The broad dollar recovery continued last week. CAD, AUD, and NOK outperformed while EUR, CHF, and GBP underperformed. Data last week showed that global divergences are widening, with the U.S. again at the top of the heap even as the eurozone and U.K. slid towards the bottom. This week’s data should underscore these growing divergences that continue to favor the dollar.

AMERICAS

Global divergences are widening. Looking at the November composite PMIs, Australia fell back below 50 to 49.4, Japan remained below 50 but improved slightly to 49.8, and the eurozone fell back below 50 to 48.1. However, the biggest surprise came from the U.K. as its composite plunged to 49.9 and joined the rank of the sub-50. On the other hand, the S&P Global composite PMI for the U.S. defied expectations and jumped to 55.3, the highest April 2022. With a huge slug of fiscal stimulus expected next year, the U.S. economy is likely to continue outperforming well into 2026.

FOMC minutes will be released Tuesday. At the September 17-18 meeting, the Fed delivered the expected 25 bp cut. The decision was unanimous but the messaging signaled a cautious easing cycle. The FOMC press release scrapped previous reference that it had gained greater confidence that inflation is moving sustainably toward 2%. Moreover, Chair Powell emphasized “the Fed is not in a hurry to get to neutral” and added that “the economic activity data have been stronger than expected” while “inflation data wasn’t terrible but higher than expected.” Odds of a December cut are around 55% in the Fed Funds futures market and are near 35% in the OIS market. We will have one more each of the jobs, CPI, PPI, and retail sales reports to digest ahead of the December 17-18 meeting. Looking ahead, the swaps market is pricing in a terminal rate slightly north of 3.75%, which is about a full percentage point above the Fed’s expected long-term rate of 2.875% in the September Dot Plots.

October PCE data Wednesday will be the data highlight. Headline PCE is expected to pick up two ticks to 2.3% y/y, while core PCE is expected to pick up a tick to 2.8% y/y. Consensus is in line with the Cleveland Fed’s inflation Nowcast model. Looking ahead to November, that model sees headline and core accelerating to 2.5% and 2.9%, respectively. Underlying inflation remains stubbornly high and inflation momentum has clearly regained traction. That's why the Fed removed that crucial phrase about greater confidence in meeting its inflation target from its FOMC November statement.

Personal income and spending will be reported at the same time. Income is expected at 0.3% m/m vs. 0.3% in September, personal spending is expected at 0.4% m/m vs. 0.5% in September, and real personal spending is expected at 0.2% m/m vs. 0.4% in September. Judging from the already released retail sales data, October personal spending risk disappointing but the previous month’s increase could get revised higher. Recall that the control group used for GDP calculations fell -0.1% m/m in October while September was revised up to 1.2% m/m from 0.7%.

Chicago Fed National Activity Index for October will be reported Monday. Headline is expected at -0.20 vs. -0.28 in September. If so, the 3-month moving average would rise to -0.16 vs. -0.18 in September and move further away from the -0.7 threshold that typically signals recession.

Growth remains robust. We get another revision to Q3 GDP data Wednesday but this is old news as markets look ahead to Q4 and beyond. The Atlanta Fed GDPNow model is tracking Q4 growth at 2.6% SAAR and will be updated Wednesday after the data. Elsewhere, the New York Fed Nowcast model is tracking Q4 growth at 1.9% SAAR and will be updated Friday. Its initial estimate for Q1 will come at the end of November.

Conference Board consumer confidence for November will be reported Tuesday. Headline is expected at 111.8 vs. 108.7 in October. If so, it would be the highest since July 2023 but would largely remain within the same narrow range that’s held throughout the past two years. In October, the expectations index surged 6.3 points to 89.1, the highest level since December 2021, and indicative of resilient household spending activity. Indeed, positive U.S. real wage growth, encouraging labor demand, and strong household balance sheets suggest household spending will remain an important tailwind to GDP growth.

Regional Fed surveys for November will continue rolling out. Dallas Fed manufacturing survey will be reported Monday. Philly Fed non-manufacturing, Richmond Fed manufacturing and services, and Dallas Fed services surveys will all be reported Tuesday. Chicago PMI will be reported Wednesday and is expected at 45.0 vs. 41.6 in October.

Canada highlight will be Q3 GDP data Friday. Consensus sees 1.0% SAAR real GDP growth vs. 2.1% in Q2. The Bank of Canada is more optimistic and has penciled in growth of 1.2% SAAR in Q3, driven by household consumption and government spending. The monthly GDP print for September and the October estimate are also due Friday. Statistics Canada advance information indicates that real GDP increased 0.3% m/m in September.

Markets have trimmed BOC easing expectations. Odds of 50 bp December rate cut to around 20% from as much as 55% last week after October CPI came in hotter than anticipated. We still expect the BOC to deliver a follow-up jumbo rate cut next month because inflation is close to 2%, and inflationary pressures are no longer broad-based. Additionally, monetary policy remains too tight, heightening the downside risk to the economy. At 3.75%, the BOC policy rate remains above the bank’s nominal neutral interest rate estimate of 2.25-3.25%.

EUROPE/MIDDLE EAST/AFRICA

Eurozone reports November CPI data. Spain and Germany report Thursday. Spain’s EU Harmonised inflation is expected at 2.5% y/y vs. 1.8% in October, while Germany’s is expected at 2.6% y/y vs. 2.4% in October. France and Italy report Friday. France’s EU Harmonised inflation is expected at 1.8% y/y vs. 1.6% in October, while Italy’s is expected at 1.5% y/y vs. 1.0% in October. Eurozone readings will also be reported Friday. Headline is expected at 2.3% vs. 2.0% in October and core Is expected at 2.8% vs. 2.7% in October. If so, we do not think it shifts the disinflation narrative very much.

