Drivers for the Week of November 12, 2023

November 12, 2023
Here's a look at the main drivers in Developed Markets this week.

The dollar mounted a broad-based recovery last week despite the lack of any major economic data or events. SEK, EUR, and CHF outperformed while AUD, NZD, and JPY underperformed. We expect data this week to show ongoing economic strength as well as persistent price pressure in the U.S., which should lead markets to reassess the dovish Fed narrative. In turn, this should keep the dollar recovery intact.


Last week, the dollar was able to recoup nearly half of this month’s losses despite a dearth of data. This week brings some very important readings on the U.S. economy that should help underpin the dollar. We get October CPI and PPI, as well as retail sales. Fed Chair Powell reminded everyone last week not to get to sanguine about potential Fed tightening but of course, it will all come down to the data. Given our constructive outlook for the U.S., we believe U.S. yields and the dollar will continue to rise.

Markets continue to underestimate the persistence of inflationary pressures and the potential for further tightening. Last week was a wakeup call as the RBA hiked rates and marked up its growth and inflation forecasts significantly. Norway reported higher than expected CPI data that puts a December hike back in play. This week, Sweden reports CPI data that may also cement another hike by the Riksbank. Right now, market pricing is leaning heavily towards rate cuts globally by mid-2024 and we suspect this will have to be rethought in the coming weeks.

Late Friday afternoon, Moody’s cut the outlook on its Aaa rating for the U.S. to negative from stable. The agency wrote that “Downside risks to the US’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths. In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.” Lastly, Moody’s warned that “Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.”

That polarization will come into full view as funding for the government runs out at midnight Friday. Over the weekend, Speaker Johnson unveiled a two-step plan that extends funding for some agencies until January 19 and others until February 2. The plan contained no supplemental funding, including aid for Israel and Ukraine. Johnson hopes to vote on his plan Tuesday. While this plan may appeal to Republican hardliners, it’s hard to see any Democrats supporting it.

October inflation data take center stage this week. CPI will be reported Tuesday. Headline is expected at 3.3% y/y vs. 3.7% in September, while core is expected to remain steady at 4.1% y/y. Of note, the Cleveland Fed's Nowcast model suggests October headline at 3.3% y/y and core at 4.2% y/y followed by November headline at 3.2% y/y and core at 4.2% y/y. PPI will be reported Wednesday. Headline is expected at 1.9% y/y vs. 2.2% in September, while core is expected at 2.8% y/y vs. 2.7% in September.

Retail sales data Wednesday will also be important. Headline is expected at -0.3% m/m vs. 0.7% in September, while sales ex-auto are expected at 0.0% m/m vs. 0.6% in September. The so-called control group used for GDP calculations is expected at 0.2% m/m vs. 0.6% in September. The Atlanta Fed’s GDPNow model is tracking Q4 growth at 2.1% SAAR and will be updated right after the sales data. The New York Fed’s Nowcast model is tracking 2.5% SAAR growth and will be updated Friday.

Fed tightening expectations remain subdued. WIRP suggests 15% odds of a hike December 13, rising modestly to around 30% January 31. We get plenty of Fed speakers but as we stressed before, it will come down to what the data say. Cook speaks Monday. Williams, Jefferson, Barr, and Goolsbee speak Tuesday. Barr and Barkin speak Wednesday. Barr, Mester, Williams, Waller, and Cook speak Thursday. Collins, Barr, Goolsbee, and Daly speak Friday.

Regional Fed surveys for November start rolling out. Empire survey kicks things off Wednesday and is expected at -3.0 vs. -4.6 in October. New York Fed services survey will be reported Thursday. Philly Fed survey will also be reported Thursday and is expected at -10.3 vs. -9.0 in October. Kansas City Fed also reports Thursday and stood at -8 in October. Kansas City then reports its services index Friday.

September TIC data Thursday will be of interest. Despite all the pearl-clutching about falling foreign demand for U.S. Treasuries, Japan has slowly built up its total UST holdings to $1.116 trln in August from $1.064 trln in October 2022. While below the peak of $1.325 trln in November 2021, the number remains sizable. Japan data suggests it bought a net JPY3.3 trln ($22 bln) of dollar-denominated bonds in September and so the TIC data should reflect this. On the other hand, China continues to sell and its UST holdings fell to $805 bln in August, the lowest since June 2009.

Housing data will also be of interest. November NAHB housing market index will be reported Thursday and is expected to remain steady at 40, the lowest since January. October building permits and housing starts will be reported Friday and are expected at -1.4% m/m and -0.7% m/m, respectively.

Other minor data will be reported. October budget statement will be reported Monday and is expected at -$65 bln vs. -$171 bln in September. October NFIB small business optimism will be reported Tuesday and is expected at 90.5 vs. 90.8 in September. September business inventories will be reported Wednesday and are expected at 0.4% m/m. October import/export prices, IP (-0.3% m/m expected), and weekly jobless claims will be reported Thursday.


