The dollar was broadly weaker against the majors last week. SEK, NOK, and CHF outperformed while JPY, GBP, and CAD underperformed. The dollar is likely to remain under pressure this week due to the lack of any major data that might slow the downward momentum. Early January will bring a slew of key economic data that calls the pivot into question. Until then, the greenback is likely to remain under pressure.

AMERICAS

The last week of 2023 is likely to be the calm before the storm. Many market participants are out and those that are in are unlikely to challenge any of the current market themes as the books are closed for 2023. No major data will be released this week but next week is a different story as we get key U.S. data for December that culminates in the jobs report next Friday. If the labor market remains relatively firm, can the Fed really contemplate rate cuts in Q1?

Fed easing expectations have intensified. WIRP suggests 15% odds of a cut January 31 and fully priced in March 20 vs. May 1 at the start of last week. Looking further ahead, six cuts are fully priced in by end-2024. 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 hold.

The U.S. economy remains robust. The New York Fed’s Nowcast model has Q4 growth at 2.4% SAAR vs. 2.2% previously and Q1 growth at 2.2% SAAR vs. 2.0% previously. It will be updated Friday. Elsewhere, the Atlanta Fed’s GDPNow model has Q4 growth at 2.3% SAAR vs. 2.7% previously. It will be updated January 2. Bottom line: the US economy is still growing above trend in Q4. It's too soon to focus on the Q1 estimate as we assume that is just some sort of guess based on inertia/momentum. The early Q4 reads are 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. Momentum is likely to carry over into Q1.

November Chicago Fed National Activity Index will be reported Tuesday. Headline came in at -0.49 in October while the 3-month average came in -0.22 in October. That headline was the worst since November 2022, while that 3-month moving average was the worst since April 2023 but remained well above the -0.7 threshold that signals recession. Of note, we are no longer looking for a recession in 2024. Before the December FOMC, we thought a downturn would start in Q2 or Q3 but now we’re not so sure. Without cutting rates, the Fed has let the market do the easing for them. Chicago Fed financial conditions are the loosest since January 2022 while the New York Fed's FCI-G is likely to show that policy turned accommodative in December.

December Chicago PMI will be reported Friday. Headline is expected at 50.5 vs. 55.8 in November. This is a very volatile number, but we note that the S&P Global composite PMI rose to 51.0 vs. 50.7 in November and was the highest since July. ISM PMI readings will be reported next week.

Regional Fed surveys for December will wrap up. Philly Fed non-manufacturing and Dallas manufacturing indices will be reported Tuesday. Richmond Fed manufacturing and services indices as well as Dallas services index will be reported Wednesday.

Weekly jobless claims will be reported Thursday. Continuing claims will be for the BLS survey week containing the 12th of the month and are expected at 1.875 mln vs. 1.865 mln last week. Initial claims are expected at 210k vs. 205k last week. Bloomberg consensus for December NFP stands at 170k vs. 199k in November, while its whisper number stands at 174k.

Housing data will remain in focus. October FHFA and S&P CoreLogic house prices will be reported Tuesday. November pending home sales will be reported Thursday and are expected at 0.9% m/m vs. -1.5% in October. November advance goods trade and wholesale and retail inventories will also be reported Thursday.

EUROPE/MIDDLE EAST/AFRICA

December eurozone CPI data will start rolling out. Spain reports Friday and its EU Harmonised inflation is expected to remain steady at 3.3% y/y. The rest of the major eurozone countries report CPI data next week.

European Central Bank easing expectations remain elevated. WIRP suggests 5% odds of a cut January 25, rising to 60% March 7 and fully priced in April 11. Six cuts by the end of next year are now priced in, along with 50% odds of a seventh. Officials should continue to push back against easing expectations, though there are no ECB speakers this week.

Eurozone countries continue to report November retail sales data. Spain reports Thursday. France reported last week and came in at -3.8% y/y vs. a revised -2.6% (was -2.8%) in October.

The U.K. has a very quiet week. The only data release is December Nationwide house price index Friday, which is expected at -1.3% y/y vs. -2.0% in November.

Bank of England easing expectations remain elevated. WIRP suggests 5% odds of a cut February 1, rising to 40% March 21 and fully priced in May 9 vs. June 20 at the start of last week. Five cuts are fully priced in by the end of 2024 vs. four at the start of last week. There are also over 50% odds of a sixth cut.

ASIA

Bank of Japan releases the summary of opinions Wednesday. At the December 18-19 meeting, the bank delivered a dovish hold. The decision was unanimous and forward guidance was left unchanged. The yen weakened sharply as some were looking for the bank to deliver an explicit timeframe for liftoff. Governor Ueda sounded dovish as he noted that it’s difficult right now to lay out a plan for an exit from the negative rates because there’s a lot of uncertainty about the inflation outlook and the BOJ can’t tell yet if the target will be achieved. He said the chances are low that the bank will announce a rate hike at the January meeting. In a bit of an understatement, Ueda said that issuing projections for interest rates can cause confusion in the market. Updated forecasts will come at the January 22-23 meeting. WIRP suggests 25% odds of a hike then, rising to 70% March 19 and 80% April 26 before being fully priced in June 14 vs. April 26 at the start of last week.

Japan reports key real sector data for November. Labor market data will be reported Tuesday. Unemployment is expected to remain steady at 2.5% while the job-to-applicant ratio is seen steady at 1.30. Recent softness in the labor market has coincided with weak wage growth, which is one of the reasons why BOJ officials are unlikely to hike rates until the results of the spring wage negotiations are known.

Activity data will also be reported. Housing starts will be reported Wednesday and are expected at -4.2% y/y vs. -6.3% in October. Retail sales and IP will be reported Thursday. Sales are expected at 5.0% y/y vs. 4.1% in October while IP is expected at -1.6% y/y vs. 1.1% in October. Of note, department store sales were reported Monday at 7.4% y/y vs. 6.1% in October.