ECB, RBA, BoC and SNB meetings will highlight the week as we quickly approach end of the year. Additional data that will be closely monitored includes inflation from the US and China as well as emphasized report from Australia.
USD
ISM manufacturing PMI improved to 48.4 in November, from 46.5 in October, better than 47.5 as was expected. Positive stories are coming from new orders which returned into expansion with above 50 reading. Prices paid component declined to 50.3 from 54.8 the previous month indicating that price pressures are easing in manufacturing sector. On the weak side, we had soft production index reading and employment component remaining below the 50 level.
Fed Governor Waller, most hawkish member of the FOMC, stated that despite Fed delivering 75bp of rate cuts he still sees rates as restrictive. Incoming data will play a major role in Fed’s decision and he stated five indicators that will have the most impact: 1. JOLTS report, 2. NFP, 3. CPI, 4. PPI and 5. Retail sales data. NY Fed President Williams expects more cuts to come as Fed’s trajectory on rates is down. He also stated that monetary policy remains restrictive and emphasized that Fed’s decision will depend on incoming data.
Fed Chairman Powell emphasized strength of the US economy stating it is stronger than in September. He added that he is hoping for a good working relationship with President Trump and suggested that it is too early to evaluate effects of Trump policies on the economy.
ISM services PMI for the month of November came in at 52.1, a big miss from 55.5 as expected and down from 56 seen in October. Business activity and new orders had sharp declines, but are still above the 50 level. New export orders, on the other hand, dropped into contraction indicating weaker international demand, most likely dampened by the strong USD. Employment index also declined but remained above 50 while prices paid component remained basically unchanged at 58.2 suggesting that inflation is not declining in the services sector.
NFP printed 227k jobs in the month of November vs 200k as expected. The unemployment rate came in at 4.2% as expected, up from 4.1% in October while participation rate ticked down to 62.5%. There was also an up tick in U6 unemployment to 7.8% but also in hours worked which now show 34.3. Wage growth was unchanged at 0.4% m/m and 4% y/y. Headline number suggest healthy growth but the unemployment rate, unrounded at 4.246%, causes concern and markets think it will lead to more cuts by Fed with odds of a December rate cut surging.
The yield on a 10y Treasury started the week at 4.18%, rose to 4.27% and finished the week at around 4.15%. The yield on 2y Treasury started the week at 4.16% and reached the high of 4.24%. Spread between 2y and 10y Treasuries started the week at 3bp and finished the week at 5bp as curve steepened further. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at December meeting at around 91%, while probability of a no cut is around 9%. President Trump has nominated Paul Atkins as the new head of SEC. Atkins is seen as anti-regulatory and pro-crypto by the markets. Additionally, Fed Chairman Powell called bitcoin “digital gold” and in combination with Atkins being put in charge of SEC bitcoin has breached $100 000 level.
This week we will have inflation data. Headline is expected to tick up while core is seen coming in unchanged.
Important news for USD:
Wednesday:
CPI
EUR
Final manufacturing PMI print for the month of November was unchanged at 45.2. German and French readings were revised down. The report shows that new orders continued to plunge down at an accelerated pace. Services PMI was revised up to 49.5 from 49.2 as preliminary reported, most notably due to positive revisions to French reading, which pushed composite to 48.3 from 48.1 as preliminary reported.
French government has lost a no-confidence vote. MPs from both left and right united and with 331 votes brought down the government. July 2025 is the earliest date for new elections. President Macron will be tasked with selecting a new Prime Minister but with Parliament being so heavily divided the new Prime Minister will have very hard time and most likely face the vote of no-confidence very soon after stepping into the position. There will be no new budget for 2025 as most likely MPs will vote for a 2024 budget to be extended into 2025.
This week we will have ECB meeting. With a recent string of abysmal economic data markets are pricing in a 25bp rate cut with probability of a 50bp rate cut being low. We will also get new economic projections which are expected to show downgrades to growth in 2025.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GBP
Final November manufacturing PMI was revised down to 48 from 48.6 as preliminary reported and showed a further drop from 49.9 seen in October. The report showed new orders plunging due to both low domestic and international demand and dragging the output with it as well increasing concerns regarding rising costs which led to job cuts. Final services PMI was revised up to 50.8 from 50 as preliminary reported but still down from 52 in October. Nevertheless, it managed to help prop composite back to expansion with a 50.5 reading vs 49.9 as preliminary reported. The report paints a grim picture as activity is almost at a standstill, business optimism is falling fast and higher wages causing input prices to increase thus putting pressure on profit margins.
