The major currencies were mostly firmer last week as the dollar remained under broad-based pressure. NOK, SEK, and GBP outperformed while CAD, EUR, and JPY underperformed. Risk appetite has been stoked in recent weeks by a perceived Fed pivot as well as optimism on China reopening. We believe markets are putting too much weight on both of these notions and that the pendulum of sentiment is likely near an extreme and will eventually swing the other direction. The situation in China bears watching but we remain positive on the dollar and defensive on risk assets.

AMERICAS

U.S. rates and the dollar ended last week at the low end of recent trading ranges. This week will be key in determining whether these ranges hold or whether markets move into new and even lower ranges. Much will depend on the key data to be reported this week and their implications for Fed policy ahead of the December 13-14 FOMC meeting. We remain constructive on the dollar and continue to view recent weakness as a corrective move rather than a trend change.

November jobs data Friday will be the highlight. Consensus stands at 200k vs. 261k in October, while the unemployment rate is expected to remain steady at 3.7% and average hourly earnings are expected to fall a tick to 4.6% y/y. Ahead of that, ADP reports its private sector job estimate Wednesday and is expected at 200k vs. 239k in October. October JOLTS job openings will also be reported Wednesday and is expected at 10.35 mln vs. 10.717 mln in September. November Challenger job cuts and weekly jobless claims will be reported Thursday.

October core PCE Thursday will be important. It is expected to fall a tick to 5.0% y/y. If so, it would be the first deceleration since July but still well above the Fed’s 2% target. We believe markets overreacted to the October CPI data and will be looking for confirmation that price pressures remain. Personal income and spending will be reported at the same time and are expected at 0.4% m/m and 0.8% m/m, respectively.

We get some important November survey readings. Dallas Fed manufacturing survey will be reported Monday and is expected at -22.0 vs. -19.4 in October. Chicago PMI will be reported Wednesday and is expected at 47.0 vs. 45.2 in October. ISM manufacturing PMI will be reported Thursday. Headline is expected at 49.8 vs. 50.2 in October. Keep an eye on the sub-components. In October, employment stood at 50.0, prices paid stood at 46.6, and new orders stood at 49.2. Last week, S&P Global preliminary November PMI readings came in weaker than expected.

Other minor data will round out the week. September FHFA and S&P CoreLogic house price indices and November Conference Board consumer confidence will be reported Tuesday. October advance goods trade balance, wholesale and retail inventories, and pending home sales will be reported Wednesday. October construction spending and November vehicle sales will be reported Thursday.

The Fed releases its Beige Book report Wednesday for the December 13-14 FOMC meeting. Since the last Beige Book was released October 19, parts of the economy have continued to soften even as most measures of inflation have fallen. The labor market has remained resilient but hiring appears to be slowing. We expect the Beige Book to set the table for a downshift to a 50 bp hike next month. WIRP suggests that is fully priced in, with around 15% odds of a larger 75 bp move. The swaps market is still pricing in a peak policy rate of 5.0%, with around 25% odds of a 5.25% peak. Williams and Bullard speak Monday. Bowman, Cook and Powell speak Wednesday. Logan, Bowman, and Barr speak Thursday. Evans speaks Friday. At midnight Friday, the media embargo goes into effect and there will be no Fed speakers until Chair Powell’s post-decision press conference December 14.

Canada highlight is also November jobs data Friday. Consensus sees 10.0k jobs created vs. 108.3k in October, with the unemployment rate seen up a tick to 5.3%. Ahead of that, Q3 current account data will be reported Monday. Q3 GDP data will be reported Tuesday, with growth expected at 1.5% SAAR vs. 3.3% in Q2. At the last meeting October 26, the Bank of Canada delivered a dovish surprise and hiked rates 50 bp to 3.75% vs. 75 bp expected. Next meeting is December 7. WIRP suggests a 25 bp hike is fully priced in, with 60% odds of a larger 50 bp move, while the swaps market is pricing in a peak policy rate between 4.25-4.5%.

EUROPE/MIDDLE EAST/AFRICA

Eurozone November CPI data will be reported. Germany and Spain report Tuesday and their EU Harmonized CPI readings are expected at 11.2% y/y and 7.2% y/y, respectively. France and Italy report Wednesday and their EU Harmonized CPI are expected at 7.0% y/y and 12.0% y/y, respectively. Eurozone-wide CPI data will be reported Wednesday. Headline is expected at 10.4% y/y vs. 10.6% in October, while core is expected to remain steady at 5.0% y/y. If so, it would be the first deceleration in headline since June 2021. Of note, October M3 data will be reported Monday and is expected at 6.1% y/y vs. 6.3% in September.