European Central Bank easing expectations have picked up. The market sees nearly 50% odds of a jumbo 50 bp cut at the December 12 meeting. Looking ahead, the swaps market is pricing in 150 bp of total easing over the next 12 months that would see the policy rate bottom at 1.75%. The doves are controlling the narrative. Centeno, Lane, Nagel, and Makhlouf speak Monday. Villeroy (twice), Centeno (twice), and Rehn speak Tuesday. Lane speaks Wednesday and Thursday. Guindos and Nagel speak Friday.

ECB inflation expectations for October will be reported Friday. 1-year is expected to fall a tick to 2.3% y/y while 3-year is expected to remain steady at 2.1% y/y.

German IFO survey for November will be reported Monday. Headline is expected at 86.0 vs. 86.5 in October, with current assessment expected to fall two ticks to 85.5 and expectations expected to fall three ticks to 87.0. However, risks are skewed to the downside as the German composite PMI plunged to a 9-month low of 47.3 in October. Germany remains the weak link in the eurozone.

Bank of England easing expectations have also picked up. The swaps market now sees the terminal rate at 3.75% vs. 4.0% before the weak November PMI reading. Officials remain cautious, however. MPC members Lombardelli and Dhingra speak Monday. Chief Economist Pill speaks Tuesday. The BOE release its Financial Stability Review and the FPC minutes Friday.

Switzerland reports Q3 GDP data Friday. Real GDP is expected to rise 0.4% q/q vs. 0.7% in Q2, while the y/y rate is expected to remain steady at 1.8%. These readings would be consistent with the forward-looking indicators. The KOF Economic Barometer points to growth in line with the historical average while signals from the manufacturing and services PMI remain mixed. For reference, the Swiss National Bank anticipates real GDP growth of around 1% this year and 1.5% in 2025.

Last Friday, SNB President Schlegel warned that negative interest rates cannot be ruled out. Indeed, the SNB has plenty of room to slash the policy rate as inflation is tracking below the bank’s Q4 forecast of 1.0%. Market sees nearly 70% odds of a jumbo 50 bp rate cut to 0.50% at the December 12 meeting, and also sees the policy rate bottoming between 0-0.25% over the next 12 months.

ASIA

Japan highlight will be November Tokyo CPI data Friday. Headline is expected to rise four ticks to 2.2% y/y, core (ex-fresh food) is expected to rise three ticks to 2.1% y/y, and core ex-energy is expected to rise one tick to 1.9%. We doubt the data will move the needle on Bank of Japan rate expectations. Market sees around 55% odds of a hike next month, but we believe it will be a Q1 story as data have been rolling over of late.

October labor market data will also be reported Friday. The unemployment rate is expected to rise a tick to 2.5%, while the job-to-applicant ratio is expected to remain steady at 1.24. While the labor market remains relatively tight, this has not translated into significantly higher wage pressures.

October real sector activity will also be reported Friday. Retail sales are expected at 2.0% y/y vs. 0.7% in September, IP is expected at 1.7% y/y vs. -2.6% in September, and housing starts are expected at -2.0% y/y vs. -0.6% in September. We see downside risks after the shock drop below 50 in the composite PMI that month.

Australia highlight will be October CPI data Wednesday. Headline is expected to rise two ticks to 2.3% y/y. If so, it would be the first acceleration since May. It’s worth noting, that the RBA focuses on the quarterly CPI data because they are less volatile and capture more items than the monthly CPI indicator. Market is still pricing in the first 25 bp rate cut in May.

RBA Governor Bullock speaks Thursday. Bullock could take the opportunity to clarify or adjust the message from the minutes of the November 6 policy meeting. According to the minutes, members noted that a faster than currently forecast decline in inflation “could warrant an easing in the cash rate target, but that they would need to observe more than one good quarterly inflation outcome to be confident that such a decline in inflation was sustainable.” Australia’s Q3 CPI tracked the RBA’s forecast. The Q4 and Q1 CPI prints are due end-January and end-April, respectively. This indicates the RBA is likely to wait until after the release of the Q1 CPI data before considering rate cuts, likely at its May 20 policy meeting.

Australia also reports its Q3 capex survey Wednesday. Business investment is expected to rise 1.0% q/q vs. -2.2% in Q2. The RBA’s liaison contacts highlights that a growing share of firms plan to reduce investment in the year ahead due to cost pressures, a weak demand outlook, and broader macroeconomic uncertainty. Still, overall investment intentions remain above average. The final Estimate 4 of planned capex for 2024/25 will also be released. For reference, Estimate 3 was AUD170.7 bln.

Reserve Bank of New Zealand meets Wednesday and is expected to cut rates 50 bp to 4.25%. The bank will also release its Monetary Policy Statement with updated macro forecasts at the same time. At its October meeting, the RBNZ cut the Official Cash Rate 50 bp tot 4.75% and noted that “economic activity in New Zealand is subdued, in part due to restrictive monetary policy.” Indeed, the policy rate is above the RBNZ’s estimate for the nominal neutral rate range of 2-4%. The implication is that the bar for another jumbo cut is low and the RBNZ will likely front-load the easing implied in its updated OCR forecast. The market expects the OCR to bottom around 3.25% over the next 12 months.