RBA and BoC meetings coupled with NFP data will be the highlights of the week which will also see Q3 GDP from Australia, trade balance from China and inflation from Switzerland.
USD
Fed Governor of Reserve Board Waller, a well-known hawk, stated that his confidence is growing that monetary policy is well-positioned to slow down the economy. He said that he is still data-dependent and he finds recent signs of moderating growth were encouraging. Soft landing is still possible and he added that there is no need to insist on rates staying high is inflation continues to decline. This effectively means that they can cut rates even if inflation is not down to 2% target if they feel confident that inflation is on its way down. When a hawk is not advocating for more rate hikes and sounds more dovish markets react fast and we have another round of USD selling and Treasury buying.
Second reading of Q3 GDP came in at 5.2% annualised, up from 4.9% annualised as preliminary reported. Personal consumption was revised down so now it added 2.44pp to the GDP from 2.69pp in the preliminary reading. Upward revisions were seen to fixed investment (0.42pp vs 0.15pp) and to government consumption (0.94pp vs 0.79pp). October PCE saw headline number drop to 3% y/y as expected from 3.4% y/y in September while core PCE fell to 3.5% y/y as expected from 3.7% y/y the previous month. Both personal income and spending increased by 0.2% m/m as expected for a smaller increase than in the previous month.
ISM manufacturing PMI missed expectations in November and came in at 46.7, same as in October. New orders category improved, drawing closer to expansion but inventories improved as well. There was a drop in employment component as well as in new export orders and overall production. Additionally, there was a surge in prices which came in at 49.9, up from 45.1 the previous month. This number indicates that inflation pressures are still present.
The yield on a 10y Treasury started the week and year at around 4.47%, rose to 4.52%, then fell to 4.25% and finished the week at around 4.21%. The yield on 2y Treasury reached the high of 4.99% and then fell below 4.63% as markets started to price in some rate cuts in Q1 of 2024. Spread between 2y and 10y Treasuries started the week at -47bp then tightened to -34bp as bull steepening gripped the curve. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at December meeting at almost 100%.
This week we will have ISM services PMI and NFP data. Headline number is expected to come at around 100k with the unemployment rate staying at 3.9%.
Important news for USD:
Tuesday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
EUR
Preliminary Eurozone CPI for the month of November dropped to 2.4% y/y from 2.9% y/y in October with expectations were for it to fall to 2.7% y/y. Inflation fell 0.5% m/m which is the biggest monthly decline since January of 2020. A huge drop in energy prices was the main culprit of falling inflation but there were also drops in services and non-energy industrial goods. There was also a big drop in core CPI reading which printed 3.6% y/y vs 3.9% y/y as expected and down from 4.2% y/y the previous month. Spain CPI came in at 3.2% y/y vs 3.7% y/y as expected while October reading was at 3.5% y/y. Core CPI also declined and printed 4.5% y/y vs 5.2% y/y the previous month. German CPI came in at 3.2% y/y vs 3.5% y/y as expected and down from 3.8% y/y in October while monthly reading printed -0.4%. French CPI also declined to 3.4% y/y from 4% y/y the previous month while expectation was for a decline to 3.7% y/y with monthly reading printing -0.2%. With headline inflation almost reaching the 2% target markets are fully pricing in a rate cut in April.
Final reading of French Q3 GDP saw it fall into contraction with -0.1% q/q print, down from 0.1% q/q as preliminary reported. Private consumption held well but it was offset by negative prints in inventories and net trade. Next week we will get final Q3 GDP reading for the Eurozone and with French and German readings showing negative growth we may see deeper contraction in the economy.
GBP
BoE Governor Bailey reiterated that it is too early to start any discussion on rate cuts and that getting inflation to the 2% target will be hard work. BoE MPC member Haskel, a well-known hawk, stated that tightness in labor market leads to inflation pressures, therefore the need to keep rates higher for longer than most are expecting is present.
Final manufacturing PMI for the month of November was revised up and to 47.2 from 46.7 as preliminary reported and up from 44.8 in October. The report shows that there was easing in downturn for output and new orders which helped push the reading up but there are issue with employment conditions which are seen weakening further.
AUD
CPI data for the month of October came in at 4.9% y/y vs 5.2% y/y as expected and down from 5.6% y/y in September. Motor fuel prices showed the biggest declines while there was also a drop in the main housing component. Trimmed mean inflation, one of the measures of core inflation, ticked down to 5.3% y/y from 5.4% y/y the previous month indicating that price pressures are still stubborn. Monthly data is not as precise as quarterly data, it does not encompass all components of CPI, however it is moving in the right direction and may deter RBA from hiking further next week. Private CAPEX for Q3 came in at 0.6% q/q vs 1% q/q as expected.
