ECB meeting with expected “recalibration” of programs will have the most impact on the markets followed by news regarding the Brexit deal. Additionally, we will have a BOC meeting as well as inflation data from US and China.

USD 

ISM manufacturing PMI for November eased to 57.5 from 59.5 in October. New orders and production component also eased but are holding above the 60 level while new export orders increased. One worrying sign in an overall strong report is the employment category which fell to 48.4 from 53.2 the previous month, thus dropping into contraction territory. Services PMI came in at 55.9, down from 56.6 in October. In contrast to the manufacturing report, the employment component improved to 51.5 thus going deeper into contraction ahead of the NFP report. 

NFP headline number for November came in at 245k vs 460k as expected. The unemployment rate dropped to 6.7% from 6.9% in October on the back of drop in the participation rate to 61.5% from 61.7% in October. The report was weaker than expected which may prompt lawmakers to make haste and agree upon a new stimulus. A new relief package totalling $908bn was unveiled by the bipartisan group of Senators and House Democrats have accepted it. 

This week we will have inflation data. 

Important news for USD: 

Thursday:

CPI 

EUR 

Final November manufacturing PMI came in at 53.8 vs 53.6 as preliminary reported. German manufacturing is holding strong at 57.8 and French reading improved to 49.6, knocking on the door of return to expansion. Services PMI came in at 41.7 thanks to improvement in the French reading which pushed the composite to 45.3 from 45.1 as preliminary reported. Markit noted that the fall in services was not as severe as in Spring and that it was helped by spill-over demand from the manufacturing sector. Extension of lockdown in Germany and Italy passed the Christmas and into the 2021 will cause further damage to the services sector. 

Preliminary inflation in November came in unchanged at -0.3% y/y with core showing 0.2% y/y. Although removal of VAT in Germany and prolonged sales periods are to be blamed for the low inflation the problems of missing growth are much more systemic in nature. Additionally, a strong EUR contributes to low inflation and during the week EURUSD smashed through the 1.20 and then the 1.21 level. October retail sales came in at 1.5% m/m vs 0.7% m/m as expected. Although we are in December now it is worth noting that the reading shows retail sales being 3.1% higher than in February thus making consumption showing a V-shaped recovery. 

This week we will have ECB meeting. Expectations are for no change in rates but an increase in the PEPP programme by €500bn euro and its extension until the end of 2021. 

Important news for EUR: 

Thursday:

ECB Interest Rate Decision 

GBP 

Final manufacturing PMI came in at 56.6 vs 56.2 as preliminary reported. The growth was achieved thanks to so-called “Brexit-buying”, meaning customers stockpiling ahead of the Brexit deadline. Final services PMI came in at 47.6 vs 45.8 as preliminary reported, thus pushing composite all the way up to 49 from 47.4 as preliminary reported. Full survey shows that the decline in services caused by lockdown was not as severe as reported at the beginning of November. 

Cable went over 1.34 pushed by USD weakness, however due to contradictory signals from politicians involved in Brexit negotiations, the pair could not stay above that level for long. Fisheries still remain the sticking point. Later in the week due to the prolonged USD weakness the pair shoot over the 1.35 level. Pfizer-BioNTech vaccine has been approved for use in UK and 800 000 doses should be applied this week. Vaccine will first be distributed to the most vulnerable patients as stated by health secretary Matt Hancock. Care home residents and workers are top priority followed by people older than 80 years and finally healthcare workers. 

This week we will have October GDP data. 

Important news for GBP: 

Thursday:

GDP 

AUD

RBA left the cash rate unchanged at 0.10% as widely expected. Their monetary policy is aimed at the cash rate and targeting 0.10% yield on 3-year government bonds. The board is not expecting to raise cash rates for at least 3 years and they are prepared to do more if necessary. They have labelled high unemployment as national priority as further rise in unemployment is still expected. Q3 GDP bounced back with 3.3% vs -7% in Q2.

Official PMI numbers from China continued to improve. Manufacturing came in at 52.1 vs 51.5 as expected, the highest reading in over three years on the back of strengthening business sentiment, new orders and export sales. Non-manufacturing came in at 56.4 vs 56 as expected for the highest reading since 2012. Composite was pushed to 55.7 from 55.3 in October. Caixin manufacturing PMI came in at 54.9 vs 53.5 as expected. Markit noted that both output and new orders increased at the fastest rates in ten years. Caixin services rose to 57.8 due to increase in business activity and employment categories. Composite was thus pushed to impressive 57.8 level.

This week we will have trade balance and inflation data from China.

Important news for AUD:

Monday:

Trade Balance (China)

Wednesday:

CPI (China)

NZD

Final business confidence in November came in at -6.9 vs -15.6 as preliminary reported. This is the highest reading of the year and details show that construction is the most optimistic sector while agriculture is the least optimistic. RBNZ governor Orr reiterated importance for fiscal and monetary policy to work together adding that they are focused on being operationally ready to implement negative rates if necessary.

CAD

Employment change in November surprised positively to the upside by coming in at 62.1k vs 20k as expected. Even more satisfying was the fact that all of it was due to full-time employment coming in at almost 100k (99.4k) while part-time employment dropped -37.4k. The unemployment rate dropped to 8.5% from 9% in October. The minor dent in a very strong employment report was a slip in the participation rate to 65.1% thus breaking the streak of six consecutive rising months. Q3 GDP came in at 40.5% q/q.

This week we will have BOC meeting with no changes expected.

Important news for CAD:

Wednesday:

BOC Interest Rate Decision

JPY

Retail sales in October improved at a weak pace coming in at 0.4% m/m vs -0.1% m/m in September, however on a yearly basis they came in at 6.4% y/y vs -8.7% y/y the previous month. This is the first positive reading since February of this year and it was achieved on the back of motor vehicles, machinery and equipment as well as medicine and toiletry stores. Preliminary reading of industrial production for the same month came in at 3.8% m/m vs 2.2% m/m as expected for a fifth straight monthly rise thanks to a rise in business-oriented machinery and motor vehicles.

Capex in Q3 improved a bit to -10.6% y/y from -11.3% y/y in Q2 but if we exclude software it actually showed a bigger decline of -11.6% y/y from -10.4% y/y in Q2. There will be no meaningful rebound in the economy with these Capex numbers. Final manufacturing PMI improved to 49 thus making it the highest reading in 15 months and the sixth straight rising month. Manufacturing continues to slowly crawl toward expansion. Services rose to 47.8 and composite to 48.1 thus making all reading move closer to the expansion territory compared to the previous month.

This week we will have final Q3 GDP reading as well as spending and earnings data.

Important news for JPY:

Tuesday:

GDP

Household Spending

Labour Cash Earnings

CHF

SNB total sight deposits for the week ending November 27 came in at CHF706.5bn vs CHF707.3bn the previous week. This is a second straight week of falling sight deposits due to the risk on appetite in the markets which lead to lower Swissy. However, this is far from being a trend and with headline inflation in November coming in at -0.7% y/y and core inflation at -0.2% y/y we expect SNB to ramp up its efforts to fight Swissy’s strength. Retail sales in October came in at 3.1% y/y vs 0.4% y/y. It is a very big jump, however it was led by a very volatile food, beverages and tobacco category. Q3 GDP came in at 7.2% q/q vs 6% q/q as expected for a well desired bounce back after -7% q/q in Q2.

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Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.