The Fed Awakens

Fri Dec 11, 2015 9:36am EST
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By Catherine Evans

LONDON (Reuters) - After years of waiting, it's finally here. No, not the new "Star Wars" movie: Fed week.

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.   Continued...

Federal Reserve Chairman Janet Yellen speaks at an event hosted by the Economic Club of Washington in Washington December 2, 2015.      REUTERS/Joshua Roberts