BoE Governor Bailey stated that if economic outlook comes in as expected they project four cuts in 2025. They see inflation as falling faster than expected, therefore there is no need for monetary policy to remain this restrictive. Their base case is to proceed with “gradual” approach to rate cutting.
AUD
Q3 GDP came in at 0.3% q/q vs 0.4% q/q as expected, but an improvement from 0.2% q/q growth seen in the previous quarter. However, the picture is much more worrying when we dig deeper into the details. Household consumption, which account for almost half of the GDP, was flat on the quarter showing no growth. The same was with business investment. Government consumption and public investment were the main contributors to the growth. Net trade positively contributed while inventories were a drag. AUD was hit hard as it is unsustainable for economy to grow only on the back of government spending.
This week we will have RBA meeting and employment data from Australia along with inflation data from China. RBA is expected to keep rates unchanged at 4.35% as members have sent hawkish sounding messages in their latest speeches.
Important news for AUD:
Monday:
CPI (China)
Tuesday:
RBA Interest Rate Decision
Thursday:
Employment Change
Unemployment Rate
NZD
Q3 terms of trade saw a nice jump of 2.4% q/q vs 1.8% q/q as expected as export prices rose by 0.7% q/q and import prices fell by -1.7% q/q. Improving terms of trade conditions is positive for economic growth and for currency as such and we saw kiwi gain ground against USD and other non-major currencies.
CAD
November employment report showed economy adding 50.5k jobs, doubling the amount of 25k as was expected. The unemployment rate surged to 6.8% from 6.5% but it was due to a jump in participation rate which rose to 65.1% from 64.8% in October. Composition of jobs was very favorable as all of the jobs created were full-time jobs (54.2k) while part-time jobs contracted (-3.6k), Wage growth slowed down to 4.1% y/y from 4.9% y/y which will give BoC more confidence that inflation is not returning.
This week we will have BoC meeting where another rate cut is expected. Markets are leaning more towards a 50bp rate cut, but a 25bp rate cut cannot be ruled out.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
JPY
Q3 CAPEX spending rose by 8.1% after a 7.4% increase seen in the previous quarter. Final manufacturing print for November saw it unchanged at 49. The report shows that manufacturing sector is encountering slowing demand both domestically and internationally which leads to lower production (both new orders and new export orders component slipped deeper into contraction). Input prices are continuing to increase which in turn leads firm to pass those costs to consumers and increase output prices thus pushing inflation pressures up. Services were upwardly revised to 50.5 which helped push composite back into expansion with a 50.1 print. October wages saw increase of 2.6% y/y after rising 2.8% y/y in September with real wages, wages adjusted for inflation, coming in flat after declining in previous two months. Household consumption was boosted by rising nominal wages and showed a 2.9% m/m increase, although it fell -1.3% y/y after a -1.1% y/y print in September.
We are putting this part here due to geographical proximity, not due to potential economic impact on JPY. During the week the president of South Korea declared martial law. He claimed he had to enforce martial law to suppress North Korean forces infiltrating the South but there is no evidence of any North Korean involvement in South Korea’s politics. Korean MPs managed to enter parliament and voted to lift the martial law and all restrictions imposed by the President. The President then issued a decree to end the martial law that he had imposed only a few hours earlier. After all this, the chances of President being impeached have skyrocketed.
CHF
SNB total sight deposits for the week ending November 29 came in at CHF458.9bn vs CHF459.4bn the previous week. Again negligible changes as SNB lets market dictate Swissy strength. November CPI data showed a small up tick in data as headline number printed 0.7% y/y vs 0.6% y/y in October and core number inched to 0.9% y/y from 0.8% y/y the previous month. Inflation is running well below their 2% target and next week’s cut is market’s main scenario.
This week we will have SNB meeting. Investors seem split between another 25bp rate cut coming or a 50bp rate cut coming.
Important news for CHF:
Thursday:
SNB Interest Rate Decision
