The dollar was broadly weaker against the majors last week. NOK, JPY, and SEK outperformed while GBP, CHF, and EUR underperformed. The dovish hold by the Fed helped fuel the “buy everything” rally but officials then pushed back against rate cut expectations. The Fed outlook is likely to remain in flux as U.S. data continue to come in firm, which supports our view that the easing cycle is likely to come later than what the market expects. However, the dollar is likely to remain vulnerable until the marker reprices this.

AMERICAS

Fed officials are pushing back against intensifying easing expectations. Williams said, “we aren’t really talking about rate cuts” and that it is premature to be thinking about a March cut. Indeed, Williams added that the Fed needs to ask if policy is sufficiently restricting and be ready to tighten policy further. Elsewhere, Bostic said he sees two cuts in 2024, likely starting in Q3. If his 2024 Dot really was 4.875%, then there are 11 more on the FOMC that are more dovish, made up of 1 Dot at 3.875%, 4 Dots at 4.375% and 6 at 4.625%. We consider Bostic one of the leading doves and find it a bit hard to believe that he now falls on the hawkish side of the spectrum. Indeed, Bostic is implying that only 3 that are more hawkish (1 Dot at 5.125% and 2 at 5.375%). On the other hand, if Bostic actually changed his 2024 Dot just two days after the FOMC meeting due to some market movements, then the Dot Plots really aren't worth much, are they?

If the Fed had been paying attention, it would have known markets would react like this to what was a very dovish message. This is clearly an effort at damage control but really, we find it very disconcerting that the Fed didn't think about the repercussions of Wednesday's messaging. How did Powell go from “it’s premature to speculate on easing” right before the media blackout to “we’re discussing rate cuts now” at the FOMC meeting. Economic fundamentals rarely turn on a dime, rather they move slowly like a huge super tanker. As such, policy outlooks shouldn't turn on a dime either and yet that's what we got from the Fed.

The Fed will continue to push back against the dovish narrative. Or will it? Goolsbee speaks Monday. Goolsbee and Bostic speaks Tuesday. Goolsbee speaks again Wednesday. Why is Goolsbee making so many appearances when the Fed is trying to walk back its dovish message? Last Friday, Goolsbee went all in and said, "The Federal Reserve may need to begin shifting its focus from inflation to the slowing U.S. labor market.” Last time we checked, the labor market remains in solid shape. Hiring has slowed but there have been no significant layoffs to speak of and unemployment is only three ticks above the cycle low of 3.4%.

Fed easing expectations have intensified. WIRP suggests 10% odds of a cut January 31 and rising to over 75% March 20 and fully priced in May 1. Nearly six cuts are fully priced in by end-2024 vs. four at the start of last week. While we still strongly disagree with this market pricing, it will now take a much longer string of stronger data to shift the narrative than what was needed before the Fed’s dovish performance last week.

November PCE data Friday will be the data highlight. Headline is expected to fall two ticks to 2.8% y/y while core PCE is expected to fall a tick to 3.4% y/y. If so, headline would be the lowest since March 2021 but still above the 2% target. Of note, the Cleveland Fed’s Nowcast model estimates headline at 2.9% and core at 3.4%. Looking ahead, the model estimates December headline at 3.0% and core at 3.3%.

Personal income and spending will be reported at the same time. Income is expected at 0.4% m/m vs. 0.2% in October and spending is expected at 0.2% m/m vs. 0.2% in October. Retail sales picked up in November and we expect to see the same for personal spending, which includes services.

Weekly jobless claims will be closely watched. That’s because initial claims will be for the BLS survey week containing the 12th of the month. These are expected at 215 vs. 202k last week. Continuing claims are reported with a one-week lag and so next week’s number will be for the BLS survey week. This week, they are expected at 1.880 mln vs. 1.876 mln last week. Bloomberg consensus for December NFP stands at 165k vs. 199k in November, while its whisper number stands at 170k.

Regional Fed surveys for December will continue to roll out. New York Fed services survey will be reported Monday. Philly and Kansas City Fed manufacturing surveys will be reported Thursday and are expected at -3.0 and -3, respectively. Kansas City Fed services survey will be reported Friday.

Housing sector data will be in focus. December NAHB housing market index will be reported Monday and is expected at 37 vs. 34 in November. November building permits and housing starts will be reported Tuesday and are expected at -0.9% m/m and -2.5%, respectively. Existing home sales will be reported Wednesday and are expected at -0.5% m/m vs. -4.1% in October. New home sales will be reported Friday and are expected at 1.3% m/m vs. -5.6% in October.

Some measures of consumer confidence will be reported. December Conference Board consumer confidence will be reported Wednesday, and headline is expected at 104.0 vs. 102. 0 in November. Final December University of Michigan consumer sentiment will be reported Friday and preliminary headline was 69.4.

We get another revision to Q3 GDP Thursday. Growth is seen steady at 5.2% SAAR. However, this is old news as markets focus on the current quarter and beyond. The Atlanta Fed’s GDPNow model is now tracking Q4 growth at 2.6% SAAR vs. 1.2% previously. Next update will be Tuesday. This is now above the NY Fed Nowcast model, which is tracking 2.2% SAAR and will be updated Friday. The early reads were based largely on strike-depressed October data. If November data continue to bounce back as we’ve seen already, the Q4 growth estimates should rise accordingly.

Other minor data will be reported. Q3 current account data will be reported Wednesday. November leading index will be reported Thursday and is expected at -0.4% vs. -0.8% in October. Durable goods orders will be reported Friday and are expected at 2.2% m/m vs. -5.4% in October.

