(Reuters) -The last big central bank push of the year is here with the Fed, the ECB and the Bank of England among the big hitters meeting while markets try to discern whether a U.S. recession is likely or a distant prospect.
China's policymakers will set direction for next year while Bitcoin enjoys a stellar rally.
Here's your week ahead in financial markets from Lewis Krauskopf in New York, Kevin Buckland in Tokyo, Yoruk Bahceli in Amsterdam, and Naomi Rovnick and Elizabeth Howcroft in London.
1/ FED FIRST
There's no bigger factor than the Fed for markets in their bets on when rate cuts might come, with policymakers getting one last chance this year to roil markets when the world's top central bank gives its final 2023 policy statement on Wednesday.
Holding rates seems a done deal, with investors laser focused on comments from Chair Jerome Powell that could indicate when the Fed might look to cut rates after 525 basis points of increases since March 2022.
Projections the Fed is poised to start lowering rates early in 2024 have helped fuel a huge rally in stocks and bonds, sending the S&P 500 to a new closing high for 2023 and pulling 10-year Treasury yields back down closer to 4%.
U.S. November inflation data on Tuesday could provide a wrinkle for markets. October's consumer price index reading was unchanged, a first in more than a year.
2/ AND THEN THE REST
It is not just in the U.S. that traders have ignored policymaker warnings that bets on steep rate cuts next year have gone overboard.
Major central banks elsewhere are on the jam-packed agenda, with the Swiss National Bank, Norges Bank, Bank of England and European Central Bank all meeting Thursday. All but Norway are tipped to stay on hold.
With markets pricing five Fed and six ECB cuts next year, focus is on how policymakers, who can't sound the all-clear on inflation just yet, grapple with the pressure.
Comments from rate-setters, such as ECB hawk Isabel Schnabel, have prompted traders to double down, and they are likely to pounce on any clues central bankers are starting to come around. But if policymakers decide enough is enough and challenge markets, expect a broad sell-off.
3/ HIGH STAKES
Recession roulette has been a high-stakes game since late 2021 and it's not getting easier. Forecasters at top investment banks are deeply divided between those sticking to predictions of a long-expected U.S. downturn and rapid Federal Reserve rate cuts and others recommending folding on the bet.
Goldman Sachs (NYSE:GS) expects the world's largest economy to decelerate without contracting, with borrowing costs staying near current levels. Deutsche Bank (ETR:DBKGn) predicts a mild recession followed by a whopping 175 basis points of cuts that will drive the S&P 500 about 10% higher by late 2024. Uncertainty seems to rise despite November's red-hot rally for stocks and bonds. PMI readings due out in days to come will provide a frontline view.
Outflows from equity and bond funds show investors - currently well compensated for holding cash - are stepping away from the table. Citi's risk aversion is ticking higher.
4/ ANIMAL SPIRITS
China's economy is sending mixed signals about its health, just as policymakers convene for pivotal closed-door meetings to set the 2024 agenda. Government advisers have told Reuters they'll recommend a repeat of the 5% growth target, but also more stimulus to get there.
Data on Saturday showed consumer prices falling the fastest in three years in November while factory-gate deflation deepened, indicating rising deflationary pressures as weak domestic demand casts doubt over the economic recovery.
Measures so far have for the most part fallen short, with confidence fragile among consumers and factory managers. Beijing needs a return of animal spirits to fill the hole left by patchy property market growth.
Retail sales data on Dec. 15 will provide an update, after figures out in recent days showed a surprise contraction for imports - suggesting subdued domestic demand - even as exports unexpectedly rebounded.
Real estate remains the elephant in the room though, and was at the heart of a Moody's decision to cut the outlook for China's debt rating - a move reverberating through Chinese capital markets all week.
5/ BACK TO 2022
Bitcoin has been rising again. On Tuesday it hit $44,490 - its highest since April last year. In other words, it's back to levels it was at before 2022's most high-profile crypto firm collapses: TerraUSD, Three Arrows Capital, Celsius and FTX.
The gains are fuelled by hopes that the United States might approve applications for a spot bitcoin ETF, analysts say, as well as investors betting on Fed rate cuts next year.
But those outcomes are far from guaranteed, and JPMorgan (NYSE:JPM) has called the bitcoin rally "overdone".
Meanwhile crypto fans don't appear worried about the U.S. Treasury warning about consequences for the industry if firms fail to block and report the flow of illicit funds.
(Graphics by Sumanta Sen, Pasit Kongkunakornkul, Prinz Magtulis and Kripa Jayram; Compiled by Karin Strohecker; Editing by Toby Chopra)