stock markets rallying during the final week of December (after Christmas) through the first two trading days in January. In this instance, from Monday 27th December to Tuesday 4th January 2022. Funny enough, there was no Santa Clause rally last year with the S&P 500 & Nasdaq falling over -0.20% during this period. In 2019, the S&P 500 shed roughly -0.16% during the final week of December though the first two trading days in 2020. Even in 2018, there was a -0.80% in this window.
The S&P 500 is up roughly 1.2% month-to-date and 23% since the start of 2021. Will there be a Santa Claus rally in the stock mark this year? Or will it be stopped by Omicron and global inflation fears? Time will tell.