Canada data highlight will be November CPI Tuesday. Headline is expected at 2.8% y/y vs. 3.1% in October, core trim is expected at 3.3% y/y vs. 3.5% in October, and core median is expected at 3.3% y/y vs. 3.6% in October. If so, headline would be the lowest since March 2021 but still above the 2% target.

Bank of Canada releases its summary of deliberations Wednesday. At the December 6 meeting, delivered another dovish hold. Rates were kept steady at 5.0% and noted that it sees further signs that its previous rate hikes are cooling spending. The bank added that the economy is no longer in excess demand, but stress that it wants to see further sustained easing in core inflation. This was the bank's second straight dovish hold and markets have listened. WIRP suggests nearly 15% odds of a rate cut January 24, rising to 65% March 6 and fully priced in April 10 vs. June 5 at the start of last week. Five cuts are priced in by the end of 2024 vs. four at the start of last week. This seems very unlikely.

Canada reports some key real sector data. October retail sales will be reported Thursday. Headline is expected at 0.8% m/m vs. 0.6% in September, while ex-autos is expected at 0.5% m/m vs. 0.2% in September. October GDP will be reported Friday. It is expected at 0.1% m/m and 1.0% y/y.

EUROPE/MIDDLE EAST/AFRICA

European Central Bank easing expectations remain elevated despite the hawkish hold. WIRP suggests 10% odds of a cut January 25, rising to 55% for March 7 and fully priced in April 11. Six cuts by the end of next year are now priced in vs. five as the start of last week. Officials should continue to push back against easing expectations. Vujcic, Wunsch, Schnabel, and Lane speak Monday. Simkus, Kazimir, and Vujcic speak Tuesday. Lane speaks again both Wednesday and Thursday.

Germany reports some key sentiment indicators. December IFO business climate survey will be reported Monday. Headline is expected at 87.7 vs. 87.3 in November, with current assessment expected to rise two ticks to 89.6 and expectations expected to rise almost a full point to 85.9. January GfK consumer confidence will be reported Wednesday and is expected at -27.0 vs. -27.8 in December.

Otherwise, it’s a quiet week for eurozone data. Final November CPI will be reported Tuesday. October current account and construction output data will be reported Wednesday.

Bank of England easing expectations also remain elevated despite the hawkish hold. WIRP suggest no odds of a cut February 1, rising to 20% March 21, 80% May 9, and fully priced in June 20. Four cuts are priced in by the end of 2024 vs. three at the start of last week. Broadbent speaks Tuesday. Breeden speaks Wednesday.

U.K. data highlight will be November CPI Wednesday. Headline is expected at 4.3% y/y vs. 4.6% in October, core is expected at 5.6% y/y vs. 5.7% in October, and CPIH is expected at 4.5% y/y vs. 4.7% in October. If so, headline would be the lowest since October 2021 but still well above the 2% target.

November retail sales data Friday will also be important. Headline is expected at 0.5% m/m vs. -0.3% in October, while ex-auto fuel is expected at 0.4% m/m vs. -0.1% in October. Consumption has remained relatively robust, but headwinds are building.

U.K. CBI reports its December surveys. Industrial trends will be reported Tuesday and total orders are expected at -29 vs. -35 in November. Distributive trades will be reported Thursday and retailing reported sales is expected at -14 vs. -11 in November.

Other minor data will be reported. November public sector net borrowing will be reported Thursday. PSNB ex-banking groups is expected at GBP13.0 bln vs. GBP14.9 bln in October. Final Q3 GDP and current account data will be reported Friday.

ASIA

The two-day Bank of Japan meeting ends Tuesday with an expected hold. After some senior officials spoke about normalizing rates this month, liftoff expectations picked up but have since fallen again as the data have come in soft and other officials pushed back. Weak wage growth, lower than expected November Tokyo CPI data, and downward revisions to Q3 GDP data all argue for caution in removing accommodation too soon. Updated forecasts will come at the January 22-23 meeting. WIRP suggests 45% odds of a hike then, rising to 70% March 18-19 and nearly 90% April 25-26. Bank of Japan liftoff is now priced in June 13-14 vs. April 25-26 at the start of last week. Of note, the yen tends to weaken on BOJ decision days. It has done so for the past five and six of the past seven.

Minutes of the October 30-31 meeting will be released Friday. At that meeting, there was minor tweak to Yield Curve Control as the bank said the 1% ceiling was now a reference point rather than a rigid target. Governor Ueda said “Uncertainty is extremely high within both overseas and domestic economies and financial markets. We decided that it’s appropriate to increase flexibility so that long-term yields can be smoothly shaped, according to different future scenarios.” Since then, the 10-year yield has yet to test the 1% level.

Japan data highlight will be November national CPI Friday. Headline is expected at 2.7% y/y vs. 3.3% in October, core (ex-fresh food) is expected at 2.5% y/y vs. 2.9% in October, and core ex-energy is expected at 3.8% y/y vs. 4.0% in October. If so, core would be the lowest since July 2022 and nearing the 2% target.

November trade data will be reported Wednesday. Exports are expected at 1.5% y/y vs. 1.6% in October, while imports are expected at -8.7% y/y vs. -12.5% in October.

RBA releases minutes of the December 5 meeting Tuesday. At that meeting, rates were kept steady at 4.35% and Governor Bullock said “Higher interest rates are working to establish a more sustainable balance between aggregate supply and demand. Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labor market.” She added that “The limited information received on the domestic economy since the November meeting has been broadly in line with expectations.” This was taken by the markets as rather dovish and so easing expectations have picked up. WIRP suggests nearly 15% odds of a cut February 6, rising to 35% March 19, 70% May 7, and fully priced in June 18. A second cut is fully priced in November 5.