UPCOMING
EVENTS:
- Monday: China CPI.
- Tuesday: RBA Policy Decision, US NFIB Small Business Optimism
Index. - Wednesday: Japan Tankan Index, Japan PPI, US CPI, BoC
Policy Decision. - Thursday: Australia Labour Market report, SNB Policy
Decision, ECB Policy Decision, US PPI, US Jobless Claims, New Zealand
Manufacturing PMI. - Friday: BoJ Tankan Index, UK GDP.
Monday
The Chinese CPI
Y/Y is expected at 0.5% vs. 0.3% prior, while the M/M measure is seen at -0.4%
vs. -0.3% prior. Real rates in China continue to be too high when there’s a
strong need for very low and even negative rates in such economic
circumstances. Chinese officials keep pledging more support but overall,
they’ve been pretty slow in doing so.
China Core CPI YoY
Tuesday
The RBA is
expected to keep the Cash Rate unchanged at 4.35%. The central bank continues
to maintain the neutral stance as core inflation has been slow to return inside
their 1-3% target band. Nonetheless, the disinflationary trend remains intact,
and the next move is going to be a rate cut with the market pricing in the
first one in April 2025.
Reserve Bank of Australia
Wednesday
The US CPI Y/Y is
expected at 2.7% vs. 2.6% prior, while the M/M measure is seen at 0.2% vs. 0.2%
prior. The Core CPI Y/Y is expected at 3.3% vs. 3.3% prior, while the M/M
reading is seen at 0.3% vs. 0.3% prior.
The market is
pricing an 85% chance of a rate cut at the upcoming FOMC meeting and a total of
three rate cuts by the end of 2025. We will likely need a very hot report to
force them to skip the December cut as it looks like they really want to
deliver another cut before pausing.
If the data comes
out as expected or even lower, it shouldn’t change much in terms of market
pricing, but it will likely trigger a selloff in the US Dollar and a rally in
bonds.
US Core CPI YoY
The BoC is
expected to cut interest rates by 50 bps bringing the policy rate to 3.25%. The
market’s expectations kept on swinging back and forth between 25 and 50 bps in
the past weeks as we got a higher than expected CPI report that strengthened the probabilities for a 25 bps cut,
but then a weaker than expected GDP report brought back the chances to basically a 50-50 scenario.
The soft labour market report on Friday though sealed the case for a 50 bps cut.
Bank of Canada
Thursday
The Australian
Labour Market report is expected to show 25K jobs added in November vs. 15.9K
in October and the Unemployment Rate to tick higher to 4.2% vs. 4.1% prior. The
market is pricing in a bit more than two rate cuts in 2025. Weaker than
expected data going forward should see the market pricing in more rate cuts.
Australia Unemployment Rate
The market is
pricing in a 57% probability of a 50 bps cut for the SNB. Inflation has been
much lower than the central bank’s forecasts and the strength in the Swiss
Franc didn’t help either. The new SNB’s Chairman Schlegel seems more resolute
than his predecessor as he flagged negative rates if needed to dampen the appetite for the safe-haven
franc.
Swiss National Bank
The ECB is
expected to cut interest rates by 25 bps bringing the policy rate to 3.00%. The
market’s pricing has been very aggressive lately due to a series of weaker than
expected economic releases, but the majority of ECB’s officials pushed back
against a 50 bps cut in December. After this week’s cut, the market sees five
more in 2025 which could turn out to be too much if things pick up next year.
European Central Bank
The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.
Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
continue to hover around the cycle highs.
This week Initial
Claims are expected at 221K vs. 224K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior release saw a
decrease to 1871K vs. 1896K prior.
US Jobless Claims