ECB tightening expectations have steadied. WIRP suggests a 75 bp hike December 15 is around 45% priced in, about the same as the start of last week but down from being fully priced in right after the October decision. Elsewhere, the swaps market is still pricing in a peak policy rate near 3.0% vs. 3.5-3.75% after the October decision. We think there is still room for ECB tightening expectations to fall further and we stand by our call that the ECB will pivot and cut rates before the Fed does. ECB officials were hawkish last week. Knot, de Cos, Lagarde, and Nagel speak Monday. Guindos and de Cos speak Tuesday. Makhlouf speaks Wednesday. Lane and Lagarde speak Thursday. Guindos and Nagel speak Friday.

Key eurozone country data will also be reported. Germany reports November unemployment Wednesday and is expected to remain steady at 5.5%. October retail sales will be reported Thursday and is expected at -0.6% m/m vs. 1.0% in September. October trade data will be reported Friday. France reports October consumer spending Wednesday and is expected at -0.9% m/m vs. 1.25 in September. France reports October IP Friday. Spain reports October retail sales Wednesday.

Final November manufacturing PMI readings will be reported Thursday. Last week, the preliminary readings came in better than expected and point to slight upside risks to Q4 GDP. Italy and Spain report for the first time and are expected to rise slightly from October to 47.0 and 45.8, respectively. Final services and composite PMI readings will be reported next week.

Press reports suggest some Tory lawmakers may form a breakaway party. So-called “Red Wall” lawmakers from the North and Midlands are considering a third party that would take a harder line stance on immigration, crime, and Brexit. This is likely nothing more than saber-rattling in order to influence Prime Minister Sunak’s agenda, as a breakaway party would likely doom both it and the Tories to irrelevance and cement Labour dominance over U.K. politics.

Otherwise, the U.K. has a quiet week. CBI reports its November distributive trades survey Monday. October consumer credit will be reported Tuesday. Final November manufacturing PMI will be reported Thursday. Last week, preliminary PMI readings came in slightly better than expected.

Bank of England tightening expectations have also steadied. WIRP suggests a 50 bp hike December 15 is priced in, with less than 30% odds of a larger 75 bp hike vs. 35% at the start of last week. The swaps market is still pricing in a peak policy rate between 4.5-4.75%, down sharply from 6.25% right after the mini-budget in late September. Mann speaks and Bailey testifies to the House of Lords Tuesday. Pill speaks Wednesday.

Switzerland reports some key data. Q3 GDP data will be reported Tuesday. Growth is expected at 1.0% y/y vs. 2.8% in Q2. In q/q terms, growth is expected to remain steady at 0.3%. November CPI and October real retail sales will be reported Thursday. Headline inflation is expected to remain steady at 3.0% y/y while core is expected to rise a tick to 1.9% y/y. At the last policy meeting September 22, the Swiss National Bank hiked rates 75 bp to 0.5%, as expected. SNB President Jordan said “It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term” and stressed that the bank could move intra-meeting if needed. The updated forecasts didn’t suggest any greater urgency to tighten. Next meeting is December 15 and a 50 bp hike to 1.0% is expected. Looking ahead, the swaps market is pricing in 100 bp of tightening over the next 12 months that would see the policy rate peak near 1.5%, down from 2.0% right after the September meeting.

ASIA

Japan reports some key data. October labor market and retail sales data will be reported Tuesday. Unemployment rate is expected to fall a tick to 2.5%, while the job-to-applicant ratio is expected to rise a tick to 1.35. Despite the firm labor market, wage growth remains low. Until we see wage growth pick up further, the BOJ is likely to remain on hold. IP will be reported Wednesday and is expected at -1.7% m/m and 5.2% y/y.

Final November manufacturing PMI will be reported Thursday. Last week, the preliminary readings came in much lower than expected and point to downside risks to Q4 GDP. This will support the BOJ’s ultra-dovish stance, domestic and global headwinds are growing. Next policy meeting is December 19-20 and no change is expected then. Noguchi speaks Thursday.

Australia highlight will be October CPI data Wednesday. Headline is expected at 7.6% y/y vs. 7.3% in September. If so, it would be the highest for this new monthly series and further above the 2-3% target range. Ahead of that, October retail sales will be reported Monday and is expected at 0.5% m/m vs. 0.6% in September. Private sector credit will be reported Wednesday and is expected at 0.6% m/m vs. 0.7% in September. Final November manufacturing PMI will be reported Thursday. October home loan data will be reported Friday.

RBA tightening expectations have picked up slightly. WIRP suggests 70% odds of a 25 bp hike December 6. The swaps market is pricing in 125 bp of tightening over the next 12 months that would see the policy rate peak near 4.10%, up from 3.65% earlier this month.