It’s a quiet week for eurozone data. Eurozone reports final Q3 GDP data Tuesday. September IP (-1.0% m/m expected) and trade data will be reported Wednesday. Final October CPI and September current account data will be reported Friday. November German ZEW expectations will be reported Tuesday. Expectations are expected at 5.0 vs. -1.1 in October, while current situation is expected at -76.8 vs. -79.9 in October.

ECB tightening expectations remain subdued. WIRP sees no odds of a hike December 14. After that, only cuts are priced and the first one is nearly 70% priced in for April 11 and fully priced in for June 6. Guindos speaks Monday. Lane and Villeroy speak Tuesday. Centeno, Lagarde, Knot, de Cos, and Guindos speak Thursday. Lagarde, Villeroy, Holzmann, Vujcic, Nagel, Wunsch, and Cipollone all speak Friday.

U.K. highlight will be October CPI Wednesday. Headline is expected at 4.7% y/y vs. 6.7% in September, core is expected at 5.7% y/y vs. 6.1% in September, and CPIH is expected at 4.6% y/y vs. 6.3% in September. If so, headline would be the lowest since October 2021 but still above the 2% target. Last week, BOE Chief Economist Pill predicted that there would be a “sharp further fall” in October inflation to below 5% and added that market expectations for rate cuts by mid-2024 were not “totally unreasonable.”

Bank of England tightening expectations have evaporated. WIRP now suggests 10% odds of a hike December 14, rising modestly to top out near 20% February 1. The first cut is largely priced in for August 1. Breeden and Mann speak Monday. Dhingra and Pill speak Tuesday. Haskel speaks Wednesday. Ramsden speaks Thursday. Ramsden and Greene speak Friday. At the November 2 decision to hold, Greene, Mann, and Haskel dissented in favor of a 25 bp hike. At the September 21 decision to hold, those same three dissented in favor or a 25 bp hike along with Cunliffe. Cunliffe was replaced by Breeden and he voted to hold this month.

U.K. labor market data will be reported Tuesday. The ONS is still experimenting with the unemployment methodology. Of note, the unemployment rate remained steady at 4.2% for the three months ending in August under the new methodology. Elsewhere, average weekly earnings for the three months ending in September are expected at 7.4% y/y vs. 8.1% previously.

U.K. reports October retail sales data Friday. Headline is expected at 0.3% m/m vs. -0.9% in September, while sales ex-auto fuel are expected at 0.4% m/m vs. -1.0% in September. Both y/y rates are expected to worsen to -1.6% and -1,5%, respectively. Consumption has held up relatively well despite the rise in unemployment and the fall in real incomes.

Sweden reports October CPI Tuesday. Headline is expected at 6.7% y/y vs. 6.5% in September,, CPIF is expected at 4.4% y/y vs. 4.0% in September, and CPIF ex-energy is expected at 6.3% y/y vs. 6.9% in September. If so, CPIF would accelerate for the first time since February and further away from the 2% target. At the last meeting September 21, the Riksbank hiked rates 25 bp to 4.0% and said rates could be raised further. However, the expected rate path was little changed as it sees the policy rate peaking at 4.10% in Q3 2024 vs. 4.05% in Q2 2024 in the June forecasts. Governor Thedeen said there was a high probability of more rate hikes. WIRP suggests nearly 65% odds of a hike at the November 23 meeting.


Japan highlight will be Q3 GDP data Wednesday. GDP is expected at -0.1% q/q vs. 1.2% in Q2. If so, it would be the first q/q drop since Q3 2022. Private consumption is expected at 0.3% q/q vs. -0.6% in Q2, while business spending is expected at 0.1% q/q vs. -1.0% in Q2. With these two positive contributions, why does consensus see a slight contraction? Both inventories and next exports are expected to subtract from growth.

Japan reports other key data. October PPI and machine tool orders will be reported Monday. September core machine orders will be reported Thursday and are expected at -3.7% y/y vs. -7.7% in August.

October trade data will also be reported Thursday. Exports are expected at 1.1% y/y vs. 4.3% in September, while imports are expected at -12.8% y/y vs. -16.4% in September.

Australia highlight will be October jobs data Thursday. Consensus sees 24.5k jobs added vs. 6.7k in September, with the unemployment rate seen up a tick to 3.7%. If so, it would match the high for this cycle but only slightly above the 3.4% low from October 2022. By all accounts, the labor market remains relatively tight. Ahead of that, Q3 wage price index will be reported Wednesday. It is expected at 1.3% q/q vs. 0.8% in Q2, while the y/y rate is expected at 3.9% vs. 3.6% in Q2.

The RBA may have to hike further. Its updated macro forecast saw significant upward revisions to the growth and inflation forecasts, along with downward revisions to the unemployment rate. RBA tightening expectations have picked up modestly as WIRP suggest no odds of another hike December 5 that rise over the course of H2 to top out near 45% in Q2 vs. 35% before this week’s hike.

New Zealand highlight will be Q3 PPI data Friday. RBNZ tightening expectations have evaporated. WIRP suggest no odds of a hike November 29, rising modestly to top out near 15% February 28.

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