It the Bank of Englands turn this week

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The traditional Yuletide rally is struggling a bit as the tech sector, in particular, had a poor end to the week. At the end of last week and for the second day in a row, a high-profile tech company came under pressure. Questions around Oracle’s big spending were the problem on Thursday. On Friday, traders dumped Broadcom shares after the chipmaker failed to meet high expectations. The stock fell 11%. Oracle stock also continued to fall, finishing Friday down 4.5%. The broader IT sector was down 2.9% on the day, dragging the broader S&P index lower for the 2nd day. There was a bit of a dash into the more defensive sectors, particularly Consumer Staples. Financial services also had a good week due to the steepening of the yield curve.

This week will be about the Bank of England and whether it will cut interest rates on Thursday. Ahead of that meeting, the Bank will get the latest employment data on Tuesday, followed by the monthly inflation report on Wednesday. After last week’s disappointing, but not entirely unexpected, weak GDP report, the odds are heavily in favour of the Bank cutting by 25 basis points. However, these two reports coming out ahead of the meeting will influence sentiment. It’s unlikely there will be an uptick in the employment report, but the monthly inflation rate is expected to fall again, from 3.6% to 3.4%. Should that be the outcome, then the Bank will certainly cut by 25 basis points; some may argue for a 50 basis point cut.

So close to Christmas, it’s quite a busy week in general for economic reports. Not only are the Bank of England meeting this week but we also get policy decisions from no fewer than nine central banks including the European Central Bank, the Bank of England and the Bank of Japan, as well as a slew of economic data releases such as December’s flash PMI surveys, US nonfarm payrolls, plus inflation for the US,  eurozone as well as the UK.

The ECB is unlikely to cut rates this month, particularly as there are some signs the eurozone economy is picking up. US data will likely influence market expectations for the Fed’s next move.

Markets in Europe look set to open slightly higher this morning, despite a slightly disappointing Chinese Industrial Production report.