Week of december 2

Last week saw FOMC minutes, PCE inflation and durable goods orders meeting expectations in the US, while European inflation eased.

The upcoming week begins with the release of global PMI data, followed by trade balance figures from the US and major European nations ahead of the highly anticipated Non-Farm Payrolls (NFP).

Week in Review

The data was frontloaded for the week due to the upcoming US holiday, which resulted in reduced market liquidity on Thursday and Friday.

The US PCE Deflator Index was largely in line with the previous month in October, leading to speculation that the Federal Reserve will cut rates by a quarter-point when it meets in December, as the FOMC minutes provided little new insight into the bank's thinking. The second estimate of US Q3 GDP confirmed a slight slowdown in growth to 2.8% year-on-year from 3.0% in the second quarter. Finally, as expected, durable goods, excluding transportation, grew by 0.1% in October.

Throughout the week, "northern" and "southern" ECB policymakers sounded divided, with the former advocating caution about cutting rates too quickly and the latter concerned about the economic slowdown. Meanwhile, French and Greek bond yields matched for the first time ever, amidst disputes over France's budget.

In Asia-Pacific, the RBNZ cut rates by 50 basis points as anticipated, but the lack of discussion about a 75-basis-point move left markets with the impression that it was a "hawkish cut". Deputy RBNZ Governor Christian Hawkesby signalled another 50-basis-point cut at the next meeting. The Kiwi may extend to 0.60 next unless the door to 0.58 opens up once again. Neighbouring RBA Governor Michelle Bullock reaffirmed her position that there is little chance of a rate cut in the near future, with core inflation remaining within the target range. She spoke after Australia's inflation rate remained unchanged at 2.1%, despite market expectations of 2.3%. Meanwhile, Tokyo's inflation came in higher than expected, adding to expectations that the BOJ will raise rates. A USD/JPY trading under the 150 barrier eyes 146.50, whereas on the upside, resistance sits at 153.30.

In geopolitics, Israel and Hezbollah reached a 60-day ceasefire agreement over the conflict in southern Lebanon. Moreover, President-Elect Donald Trump announced 25% tariffs on Mexican and Canadian goods if they did not take more measures to address drug trafficking and immigration. The leaders of both countries seemingly placated the incoming US president, though it was unclear if the tariffs would actually be applied.​

Biggest Market Movers

• Crude prices dropped around 5% on reports that the incoming Trump administration plans to increase oil and gas output and a ceasefire deal between Israel and Hezbollah.
• The Kiwi gained about 1% after the RBNZ 50-bps rate cut as markets interpreted it as more hawkish than expected.
• The USDJPY declined 3% as yen-denominated yields rose ahead of expectations that the BOJ would hike rates.
• The dollar lost around 1% on easing yields in a truncated US trading week and the perception of easing geopolitical concerns.

Top Events in the Week Ahead

The state of the global economy will likely be the focal point for the upcoming week, starting with the release of manufacturing PMI data from various nations on Monday.

Global PMIs in Focus

China's private Caixin measure is expected to slightly expand to 50.2 from 50.1 previously, as the stimulus measures might finally take effect. Conversely, French and German measures are expected to confirm that the Eurozone remains mired in contraction for over two years at this juncture. Across the Atlantic, the US Manufacturing PMI is expected to remain in contraction but improve substantially, being the first edition of this data since the election. EUR/USD maintains strong support and resistance at the round levels of 1.04 and 1.06.

NFP Could Sway Rate Cut Odds

The crucial NFP data on Friday will be scrutinised as investors seek to gauge the stability of America's labour market, which had been showing signs of contraction over the months leading to the election, prompting speculation about rate cuts. Notably, the Fed will enter its blackout period the day after the labour data is released. The unemployment rate is expected to remain unchanged at 4.1%, but payrolls are anticipated to rebound closer to the average range at 194,000 from just 12,000 reported in October. Part of the slump effect was attributed to employers holding back on hiring ahead of the election and the impact of two hurricanes.​ Missing economist forecasts could see gold back at $2800 per ounce, with an upbeat reading opening the door to $2535.

Trade Data in the World of Tariffs

Markets may experience increased volatility following the unexpected announcement of new tariffs by President Trump during trading last week. Upcoming trade data releases include Australia's balance, which is forecast to show an expanding surplus as imports decline at a faster pace than exports. Canada's trade figures are also expected to show contractions in both imports and exports, resulting in a narrower trade deficit despite lower crude oil prices. Volatility in USD/CAD could sway the pair in either direction, with 1.38 and 1.42 in focus. The US is anticipated to report a modest reduction in its trade deficit for November as well, with imports projected to decrease at a faster pace than exports. In contrast, Germany's trade data is likely to point to rising imports and falling exports.​

Other Events, Earnings

On Monday, employment figures for the Eurozone will be released. Tuesday will see the publication of US JOLTs job data. A range of services PMIs for November from various countries are scheduled for release on Wednesday. Thursday includes the release of Canada's Ivey PMI. Friday will bring the UK Halifax house price data.

In December, there will be a gradual slowdown in corporate earnings reports as the holiday season approaches. Companies expected to report earnings this week include Salesforce, Marvell, Hormel Foods, Kroger, Lululemon, Balfour Beatty, and DS Smith.