The dollar saw broad-based losses against the majors last week. NZD, JPY, and CHF outperformed while EUR, NOK, and SEK underperformed. We believe the risk rally driven by the dovish Fed narrative is getting overstretched but could certainly continue into 2024. That said, we see tight global liquidity and slower global growth prevailing next year, which is not supportive for risk assets.

AMERICA

Fed Chair Powell delivered a hawkish message Friday. While he said all the right things, we believe it is far too late for the Fed to undertake any sort of damage control now. Rather, it will be up to the data to do the talking for the Fed. The media embargo went into effect at midnight Friday and so there will be no Fed speakers until Powell’s pos-decision press conference December 13. WIRP suggests no change this month but after that it’s all about the cuts. There are 15% odds of a cut January 31, rising to nearly 75% March 20 and fully priced in for May 1 vs. June 12 at the start of last week. Five cuts are fully priced in by end-2024. Needless to say, this isn’t happening.

The dovish Fed narrative is likely to keep the dollar under pressure. U.S. yields are trading at the lowest since mid-September, which has added to very loose financial conditions. The Chicago Fed’s weekly measure through November 24 were the loosest since early February 2022. Last week, yields fell, equities rose, spreads narrowed, and the dollar weakened and so conditions likely loosened again through December 1, which will be reported Wednesday.

No wonder the U.S. economy remains robust. The Atlanta Fed’s GDPNow model is now tracking Q4 growth at 1.2% SAAR vs. 1.8% previously. Next update will be Wednesday. This stands in stark contrast to the NY Fed Nowcast model that is now tracking 2.3% SAAR. Readings early in the quarter are typically volatile as more and more data are incorporated into the models. Lastly, we’d note that the current early reads are based largely on strike-depressed October data. If November data bounce back as we expect, the Q4 estimates should rise accordingly.

The data highlight will be November jobs report Friday. Bloomberg consensus for NFP stands at 180k vs. 150k in October, while its whisper number stands at 151k. The unemployment rate is expected to remain steady at 3.9% while average hourly earnings are expected to fall a tick to 4.0% y/y. Ahead of that, ADP reports its private sector jobs estimate Wednesday and is expected at 120k vs. 113k in October.

Other labor market data will be reported. October JOLTS data will be reported Tuesday and job openings are expected at 9.300 mln vs. 9.553 mln in October. Final Q3 nonfarm productivity and until labor costs will be reported Wednesday. November Challenger jobs cuts and weekly jobless claims will be reported Thursday.

November ISM services PMI Tuesday will also be important. Headline is expected at 52.3 vs. 51.8 in October. Keep an eye on employment and prices paid, which stood at 50.2 and 58.6 in October, respectively. Last week, ISM manufacturing PMI came in a weaker than expected at 46.7 but prices paid rose to 49.9, the highest since April. Now that supply chain issues have largely been resolved, we can only think that rising price pressures now are largely demand driven.

December University of Michigan consumer sentiment Friday will be closely watched. Headline is expected at 62.0 vs. 61.3 in November. 1-year inflation expectations are expected to fall two ticks to 4.3% y/y while 5- to 10-year expectations are expected to fall two ticks to 3.0% y/y.

Other minor data will be reported. October factory orders will be reported Monday and are expected at -3.0% m/m vs. 2.8% in September. October trade data will be reported Wednesday, and the deficit is expected at -$64.2 bln vs. -$61.5 bln in September. October wholesale trade sales and inventories, consumer credit ($8.5 bln expected), and Q3 change in household net worth will be reported Thursday.

Bank of Canada meets Wednesday and is expected to keep rates steady at 5.0%. At the last meeting October 25, the bank delivered a dovish hold and since then, the data have come in mostly softer. WIRP suggests nearly 10% odds of a rate cut December 6, then rising to 30% January 24, 70% March 6, and fully priced in for April 10 vs. June 5 at the start of last week. Nearly five cuts are priced in by next October. This seems very unlikely.

Canada reports some important November PMI readings. S&P Global services and composite PMIs will be reported Tuesday. Ivey PMI will be reported Wednesday. Q3 labor productivity and October trade data will also be reported Wednesday. October building permits will be reported Thursday and Q3 capacity utilization will be reported Friday.

EUROPE/MIDDLE EAST/AFRICA

European Central Bank easing expectations have picked up. WIRP suggests 5% odds of a cut December 14, rising to 20% January 25, 75% priced in for March 7 and fully priced in for April 11 vs. June 6 at the start of last week. A fifth cut by the end of next year is nearly 50% priced in. October PPI will be reported Tuesday and is expected at -9.5% y/y vs. -12.4% in September.

ECB reports October inflation expectations Tuesday. Of note, 1-year expectations have been picking up in recent months while 3-year expectations have steadied around 3%. The ECB will not be happy with either of these developments and yet any hawkish comments are likely to be ignored.

Final November services and composite PMIs will be reported Tuesday. Italy and Spain report for the first time and their composite PMIs are expected at 47.1 and 50.7, respectively.

Eurozone October retail sales will be reported Wednesday. Sales are expected at 0.2% m/m vs. -0.3% in September, while the y/y rate is expected at -1.1% vs. -2.9% in September. Italy reports its retail sales data Thursday.

Eurozone IP data will start rolling out. France and Spain report October IP Tuesday and are expected at 2.8% y/y and -1.7% y/y, respectively. Italy and Germany report Thursday and are expected at -1.4% y/y and -3.1% y/y, respectively. Germany also reports October trade data Monday and factory orders Wednesday.

The U.K. has another quiet week in terms of data. Final November services and composite PMIs will be reported Tuesday.

Bank of England reports November inflation expectations Friday. Easing expectations continue to pick up. WIRP suggests no odds of a hike December 14, rising modestly to top out near 10% February 1. After that, rate cuts are priced in with the first one nearly 90% priced in for June 20 vs. fully priced in for September 19 at the start of last week. Dhingra speaks Monday. Bank of England releases its Financial Stability Report Wednesday.

Switzerland reports November CPI Monday. Headline is expected to remain steady at 1.7% y/y. If so, it would be the sixth straight month below the 2% target. At the last policy meeting September 21, the Swiss National Bank unexpectedly kept rates steady at 1.75% vs. an expected 25 bp hike. The bank said that "From today's perspective, it cannot be ruled out that a further tightening of monetary policy may become necessary to ensure price stability over the medium term.” President Jordan said the battle against inflation is not yet over and that the bank is closely monitoring second round effects but added that “we could afford to take a break from hikes.” The market only sees easing ahead. WIRP suggests nearly 15% odds of a cut December 14, rising to over 70% March 21 and fully priced in for June 20. A second cut is fully priced in for September 26.

Riksbank releases minutes from its November 23 meeting Monday. At that meeting, the bank delivered a dovish surprise and kept rates steady at 4.0% vs. an expected 25 bp hike. Governor Thedeen said then that “It’s very clear we have not lost the chance to hike again. We will do that if inflation does not go in the right direction toward 2%. That is a very clear message from us.” It underscored that “The forecast for the policy rate is that it may be raised further at the start of next year and that monetary policy needs to be contractionary for a relatively long period of time.” The swaps market is pricing in steady rates over the next three months, followed by 25 bp of easing over the subsequent three months. Breman speaks Monday. Governor Thedeen speaks Tuesday. Floden speaks Wednesday. Bunge speaks Thursday. Jansson speaks Friday.

ASIA

Japan data highlight will be November Tokyo CPI Tuesday. Headline is expected at 3.0% y/y vs. 3.2% in October, while core (ex-fresh food) is expected at 2.4% y/y vs. 2.7% in October. Core ex-energy is expected at 3.7% y/y vs. 3.8% in October. If so, core would be the lowest since July 2022 and suggests that the national reading would also ease from 2.9% y/y in October.

October cash earnings and household spending data Friday will also be important. Nominal earnings are expected at 1.0%y/y vs. 0.6% in September, while real earnings are expected at -3.0% y/y vs. -2.9% in September. the modest tightening in the labor market is not expected to have much impact on wage growth, which remains weak overall. Policymakers have stressed that next spring’s round of wage negotiations will be very important in terms of normalizing policy. Bank of Japan liftoff expectations continue to get pushed out. At the end of September, the market was pricing in liftoff in March; by early November, it was seen in April and now liftoff is seen in June.

October current account data will be reported Friday. An adjusted surplus of JPY1.86 trln is expected vs. JPY2.01 trln in September. However, the investment flows will be of more interest. The September data showed that Japan investors remained net buyers of U.S. bonds (JPY3.3 trln) for the second straight month and four of the past five months. Japan investors turned net sellers (J-PY21 bln) of Australian bonds after six straight months of net buying and remained net sellers of Canadian bonds (-JPY155 bln) for the third straight month and for eight of the past nine months. Investors remained net sellers of Italian bonds (-JPY201 bln) for the second straight month after two straight months of net buying. Japan investors remained total net buyers of foreign bonds (JPY3.18 trln) again and for four of the past five months. With Japan yields moving higher, it’s possible that Japan investors will stop chasing higher yields abroad but it’s still too early to say.

Final November services and composite PMIs will be reported Tuesday. Final Q3 GDP data will be reported Friday.

Reserve Bank of Australia meets Tuesday and is expected to keep rates steady at 4.35%. At the last meeting November 7, the bank hiked rates 25 bp to 4.35% and noted that “The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.” In terms of forward guidance, the RBA said, “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.” This was a subtle shift from previous language from “some further tightening” and suggests a high bar for further hikes. Since then, the data have softened. WIRP suggests 20% odds of a hike February 6, rising modestly to top out near 25% March 19.

Australia data highlight will be Q3 GDP Wednesday. Growth is expected to remain steady at 0.4% q/q, while the y/y rate is expected at 1.8% vs. 2.1% in Q2.

Australia reports October trade data Thursday. Exports remain under pressure, suggesting little positive impact from China.

Final November services and composite PMIs will be reported Tuesday. The 46.4 preliminary composite reading was the lowest since August 2021, suggesting little positive impact from China.

New Zealand highlight will be Q3 manufacturing activity Friday. The data have been softening, suggest little need for the RBNZ to hike again. WIRP suggests only 10% odds of a hike February 28. After that, it’s all about the cuts with the first one fully priced in for August 14.