Drivers for the Week of November 26, 2023

November 26, 2023
Here's a look at the main drivers in Developed Markets this week.

The dollar saw broad-based weakness against the majors last week. NZD, GBP, and AUD outperformed while JPY, EUR, and CHF underperformed. While we believe the move is overdone from a fundamental standpoint, we see nothing on the horizon this week that might derail the current dollar selloff. Eventually, the data should give markets a wakeup call but that will likely have to wait until next week.

AMERICAS

The dovish Fed narrative continues to drive global markets. Until we get some strong U.S. data to challenge this narrative, markets will be more than happy to continue running with this trend into year-end. Data this week are unlikely to provide much in the way of a challenge, as the PCE data are expected to show continued disinflation. Yields are likely to edge lower and that will continue to take a toll on the dollar.

Yet we see underlying strength in the economy. GDP growth in Q4 appears to be running slightly above 2% SAAR. Given the ongoing looseness in financial conditions, it’s hard to see how we can get to sub-2% growth anytime soon.

Fed Beige Book report will be released Wednesday. The report was prepared for the upcoming December 12-13 FOMC meeting. Since the last meeting October31-November 1, we’ve gotten slightly softer jobs data and some downside inflation surprises. We expect the Beige Book to acknowledge these trends, which in turn should support another hold from the Fed next month. WIRP suggests less than 5% odds of a hike then, rising modestly to 15% January 31. The first cut is fully priced in for June 12. Goolsbee and Waller speak Tuesday. Mester speaks Wednesday. Goolsbee, Powell, and Cook speak Friday. At midnight Friday, the media blackout begins and there will be no more Fed speakers until Chair Powell’s post-decision press conference the afternoon of December 13.

Data highlight will be October PCE data Thursday. Headline PCE is expected at 3.1% y/y vs. 3.4% in September, while core PCE is expected at 3.5% y/y vs. 3.7% in September. If so, headline would be the lowest since March 2021 but still well above the Fed’s 2% target. Of note, the Cleveland Fed’s Nowcast model sees headline PCE at 3.09% y/y and core PCE at 3.55% y/y.

Personal income and spending will be reported at the same time. Income is expected at 0.2% m/m vs. 0.3% in September, while spending is expected at 0.2% m/m vs. 0.7% in September. Real personal spending is expected at 0.1% m/m vs. 0.4% in September. Retail sales held up well in October, while the personal spending data contains services spending and is also expected to hold up.

November ISM manufacturing PMI Friday will also be important. Headline is expected at 47.7 vs. 46.7 in October. Keep an eye on employment and prices paid, which stood at 46.8 and 45.1 in October, respectively. Ahead of that, Chicago PMI will be reported Thursday and is expected at 46.0 vs. 44.0. Last week, S&P Global manufacturing PMI came in at 49.4 vs. 49.9 expected and 50.0 in October.

We get a revision to Q3 GDP data Wednesday. Growth is expected to be revised up a tick to 5.0% SAAR. However, this is old news as markets are already looking to Q4. The Atlanta Fed’s GDPNow model is tracking Q4 at 2.1% SAAR and the next update will come Thursday. Elsewhere, the New York Fed’s Nowcast model is tracking Q4 at 2.2% SAAR and the next update will come Friday. Despite the Fed’s tightening campaign, the economy continues to grow at or above trend at a time when below trend growth is needed to limit inflation.

Regional Fed surveys for November will continue rolling out. Dallas Fed manufacturing will be reported Monday and is expected at -16.0 vs. -19.2 in October. Richmond Fed manufacturing will be reported Tuesday and is expected at 1 vs. 3 in October. Richmond Fed and Dallas Fed services will both be reported Tuesday as well.

Housing data will remain in focus. October new home sales will be reported Monday and are expected at -4.7% m/m vs. 12.3% in September. September FHFA and S&P CoreLogic house prices will be reported Tuesday. October pending home sales will be reported Thursday and are expected at -1.0% m/m vs. 1.1% in September.

Other minor data will be reported. November Conference Board consumer confidence will be reported Tuesday and is expected at 101.0 vs. 102.6 in October. October wholesale and retail inventories and advance goods trade will be reported Wednesday. Weekly jobless claims will be reported Thursday. October construction spending (0.4% m/m expected) and November vehicle sales (15.5 mln annual rate expected) will be reported Friday.

Canada highlight will be November jobs data Friday. Consensus sees a 15.0k gain in jobs vs. 17.5 k in October, while the unemployment rate is seen rising a tick to 5.8%. If so, it would be the highest since December 2021 and nearly a full point above the 4.9% cycle low in mid-2022. The labor market is loosening modestly and should keep the Bank of Canada on hold for now. WIRP suggests 5% odds of a rate cut December 6, then rising over the course of H1 to around 90% June 5.

Q3 GDP data Thursday will also be important. Growth is expected at 0.1% SAAR vs. -0.2% in Q2. Q3 current account data will be reported Wednesday. November S&P Global manufacturing PMI will be reported Friday.

