The Week Ahead
This week’s US job report (Fri), the last before the final FOMC meeting this year, will be closely scrutinised. Other highlights this week include the NATO foreign minister gathering (Tue-Wed), the delayed OPEC meeting (Thu), and appearances from some key central bank figures throughout the week.
Later today we have the eurozone manufacturing PMI and employment figures, UK S&P Global/CIPS manufacturing PMI and US ISM manufacturing readings. The China Caixin Services PMI, eurozone PPI and the S&P Global services PMI, and US factory orders and durable good prints will be of interest on Wednesday, as will the OECD economic outlook. Eurozone retail sales, Germany factory orders and US initial jobless claims are due on Thursday. Eurozone GDP, Germany industrial production and the US employment report and Uni. of Michigan sentiment prints will keep markets busy on Friday.
Central bank chatter includes the ECB’s President Lagarde, and the Fed’s Williams and Waller today. The BoE’s Bailey, ECB’s Cipollone (and again on Wed) and Fed’s Kugler and Goolsbee speak at separate events on Tuesday. The Fed Chair Powell and ECB’s Lagarde and Musalem speak on Wednesday. The BoE’s Greene follows on Thursday. The Fed’s Bowman, Hammock, Goolsbee and Daly all appear on Friday.
Another mixed week for markets amid Trump’s decision to pick Scott Bessent as US Treasury secretary and the president-elect’s announcement of new tariffs on Chinese, Mexican, and Canadian goods, ranging from 10-25%. The yield on the 10-year UST enjoyed a 23bpd fall to 4.17% while the S&P Index rallied a further 1.06%. Brent crude fell 2.97% to $72.94pb; OPEC could therefore announce an extension to production costs this week to support oil prices. The dollar benefited from tariff threats, the DXY Index gained 0.56%.
As expected, US October PCE rose 2.3%yoy slightly higher than September's 2.1%yoy print, while core PCE climbed to 2.8%yoy, from 2.7%yoy a month earlier. The second estimate of Q3’24 GDP remained unchanged at 2.8% annualised, though private consumption growth was revised lower from 3.7% to 3.5%. Personal spending growth moderated, increasing just 0.4% nominally and 0.1% in real terms, compared to September's more robust 0.6% and 0.5%, respectively. Counterbalancing the spending slowdown, personal income grew 0.6% in October, up from 0.3% in September. Labor market indicators remained stable, with initial and continuing jobless claims showing little variation from the previous week. Preliminary October durable goods orders increased by 0.2%, recovering from September's -0.4% decline, though falling short of expectations. Overall, the data suggests an economy experiencing a soft but still resilient growth pattern.
The FOMC minutes from the November meeting revealed significant internal disagreement about the neutral interest rate. While Fed officials expressed uncertainty about potential future rate cuts, they emphasised that monetary policy decisions remain contingent on evolving economic conditions. The FOMC minutes did not introduce substantial new insights about inflation and growth, but the Committee's confidence that inflation would eventually return to the 2% target provided some market reassurance. They also signalled an intention to reduce the overnight reverse repo rate by 5bps to align with the Fed funds’ rate target range.
Elsewhere, China's government bond yields declined last week, with the 10-year benchmark yield touching a multi-decade low of 2.02%. The rally was driven by expectations of a Reserve Ratio Requirement (RRR) cut and weak economic fundamentals. While industrial profits remained weak, sentiment improved, with the manufacturing PMI rising to 50.3 and the business expectation index jumping to 54.7. However, pricing pressures persisted, and the construction PMI fell to 49.7. This morning’s Caixin manufacturing PMI print rose to 51.5 in November, the highest since July, supported by improved supply, demand and export orders. This suggests the pro-growth policies and stimulus measures implemented since September have bolstered market and business sentiment.
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