Week of NOVEMBER 24

The week was characterised by shifting market expectations around the Fed following the FOMC minutes and the release of delayed US jobs data, as well as a stronger-than-expected UK CPI.

The week ahead is pretty quiet for macroeconomic data, with the RBNZ rate decision and UK Autumn Budget expected. However, there is still a trove of pending US data that is yet to be scheduled and could be released in the coming days, including the PCE price index and durable goods orders.

Week in Review

The main theme of the week was adjusting the outlook for rate cuts after the BLS began releasing some of the data delayed by the shutdown. 

The minutes of the last FOMC meeting showed a divided Fed, casting doubt on whether there would be a third rate cut in December. Officials argued over whether high inflation or the labour market was the most significant concern. The delayed September NFP did not resolve the issue, as the figure more than doubled estimates, rising to 119K jobs added compared to the 50K forecast.

Last month was revised to negative at -4K, down from the 22K reported initially. The unemployment rate also ticked up by one decimal point to 4.4%, the highest level since October 2021. Initial weekly jobless claims were published for the first time since the shutdown, at 220K, better than the 262K anticipated. The Bureau of Labour Statistics (BLS) confirmed that September JOLTs and October NFP data will not be released, adding to uncertainty around the US economic situation.

The UK October CPI decelerated faster than expected to 3.6% from 3.8%, versus the 3.7% forecast. However, the core rate declined to 3.4%, down from 3.5% a month earlier. The softening in the inflation numbers was in line with the market, which was already pricing in a BOE rate cut in December. Meanwhile, retail sales grew just 1.2%, well below the 2.5% forecast, suggesting consumer weakness amid the uncertainty ahead of the Autumn Budget. 

Japan's October CPI accelerated to 3.0% from 2.9% in the prior month, but that was below the 3.1% forecast. Q3 GDP fell to -0.4% from 0.6% in the second quarter, as expected. Numerous Japanese officials expressed concern about the yen's rapid weakening this week.

Canada's inflation rate unexpectedly fell to 2.2% from 2.4% a month earlier. Meanwhile, the BOC's preferred measure, the trimmed mean, ticked down to 3.0% from 3.1% a month earlier.

In geopolitics, a White House proposal for a peace deal between Ukraine and Russia was leaked, with characteristics similar to the Gaza plan implemented earlier in the year. Trade tensions between Japan and China escalated after Japan's Prime Minister Sanae Takaichi promised to defend Taiwan in the event of a Chinese invasion. Rumours circulated that the left wing of the UK Labour Party was looking to replace Prime Minister Keir Starmer.

Biggest Market Movers

• The dollar reclaimed the 100 handle as the odds of a Fed rate cut in December fell below 40% after the publication of delayed US jobs data.
• Crude prices declined by ~3% amid rising inventories and hopes for a peace deal that would end the war in Ukraine.
• Bitcoin fell by over 10% amid risk-off sentiment and liquidity concerns, hitting April lows.
• The yen was among the worst-performing major currencies as the government approved the most extensive stimulus plan since the pandemic.
• Nasdaq tumbled around 5% in the week despite strong earnings from Nvidia, as concerns about high valuations dragged down the tech index.

Top Events in the Week Ahead

The focus of the coming week is likely on the release of delayed US economic data, which could come on Wednesday ahead of the Thanksgiving holiday. Outside of that, markets will be awaiting the UK's Autumn Budget and RBNZ rate decision.

Potential US Data Releases

There is still some confusion about what data will and won't be released and when, following the US government reopening. Among the missing data are flash Q3 GDP figures, durable goods, and the PCE price index. Some of those were initially scheduled to be released next week but might be delayed. The Bureau of Labour Analysis (BLA) rescheduled the second reading of US Q3 GDP to later in December but did not confirm if or when it would release the usual flash reading.

The consensus among analysts is for US Q3 GDP to slow to an annual rate of 3.25% from 3.8% in the second quarter. The Core PCE price index is the Fed's preferred measure of inflation, so it has a larger impact on the market. The consensus among analysts is that the September measure will drop back to 2.8% from 2.9% in August, breaking a 5-month streak of acceleration. If the Nasdaq loses 24k, it could potentially drop to 23k, unless bulls manage to regain 24400.

UK Budget: To Tax or Not to Tax?

UK Chancellor Rachel Reeves will deliver her much-anticipated Autumn Budget to Parliament on Wednesday, with the central question for markets being whether there will be a substantial tax increase. The government faces a £20 to £40 billion shortfall in the next quarter, and economists are concerned that measures to increase revenue could raise inflation and slow growth. The market is widely expecting the BOE to cut rates at the next meeting, but the potential to slow the economy could prompt the market to price in further easing next year, sending the pound below 1.3000 and towards 1.2800. Clarity in policy could help dispel some of the market uncertainty and generate a relief rally towards 1.3300.

RBNZ To Keep Easing

Markets are expecting another 25 bps rate cut from the RBNZ on Wednesday after the surprise "jumbo" cut back in October. Softer economic data since then is seen as justifying further easing. Traders will be on the lookout for signs that New Zealand's central bank plans to keep cutting into the new year as the Kiwi hovers shy of 2025 lows below 0.5500.

Preliminary Eurozone Inflation Figures Steady

France and Germany will report their flash November CPI readings on Friday. German inflation is expected to stay unchanged at 2.3%, while French consumer prices are expected to accelerate to 1.1% from 0.9%. This data is expected to suggest Eurozone inflation will remain close to the ECB's 2.0% target, but EURUSD trades just above its November low of 1.1468. A break lower could eye support at 1.14, while a relief rally following several sessions in the red could help recapture 1.1600.

Other Events and Earnings

Monday has the Ifo Business Climate from Germany. The US Conference Board publishes consumer confidence data on Tuesday. Wednesday includes the Australian monthly CPI. Thursday sees German GfK consumer confidence data. Japan's unemployment data comes out on Friday. 

Earnings expected this week include Zoom, Alibaba, Analogue Devices, Dell, Deere, and Compass Group.