Official PMI data for November showed economy heading in the wrong direction. Manufacturing PMI came in at 49.4 vs 49.7 as expected and down from 49.5 in October. The sector continues to contract after a brief jump back into expansion in September. Services came in at 50.2 vs 51.1 as expected and down from 50.6 the previous month. It is barely hanging in expansion but it dragged composite to 50.4 from 50.7 in October. Caixin manufacturing PMI returned to expansion with 50.7 reading smashing expectations of 49.8 and up from 49.5 in October. The report showed improvements in production and surge in business confidence.
This week we will have RBA meeting and Q3 GDP data from Australia. No change to interest rate is expected. We will also get Caixin PMIs and trade balance data from China.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
Caixin Services PMI (China)
Caixin Composite PMI (China)
Wednesday:
GDP
Thursday:
Trade Balance (China)
NZD
RBNZ has left the Official Cash Rate (OCR) at 5.5% as expected. The statement shows that inflation remains too high, therefore monetary policy will have to remain restrictive for longer period of time. Demand has been falling but by less than expected, nevertheless, committee remains confident that current level of rates is enough to further restrict demand. RBNZ is very attentive to inflation pressures and if they were to come stronger than anticipated, the OCR would likely need to increase further.
Minutes saw that members have discussed the possibility of the need for OCR increases. Updated OCR projections see it at 5.63% in March 2024 vs 5.58% previously, at 5.66% in December 2024 vs 5.5% previously, at 5.56% in March 2025 vs 5.36% previously and at 3.55% in December 2026. Annual CPI is seen to be 2.5% by December of 2024 vs 2.4% previously. At the press conference, Governor Orr stated that there is an upward bias to the rates but further rate hikes are not certain and added that decision on rate hikes are not constricted by policy meetings. This means they can raise rates at any moment in between meetings. Hawkish message and upward revisions for OCR will keep NZD supported.
Business confidence for November printed 30.8, up from 23.4 in October and highest print since March of 2015. Big increases were seen in construction, both commercial and residential as well as in export and investment intentions and in ease of getting credit. Drops were seen in wage, cost and inflation expectations.
CAD
Q3 GDP headlines were abysmal. GDP fell 1.1% annualised while it was expected to grow by 0.2% annualised. GDP fell 0.3% q/q while expectations were for increase of 0.2% q/q. However, when we dig into details we see that there was a massive upward revision to Q2 numbers (1.4% annualised vs -0.2% as reported and 0.3% q/q vs 0% as reported). Looking into details of Q3 GDP we can see that exports and inventories were the biggest drag while government consumption was the biggest contributor to the reading. Household consumption managed to be slightly positive on the quarter.
Employment report for November saw economy adding 24.9k jobs vs 15k as expected. The unemployment rate ticked higher to 5.8% as expected while participation rate stayed the same. Wages were unchanged at 5% y/y. Composition of jobs was very encouraging with full-time jobs increasing by 59.6k while part-time jobs fell by 34.7k. This employment report is yet another strong one and it will give BoC more breathing space as they will leave the rate unchanged at next week’s meeting.
This week we will have BoC meeting. With inflation coming down there will be no need for further rate hikes so we expect no change to the rate.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
JPY
Q3 CAPEX data saw it come in at 3.4% y/y as expected, down from 4.5% y/y in the previous quarter. On the other hand, company profits surged by 20.1% y/y, smashing the expectations and almost doubling the number from Q2 (11.6% y/y). Final manufacturing PMI for the month of November was revised up slightly to 48.3 from 48.1 as preliminary reported but still down from 48.7 in October. The report shows that output and new orders declined at a stronger pace while rate of inflation eased to a three-month low with selling prices starting to decline.
CHF
SNB total sight deposits for the week ending November 24 came in at CHF473.7bn vs CHF476.9bn the previous week. Sight deposits still within a well established range lasting for almost three months. Q3 GDP came in at 0.3% q/q vs 0.1% q/q as expected while Q2 reading was revised down to -0.1% q/q from being flat as previously reported. Yearly figure also showed increase in GDP of 0.3% while Q2 y/y figure was revised down from 0.5% to 0.3%.
This week we will get inflation data.
Important news for CHF:
Monday:
CPI