EUROPE/MIDDLE EAST/AFRICA

Eurozone November CPI readings will be the highlight. Germany and Spain report Wednesday. Germany’s EU Harmonised inflation is expected at 2.6% y/y vs. 3.0% in October, while Spain’s is expected at 3.7% y/y vs. 3.5% in October. France and Italy report Thursday. France’s EU Harmonised inflation is expected at 4.1% y/y vs. 4.5% in October, while Italy’s is expected at 1.1% y/y vs. 1.8% in October. Eurozone-wide CPI will also be reported Thursday. Headline is expected at 2.7% y/y vs. 2.9% in October, while core is expected at 3.9% y/y vs. 4.2% in October. If so, headline would be the lowest since July 2021 and approaching the 2% target.

The dovish European Central Bank narrative remains intact. WIRP suggests no odds of a hike either December 14 or January 25. After that, a cut is about 60% priced in for April 11 and fully priced in for June 6. Lagarde and de Cos speak Monday. Nagel, Lagarde, and Lane speak Tuesday. Panetta, Lagarde, and Nagel speak Thursday. Elderson and Lagarde speak Friday.

Final November manufacturing PMI will be reported Friday. Italy and Spain report for the first time and are expected at 45.2 and 45.5, respectively. If so, both would improve modestly from October. Final services and composite PMIs will be reported December 5.

October retail sales data will continue rolling out. Spain reports Wednesday and Germany reports Thursday. Eurozone retail sales will be reported December 6 and Italy reports December 7.

Other minor data will be reported. December German GfK consumer confidence will be reported Tuesday and is expected at -28.3 vs. -28.1 in November. Eurozone October M3 data will also be reported and is expected at -0.9% y/y vs. -1.4% in September.

The dovish Bank of England narrative remains intact. WIRP suggests 5% odds of a hike December 14, rising modestly to top out near 25% in Q1. After that, a cut is about 70% priced in for August 1 and fully priced in for September 19. Ramsden speaks Monday. Haskel speaks Tuesday. Bailey and Hauser speak Wednesday. Greene speaks Thursday. Of note, Mann, Haskel, and Greene were the three dissents in favor of a 25 bp hike at the last decision November 2.

It’ s a very quiet data week for the U.K. U.K. CBI reports its distributive trades survey Monday. Final November manufacturing PMI will be reported Friday.

ASIA

Bank of Japan liftoff expectations continue to get pushed out. At the end of September, the market was pricing in liftoff in March; by early November, it was seen in April and now liftoff is seen in June. Weak economic data has been the main culprit here as markets debate under what conditions the BOJ will feel comfortable hiking. Some on the board have gotten more hawkish but Governor Ueda remains firmly in the dovish camp. Adachi speaks Wednesday. Nakamura speaks Thursday.

Japan reports key October data. Retail sales, IP, and housing starts will be reported Thursday. Sales are expected at 5.9% y/y vs. 6.3% in September, IP is expected at 0.4% y/y vs. -4.4% in September, and housing starts are expected at -7.0% y/y vs. -6.8% in September. The economy has been weakening, as evidenced by the larger than expected -0.5% q/q contraction in Q3 GDP. No wonder the government is pushing through another stimulus package.

Labor market data will be reported Friday. Unemployment is expected to remain steady a 2.6%, while the job-to-applicant ratio is expected to remain steady at 1.29. The labor market has been loosening up recently, and this has showed up in very weak wage readings. Policymakers have stressed that next spring’s round of wage negotiations will be very important in terms of normalizing policy.

Australia highlight will be October CPI Wednesday. Headline is expected at 5.2% y/y vs. 5.6% in September. If so, it would be the first deceleration since July but would remain well above the 2-3% target range. At the last meeting November 7, the RBA restarted the tightening cycle with a 25 bp hike to 4.35% and said “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.” WIRP suggests no odds of a hike December 5, 35% odds February 6, then rising modestly to top out near 75% June 18.

Other key data will be reported. Retail sales will be reported Tuesday and are expected at 0.1% m/m vs. 0.9% in September. Private sector credit and building approvals will be reported Thursday, with credit expected at 0.4% m/m vs. 0.5% in September and approvals expected at 1.4% m/m vs. -4.6% in September. Final November manufacturing PMI will be reported Friday.

Reserve Bank of New Zealand meets Wednesday and is expected to keep rates steady at 5.5%. At the last meeting October 4, the bank kept rates steady at 5.5%. It noted that “Interest rates are constraining economic activity and reducing inflationary pressure as required” but added that “the Committee agreed that interest rates may need to remain at a restrictive level for a more sustained period of time.” A press conference and updated macro forecasts will be seen this week. Looking ahead, WIRP suggests 5% odds of a hike February 28. After that, it’s all about the rate cuts and the first one is fully priced in for August 14.

More from Mind on the Markets

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2023. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction