The dollar saw broad losses against the majors last week. JPY, GBP, and EUR outperformed while CAD, AUD, and NOK underperformed. Recent U.S. data have come in mostly firmer and so we attribute the dollar’s weakness last week to profit-taking after an extended rally. Indeed, DXY weakened on a weekly basis for the first time since late September and so some consolidation is to be expected. That said, we expect the data this week to show that the global divergences favoring the dollar will continue.
AMERICAS
Fed Chair Jerome Powell participates in a moderated discussion Wednesday. This will be his last appearance before the FOMC meeting and will be very important. In his last speech November 14, Powell hinted that the Fed may hit the snooze button at the December 17-18 meeting. Powell also highlighted that “the economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” Moreover, Powell acknowledged that the October U.S. inflation data “was slightly more than an upward bump than we had expected.”
There will be many other Fed speakers this week. Waller and Williams speak Monday. Kugler and Goolsbee speak Tuesday. Musalem speaks Wednesday. Bowman, Goolsbee, Hammack, and Daly speak Friday. At midnight Friday, the media blackout goes into effect and there will no Fed speakers until Chair Powell’s post-decision press conference December 18.
Fed Beige Book report will be released Wednesday. The October Fed Beige Book presented a mixed picture of the US. economy. According to the Beige Book “On balance, economic activity was little changed in nearly all Districts since early September, though two Districts reported modest growth…Despite elevated uncertainty, contacts were somewhat more optimistic about the longer-term outlook.” We expect a similar tone in this week’s report.
November jobs report Friday will be the highlight. Bloomberg consensus for NFP stands at 200k vs. 12k in October, while its whisper number stands at 170k. The poor October NFP number reflected hurricanes and strike activity. The unemployment rate is expected to remain steady at 4.1% while annual average hourly earnings growth is projected to ease a tick to 3.9% y/y. Overall, wage growth is running around sustainable rates that are consistent with the Fed’s 2% inflation target given annualized non-farm productivity growth was 2.2% in Q3. Ahead of that, ADP reports its private sector jobs estimate Wednesday and is expected at 158k vs. 233k in October.
Other labor market data will be reported. October JOLTS data will be reported Tuesday. Job openings in September are expected at 7.470 mln vs. 7,443 mln in September, which would be consistent with a labor market soft-landing. The ratio of vacancies to unemployed is at 1.1 which is historically pretty strong. That ratio has been above 1 only three times since 1960. Still, the job openings rate fell to 4.5% in September matching the December 2020 low. Fed research has showed that the unemployment rate tends to rise faster when the job openings rate falls under 4.5%. Moreover, the layoff rate ticked up to an 18-month high of 1.2% while the quits rate fell to 1.9%, lowest rate since June 2020, indicative of worsening workers confidence in finding a new job. Encouragingly, the hiring rate rose to a four-month high of 3.5% in September. Also, the Conference Board labor index (jobs plentiful minus jobs hard to get) rose to a five-month high at 18.2 in November, suggesting consumers are more optimistic about future labor market conditions. November Challenger job cuts and weekly jobless claims will be reported Thursday.
ISM PMIs will also be key. Manufacturing PMI will be reported Monday. Headline is expected at 47.6 vs. 46.5 in October. The regional Fed ISM manufacturing prints point to upside risk. Of note, the S&P Global manufacturing PMI increased to a 4-month high of 48.8 vs. 48.5 in October. ISM services will be reported Wednesday. Headline is expected at 55.5 vs. 56.0 in October. Here too, the regional Fed ISM services print point to upside risk. Of note, the S&P Global services PMI increased to a 31-month high of 57.0 vs. 55.0 in October.
Growth remains solid. The Atlanta Fed GDPNow model is currently tracking Q4 growth at 2.7% SAAR and will be updated Monday after the data. Elsewhere, the New York Fed Nowcast model is tracking Q4 growth at 1.8% SAAR and will be updated Friday. Its initial estimate for Q1 growth should be published Friday.
University of Michigan reports preliminary December consumer sentiment Friday. Headline is expected at an 8-month high of 73.3 vs. 71.8 in November, which would be indicative of healthy consumer spending activity. Positive real wage growth, encouraging labor demand, and strong household balance sheets suggest household spending will remain an important tailwind to GDP growth.
