Nonfarm payroll, ISM, BOC and RBA on tap: The Week Ahead
With traders more than happy to price in Fed cuts for 2024 where possible, they will be looking for further signs that the US economy is slowing but at a rate that does not scream recession. And this places US ISM services and the nonfarm payroll report into the limelight next week. China’s trade data and inflation figures may reveal whether Beijing need to step up support for the economy yet again. And whilst the RBA and BOC are expected to hold the cash rate steady at their monetary policy meetings, their statements may indicate how much of an appetite there is for further hikes in Q1.
The week that was:
- US core PCE slowed to a 30-month low of 3.5% and rose 0.2% m/m – which is beneath its long-term average of 0.26%. PCE m/m was flat in October and slowed to 3% y/y.
- US GDP was upgraded to show growth accelerated at its fastest pace in nearly two years
- Relatively dovish comments from two FOMC members generated further excitement of a Fed pivot (to cut rates) with Fed Fund futures now pricing in a May cut with a 48.1% probability.
- The S&P 500 enjoyed one of this best Novembers on record with a gain of 8.9% m/m, and trades just 5% from its record high
- The RBNZ held their cash rate at 5.5% as widely expected, but their statement was deemed more hawkish than anticipated due to their reference of inflation remaining “too high”
- Australian inflation data came in softer than consensus estimates which likely cements an RBA hold on December 5th, despite hawkish comments from its members
- It was seemingly transfer season for central banks with the RBA announcing that the BOE’s Andrew Hauser will become their new deputy governor
- China’s PMIs are converging towards 50 to effectively show an economy that is neither expanding no contracting, according to official government data.
- Gold broke $2000 and posted its highest monthly close on record
The week ahead (calendar):
The week ahead (key events and themes):
- US ISM services PMI, nonfarm payroll
- China trade, inflation
- Bank of Canada cash rate decision
- RBA cash rate decision, Australian GDP, gross company profits
US ISM services PMI, nonfarm payroll
As the ISM manufacturing report will be released after this article is published, we’re going into next week’s ISM services report without the usual lead. But a noteworthy trend is that the manufacturing sector is contracting at a faster pace while services continues to slow down, according to recent ISM reports. But what traders will really want to see in both reports is weaker ‘prices paid’, as it is a key input for producer and consumer prices. Therefore, softer headline PMIs accompanied by softer prices plays right into the hands of ‘Fed cuts in 2024’ crowd and could weigh on yields and the US dollar. However, if they sink too fast it could renew concerns of a recession, so it may be a case of careful what you wish for with these figures.
And the same could be said for Friday’s nonfarm payroll report. If figures are slightly softer but not at an alarming rate, it could support appetite for risk and weigh on the US dollar. But if a large crack appears, it could dent sentiment and support safe havens such as gold.
Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones
China trade, inflation
Imports to China increased at their fastest pace since February according to last month’s trade balance report, which is not exactly the demand Beijing want to see – as it negates growth and does not fit their goals of ‘domestically-driven growth’. And if inflation continues to meander around the 0% mark, it further adds to the case for further stimulus. Whether it could be enough revive appetite for risk in China seems unlikely unless Beijing uses a bazooka for stimulus. Which means another bout of weak data could weigh on sentiment unless the ‘national team’ is called to support the domestic markets, and likely lead to further support for the yuan.
Trader’s watchlist: China A50, Hang Seng, USD/CNH
RBA cash rate decision, Australian GDP, gross company profits
It is highly likely that the RBA will hold their cash rate steady at 4.35% on Tuesday, given that the monthly inflation report softened further. Besides, they were always more likely to react on the quarterly report (unless the monthly delivered some ripper numbers, which they did not). So whilst RBA members have maintained their hawkish rhetoric, it seems likely the RBA will hike next year if at all. Regardless, we still want to see if their statement comes across as more dovish relative to their minutes – which have been much more hawkish the past two meetings. And there may be a change of tone in the statement, given BOE’s Andrew Hauser should have started his new post as RBA’s deputy governor.
Australia’s GDP is also not likely to be a market mover, but a soft print could feed into the case for another pause in the near year as soft economic output is deflationary. Traders will also keep an eye on gross company profits on Monday for a lead of GDP.
Trader’s watchlist: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, ASX 200
Bank of Canada cash rate decision
The BOC are likely to hold rates at 5% next week according to all economists surveyed by Reuters. And with 69% of them backing 100bos of cuts (or 4x 25bp) by the end of 2024, hikes very much seem off of the table. So if there is to be a surprise at all, it may be that the statement is not as dovish as some may be hoping for. And with traders still heavily short CAD futures, could that leave the potential for some Canadian dollar strength.
Trader’s watchlist: USD/CAD, CAD/JPY, NZD/CAD
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