RBNZ meeting, preliminary inflation data from Eurozone, PCE inflation from the US coupled with GDP data from the US, Canada and Switzerland as well as official PMI data from China and employment data from Canada will highlight the week ahead of us. Additionally, OPEC+ meeting will be held on Thursday November 30 in Vienna.
USD
FOMC minutes from the November meeting showed that decision to keep rates steady was unanimous. Participants agreed that current market conditions are restrictive and as such they put a downward pressure on economic activity. Tightening of financial conditions was helped by rising long-term yields which happened due to increase in term premium. Inflation remains elevated but long-term inflation expectations remain well anchored. Real GDP in Q3 was very strong and was driven by consumer spending. Members remain prepared to tighten further if the need arises.
The yield on a 10y Treasury started the week and year at around 4.44%, rose to 4.47%, then fell below 4.38% and finished the week at around 4.48%. The yield on 2y Treasury reached the high of 4.95%. Spread between 2y and 10y Treasuries started the week at -44bp then widened to -46bp as curve inverted further. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of no change at December meeting at 95% while there is a 5% chance of 25bp rate hike.
This week we will have second estimate of Q3 GDP, Fed’s preferred inflation measure PCE and ISM manufacturing PMI.
Important news for USD:
Wednesday:
GDP
Thursday:
PCE
Friday:
ISM Manufacturing PMI
EUR
Preliminary November PMI data for the Eurozone saw improvements across all three measures. Manufacturing came in at 43.8 vs 43.4 as expected and up from 43.1 in October with German manufacturing continuing to move up, although at a very low level of 42.3. However, the optimism surrounding German economy gave EUR a nice boost. Services PMI came in at 48.2, up from 47.8 the previous month with Germany and France also posting improvements. Composite was at 47.1, up from 46.5 the previous month. All three readings are below 50 indicating that the economy is still in contraction, but at least there is a slowdown in declines. Still these PMI readings point to yet another negative quarter of GDP, but may prove to be a shallow one. Additionally. the report shows that there is a weakness in employment growth which, if continued, can translate into higher unemployment rate. Inflation is declining, but report shows that input costs increased in November compared to the previous month which may indicate that there is still a way to go in battle against inflation.
Final German Q3 GDP came in unchanged at -0.1% q/q while yearly figure came in at -0.4% vs -0.3% as preliminary reported. There was, however, a positive revision to Q2 GDP to 0.1% y/y. Still it paints a very bleak picture of a struggling economy. The biggest drag on GDP was personal consumption while government spending and business investment softened the blow and supported economic activity.
This week we will have preliminary November inflation data.
Important news for EUR:
Thursday:
CPI
GBP
BoE Governor testified in front of the Parliament and stated that they are on their way to reach the targeted level of 2%. He added that further rate hikes cannot be ruled out but for now they are in watchful data-dependent mode. Additionally, he stated that markets are underestimating the risk of inflation persistence.
Chancellor of Exchequer Jeremy Hunt announced that minimum wage for citizens older than 21 years will be raised by 10% and will total £11.44 per hour. Additionally, budget report contains information that taxes for businesses will be reduced and welfare benefits will be increased by 6.7%. Office for Budget Responsibility (OBR) sees CPI for 2023 at 7.4% vs 6.1% in March. 2024 CPI is seen at 2.8%, lower than 3% expected but way higher than seen in March. CPI is seen coming to target of 2% during 2025. OBR sees 2023 GDP at 0.6%, higher than 0.4% expected and much stronger than -0.2% seen in March. 2024 GDP is seen at 0.7%, higher than expected but this time lower than was seen in March (1.8%).
Preliminary PMI data for the month of November posted some encouraging results as all three readings beat expectations. Manufacturing improved to 46.7 from 44.8 in October. Services returned into expansion after a three month period of being below 50 and printed 50.5. This has helped lift overall economic activity as measured by the composite PMI to 50.1 from 48.7 the previous month, also back into expansion after three months of being in contraction. One concerning thing is that input costs rose for the first time in five months indicating that price pressures prove to be very sticky.
AUD
RBA minutes from the November meeting showed that risk of inflation expectations rising would increase if there was no change in rates. Board members stressed importance of preventing even mild increases in inflation expectations and stated that staff forecasts were based on one or two more rate hikes. Additionally, board members warned that there is a growing mindset among businesses to pass on price increases to consumers. These are hawkish remarks by RBA.
PBOC has left LPR rates unchanged as was expected. The 1-year LPR is at 3.45% while 5-year LPR is at 4.20%. Last week we had the biggest liquidity injection in almost seven years and with such a massive stimulus there was no need for rate cuts.
This week we will have official PMI and Caixin manufacturing data from China.
Important news for AUD:
Thursday:
Manufacturing PMI (China)
Non-Manufacturing PMI (China)
Composite PMI (China)
Friday:
Caixin Manufacturing PMI (China)
NZD
GDT auction saw flat dairy prices. Increase in Lactose prices was counteracted by a drop in Cheddar prices. Q3 retail sales came in stronger than expected with headline number being flat on quarter vs -0.8% q/q as expected and up from -1% q/q in Q2. The yearly number ticked a bit to -3.4% vs -3.5% in the previous quarter. Core retail sales printed 1% q/q improving significantly from -1.8% q/q in Q2.
This week we will have RBNZ meeting. No changes in rate are expected despite high inflation numbers.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
October inflation report was music to BoC ears. Headline inflation fell by more than expected and printed 3.1% y/y vs 3.8% y/y in September. Lower gasoline prices (-7.8%) were the biggest contributor for such a big drop. All three core measures have also declined with median at 3.6% y/y vs 3.9% y/y, trim at 3.5% y/y vs 3.7% y/y and common at 4.2% y/y vs 4.4% y/y the previous month. A small concern is inflation in services which rose to 4.6% y/y compared to 3.9% y/y in September while shelter component printed 8.2% y/y vs 7.3% y/y the previous month.
BoC Governor Macklem commented that inflation numbers are encouraging and that interest rates may be restrictive enough but added that in high inflation persists they will be ready to further increase rates. Near-term inflation expectations are slow to come down and that is concerning while long-term inflation expectations remain well anchored. He added that they are not considering rate cuts and that they will make decisions meeting-by-meeting.
This week we will have Q3 GDP and employment data.
Important news for CAD:
Thursday:
GDP
Friday:
Employment Change
Unemployment Rate
JPY
Japanese government has made first reduction in its view on economy in the last ten months. They see recovery stalling as week demand weighs in on capital spending and consumer expenditure. They also added that the pace of recovery is “pausing”. The latest poll of economists conducted by Reuters shows that over 80% of participants see BoJ abandoning negative interest rate policy in 2024.
Nationwide inflation data for the month of October saw headline number increase to 3.3% y/y from 3% y/y in September. CPI ex fresh food ticked to 2.9% y/y from 2.8% y/y the previous month for the first increase in four months. CPI ex fresh food, energy printed 4% y/y, down from 4.2% y/y in September. All readings are way above 2% inflation target and have been there for more than a year. Preliminary PMI for November saw manufacturing decline to 48.1 from 48.7 in October due to decreased demand and falls in output and new orders. Services increased to 51.7 from 51.1 the previous month which helped keep composite at 50.
CHF
SNB total sight deposits for the week ending November 17 came in at CHF476.9bn vs CHF476.3bn the previous week. SNB seems to have found a sweet spot for total sight deposits as a means to conduct monetary policy as they have been hovering in a CHF30bn range for more than three months.
This week we will have Q3 GDP data.
Important news for CHF:
Friday:
GDP