Canada highlight will also be the November jobs report Friday. Consensus sees a 25.0k rise in jobs vs. 14.5k in October, while the unemployment rate is expected to rise a tick to 6.6%. Overall, the labor market is softening. Employment growth has been modest and firms’ hiring intention remain muted. Bottom line: the Bank of Canada has room to keep cutting the policy rate. The market is pricing in 55% odds of a follow-up 50 bp cut in December.
Canada also reports November PMIs. S&P Global reports its manufacturing PMI Monday and then its services and composite PMIs Wednesday. Ivey PMI will be reported Thursday.
EUROPE/MIDDLE EAST/AFRICA
French far-right leader Le Pen gave Prime Minister Barnier until Monday to make more concessions to the budget bill. Le Pen vowed to bring down the government in a no-confidence motion if her budget demands are not met. Encouragingly, the higher risk premium on French bonds yields is not spreading to the rest of the eurozone, which may limit the drag on EUR. The 10-year yield premium for Italy, Spain, and Portugal over safer German peers are contained near recent lows.
November CPI data should not derail a December cut by the ECB. The swaps market is now pricing in 175 of total easing over the next 12 months that would see the policy rate bottom near 1.50%. Cipollone and Panetta speak Tuesday. Cipollone, Lagarde, and Nagel speak Wednesday.
Eurozone final November PMIs will be reported. Manufacturing PMIs will be reported Monday. Italy and Spain report for the first time and are expected at 46.0 and 54.0, respectively. Both would be down from October. Services and composite PMIs will be reported Wednesday. Here too, Italy and Spain report for the first time and their composite PMIs are expected at 49.7 and 53.8, respectively. Both would be down from October.
Other key country data will be reported. Germany reports October factory orders Thursday, followed by IP and trade data Friday. French and Spanish IP will be reported Thursday.
BOE November DMP inflation expectations will be reported Thursday. 1-year and 3-year inflation expectations are at a series low of 2.5%, consistent with a cautious BOE easing approach. Bailey speaks Wednesday. Greene speaks Thursday.
Switzerland reports November CPI data Tuesday. Headline is expected to rise two ticks to 0.8% y/y, while core is expected to rise a tick to 0.9% y/y. The Swiss National Bank (SNB) has plenty of room to slash the policy rate as Swiss inflation is tracking below the bank’s Q4 forecast of 1.0%. Indeed, SNB President Schlegel recently warned that negative interest rates cannot be ruled out. The market is currently pricing in 65% odds of a 50 bp cut at the December meeting to 0.50%.
Sweden reports November CPI data Thursday. Headline is expected to remain steady at 1.6% y/y, while the policy relevant CPIF is expected at 1.9% y/y vs. 1.5% in October and CPIF ex-energy is expected at 2.4% y/y vs. 2.1% in October. The Riksbank forecasts CPIF ex-energy to print at 2.0% y/y in November and said it plans to cut the policy rate again at the next monetary policy meeting in December. The market has fully priced in a 25 bp cut to 2.50% at the December 19 meeting. Looking ahead, the swaps market is pricing in 100 bp of total easing over the next 12 months that would see the policy rate bottom near 1.75%.
ASIA
Japan highlight will be October cash earnings and household spending data Friday. Nominal cash earnings are expected at 2.6% y/y vs. 2.5% in September while real earnings are expected at -0.1% y/y vs. -0.4% in September. The less volatile scheduled pay growth for full-time workers is forecast at 2.9% y/y vs. 2.8% in September. Faster wage growth could raise the likelihood the BOJ resumes normalizing policy at its next meeting December 19. Markets currently see 65% odds of a hike for December. BOJ board member Nakamura speaks Thursday.
Q3 capital spending data Monday will also be important. Total spending is expected at 6.7% y/y vs. 7.4% in Q2, while spending ex-software is expected at 8.2% y/y vs. 9.1% in Q2. Company sales and company profits are both expected to slow to 3.2% y/y and 9.3% y/y, respectively.
Australia highlight will be Q3 GDP data Wednesday. Real GDP is expected to grow 0.5% q/q vs. 0.2% in Q2, driven by solid household consumption. The Q3 inventories Monday and net exports data Tuesday will offer a clearer picture of the upcoming GDP figure. Overall, the RBA is in no rush to start easing. Last week, Governor Bullock stressed that “underlying inflation is still too high to be considering lowering the cash rate target in the near term.” The market does not price in the first 25 bp cut until May. October real sector data will show how Q4 is starting off. Retail sales and building approvals will be reported Monday. Household spending and trade data will be reported Thursday.
