RBNZ meeting, GDP from the US, Canada and Switzerland as well as preliminary CPI fro the Euzone coupled with FOMC minutes and PCE data will highlight the shortened week ahead of us. Liquidity will be low as markets will be closed on Thursday in celebration of Thanksgiving holiday in the US.
USD
The yield on a 10y Treasury started the week at 4.44%, rose to 4.47% and finished the week at around 4.41%. The yield on 2y Treasury started the week at 4.33% and reached the high of 4.37%. Spread between 2y and 10y Treasuries started the week at 13bp and finished the week at 7bp due to markets pricing higher for longer rates. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at December meeting at around 56%, while probability of a no cut is around 44%. Bitcoin has now breached $99 000 as the aggressive move up after Trump won his second term continues.
This week we will have minutes from the November FOMC meeting as well as second Q3 GDP estimate and Fed’s preferred inflation measure PCE.
Important news for USD:
Tuesday:
FOMC Minutes
Wednesday:
GDP
PCE
EUR
Final inflation numbers for the month of October came in unchanged at 2% y/y for the headline number and 2.7% y/y for the core reading. ECB has already stated that they expect inflation to increase into the year-end due to base effects in energy category going out of the calculation. Negotiated wage growth for Q3 came in hot at 5.42% after increasing by 3.54% in Q2. Higher wages threaten to add more fuel to the demand and thus potentially increase inflation further into the future and by more than ECB projected.
Preliminary PMI data for the month of November printed a very dark picture. Manufacturing slumped further to 45.2 from 46 but the bigger concern was drop in services into contraction territory with a 49.2 print. This is the first time since January that services printed below 50. German and French readings dragged the overall PMI prints down. Composite was also dragged down into contraction with a 48.2 vs 50 the previous month. Markets have started to price in a higher probability of a 50bp rate cut after the report which caused EURUSD to fall to the lowest levels in two years, around 1.0330.
This week we will have preliminary November CPI, expected to increase once again as ECB noted at their last meeting.
Important news for EUR:
Friday:
CPI
GBP
BoE Governor Bailey spoke in front of the UK Treasury Committee and emphasized importance of monitoring services inflation as it is still above the levels needed for headline inflation to reach targeted 2% level. He stated that gradual reduction of monetary policy restrictions, rate cuts, will allow them to observe risks to inflation outlook. BoE Monetary Policy Committee (MPC) member Catherine Mann, the most hawkish member, stated that inflation will not go down to 2% in the forecast horizon as all risks to inflation outlook are tilted to the upside. Deputy Governor Lombardelli stated that she sees inflation risks on both side and is more concerned about upward pressures.
October inflation data saw both headline and core number increase by more than expected. Headline number printed 2.3% y/y after 1.6% y/y print in September and higher than 2.2% y/y as expected. Core reading ticked up and printed 3.3% y/y after 3.2% y/y print the previous month and higher than 3.1% y/y as expected. Monthly readings showed increases of 0.6% and 0.4% for headline and core respectively. Particularly worrisome is the increase in services inflation as it printed an increase of 5% y/y vs 4.6% y/y in September, but some solace can be found in the core services inflation which fell to 4.5% y/y after printing 4.8% y/y the previous month. After comments from MPC members regarding importance of services inflation it will be hard for BoE to deliver a rate cut in December.
Preliminary PMI data for the month of November showed continued declines across sectors. Manufacturing printed 48.6 vs 49.9 in October, services barely hanged on in expansion with a 50 print vs 52 the previous month while composite fell into contraction for the first time this year with a 49.9 print after a 51.8 print in October. Both services and composite printed 13-month lows. Output is falling and business confidence is falling which may nudge BoE to act and cut rates in December, contrary to what CPI report said. Additionally, the PMI report showed that inflationary are moderating further which should give another push to BoE for a rate cut.
AUD
Minutes from November RBA meeting showed that policy must remain restrictive as inflation is still running too hot. The board considered what information they will need to see in order to change the course of their policy and agreed that more than one good quarterly inflation print is needed for a rate cut. Additionally, members agreed that “persistently and materially weaker than staff forecast” consumption could also be one of the reasons for board to opt for a rate cut. Members stated that considering for how long inflation has been high they have minimal tolerance towards a more prolonged period of high inflation and they must remain “vigilant to upside risks to inflation.” The message shown is that they are not in a rush to cut rates, but they are starting to watch for information that will allow them to cut rate. Still, rate should remain unchanged until the end of H1 of 2025.
PBOC has left rates unchanged as was widely expected. Loan Prime Rate (LPR) for 1 year remains at 3.1% while 5-year LPR stays at 3.6%. Economists, in the latest Reuters’ poll, project that Trump tariffs will reduce China 2025 GDP by 0.5 to 0.9%. They forecast that China will provide more stimulus to the economy in response to tariffs.
NZD
Q3 PPI data surprised to the upside printing 1.5% q/q for output and 1.9% q/q for input vs 0.9% q/q and 1% q/q respectively. This data shows that inflation pressures persist and are creeping up which will cause concern for RBNZ as they are already deep on the rate cutting path.
This week we will have RBNZ meeting. Markets are pricing on almost 80% chance of a 50bp rate cut while other 20% see a 25bp rate cut.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
October inflation data saw it rising across the board. Headline number printed 2% y/y after 1.6% y/y in September with a 0.4% m/m increase. Smaller decline in gasoline prices when compared to September contributed to higher print. Shelter prices have eased printing 4.8% y/y vs 5% y/y the previous month. Core measures saw median at 2.5% y/y vs 2.3% y/y the previous month, trim at 2.6% y/y vs 2.3% y/y in September and common at 2.2% y/y vs 2.1% y/y as printed the month before. Retail sales in September continued to increase by 0.4% m/m, same as in previous month while ex autos component showed a huge jump of 0.9% m/m vs -0.8% m/m in August.
This week we will have Q3 GDP data.
Important news for CAD:
Friday:
GDP
JPY
Core machinery orders, a good proxy for the CAPEX six to nine months ahead, printed new declines in September of 0.7% m/m and 4.8% y/y. This series is notoriously volatile but these results show that companies are wary of further investments in current economic environment. All three inflation measures for Japan printed 2.3% y/y increase in October. Headline and ex fresh food components showed declines from 2.5% y/y and 2.4% y/y in September respectively while ex fresh food, energy, “core-core”, rose compared to 2.1% y/y print the previous month.
November preliminary PMI showed manufacturing slip further into contraction with a 49 print vs 49.2 in October. Services returned into expansion after a brief one-month drop into contraction and printed 50.2 vs 49.7 the previous month. Composite improved but it was not enough for a return into expansion territory as it printed 49.8 vs 49.6 in October. The report shows that new orders in manufacturing continued to decline while new orders in services sector remained steady thus emphasizing divergence between two sectors. There was a jump in employment, but also an increase in input prices due to weak JPY and companies are passing on those costs to consumers. With all three measures staying above targeted 2% for the entire year and price pressures continuing to persist markets are increasingly looking for a rate hike In December.
CHF
SNB total sight deposits for the week ending November 16 came in virtually unchanged at CHF463.4bn vs CHF463.5bn the previous week. SNB Chairman Schlagel stated that Switzerland needs flexible inflation target, as it already has, adding that Central bank’s main tools are policy rate and FX intervention.
This week we will have Q3 GDP data.
Important news for CHF:
Friday:
GDP
