Will there be a last Hoorah?
Each December there is a moment where the final risk adjustment of the calendar year takes place. Some in recent memory have been particularly violent and often late. In 2020, the Brexit deal stuck on Christmas Eve saw a particularly sharp adjustment with markets preparing for a new framework for UK-European trade in the new year. Boris’ circuit-breaker lockdown a.k.a Christmas is on, Christmas is cancelled pantomime also forced a sharp correction in perceived risk and asset pricing. The last question for 2023 is has this moment already passed with last week’s flurry of central bank decisions.
This will be an important question for markets in this, the final week before Christmas and its associated bank holidays. The catalysts for a fresh adjustment within risk ahead of the new year could be event or data driven. Despite (we hope) not contending as severely with phenomena such as Brexit, Covid and out of control inflation rates, risks including geopolitical conflict remain poised in the wings. Provided a period of quiet or at least quietism ensues into the new year, a fresh event-driven risk adjustment looks unlikely.
Looking at the economic calendar I suspect the answer is that we have passed the final major risk adjustment of 2023. However, there do remain some data items that could upset markets. Most notably the Fed’s preferred measure of inflation data, core PCE, will be released on Friday in what are likely to be highly illiquid markets. Barring any surprises we should conclude that last week marked the final risk adjustment for 2023. Aside from fiscal data in the Eurozone, only national data is forecast for the final weeks of 2023. In the UK, inflation and GDP will be read tomorrow and on Friday respectively. With the BoE having seemingly successfully pushed back on market pressures for easing last week, weakness in either figure could undermine GBP.
Discussion and Analysis by Charles Porter
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