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 Barring a shock, the Federal Reserve will raise U.S. interest rates
on Wednesday for the first time since June 2006, a full year before
the global financial crisis began.
Data releases will meanwhile give clues to the robustness of other
economies, some of which are seen as vulnerable to investment
outflows as higher interest rates make U.S. assets more attractive.
Especially in emerging markets, where currencies and other assets
have plunged in value this year, that process has already started.
The weekend should see Chinese industrial output and retail sales
numbers while markets will watch the second round of French regional
elections in which tactical voting may defeat far-right first round
victor Marine le Pen's National Front.
The Bank of Japan's tankan survey on Monday is expected to show
business sentiment among big manufacturers receding for the second
consecutive quarter, reflecting China's slowdown and lackluster
domestic demand.
After unexpectedly strong readings in November, the monthly Ifo and
ZEW surveys are expected to show German business and economic morale
remain relatively robust although they may fall short of last month.
The Ifo jumped to 109 in November, its highest since June 2014,
shrugging off an economic slowdown in China, the Volkswagen
emissions scandal and the Islamist attacks in Paris, while the ZEW
rose for the first time in seven months.
"Weaker growth in the emerging markets and easing tailwinds from the
FX market will weigh on business sentiment. Thus, the Ifo business
climate and the Purchasing Managers' Indices for the euro zone
probably fell in December," said Commerzbank analysts in a note.
Flash PMIs for France, Germany and the euro zone are due on
Wednesday, hours before the Fed announces its decision.
Thursday's survey of French business sentiment will be the first
taken in the euro zone's second-largest economy since the attacks
that killed 130 people in its capital on Nov. 13.
Wednesday also brings the final reading of November euro zone
inflation, after an initial release on Dec. 3 showed annual price
growth at a lower than expected 0.1 percent and core inflation --
excluding volatile energy -- unexpectedly slowing.
That helped prompt further stimulus measures from the European
Central Bank last week, one of 43 central banks which in contrast to
the Fed have loosened monetary policy this year to help spur
inflation and growth.
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The coming week sees rate decisions from the central banks of Japan,
Uganda, Sweden, Norway, Hungary, Mexico, Indonesia, the Philippines,
Egypt and Chile, some of which are already battling to support
currencies hit by expectations of a U.S. hike.
Franklin Templeton's star bond investor Michael Hasenstab said
recently that higher U.S. rates would magnify differences between
emerging market economies in 2016, although he said concerns about a
"systemic crisis" were exaggerated.
Hasenstab said stronger economic fundamentals should make countries
like South Korea, Mexico and Malaysia resilient but that weaker
Turkey and South Africa, both of which have hefty current account
deficits, could be more negatively affected.
South Africa's rand slumped to an all-time low on Friday following
the finance minister's sacking, prompting speculation the Reserve
Bank may call an emergency meeting to increase interest rates for
the second time in two months.
The Fed remains the week's star attraction, however, even if after
2-1/2 years of speculation about policy tightening and several false
starts, most recently in September, its first, modest hike is
unlikely to cause any major ripples.
Ninety percent of economists in a recent Reuters poll predicted the
federal funds rate would be raised by quarter of a percent point on
Dec. 16, taking it to 0.25-0.5 percent.
The same poll saw a very gradual pace of subsequent increases, with
the rate rising to between 1 and 1.25 percent by the end of next
year and to 2.25 percent by end-2017.
(Editing by Jeremy Gaunt)
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