This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
We standardise WoW price changes across different markets to allow for cross-market comparisons.
Last Week’s Highlights
USD continued its decline as RoW data stabilises. The dollar index (DXY) kept falling last week, down 0.5% WoW. The biggest winners were NZD, AUD and GBP (Charts 1 and 2).
The GBP performance owes much to a better-than-expected flash PMI reading. While manufacturing remained weak, the services PMI returned to growth with a reading of 50.5, up from 49.5 previously. Total new work decreased for the fifth month running, albeit only marginally and the slowest since July. Overall cost pressures across the private sector economy remained much softer than in Q3 2023.
Riksbank left policy rates at 4%! Our expectations of a final 25bps hike were wrong as the Riksbank held rates unchanged. Why did they flip dovish? The main reason is that momentum in core inflation has slowed. However, the Riksbank continued to warn that further hikes are still an option at February’s meeting.
Euro-area consumer confidence continued to recover. Consumer confidence in the euro area rose 0.9 points from the previous month to -16.9 in November. This was the highest reading in three months and shows higher real wages following last year’s energy shock have supported consumer confidence. The report also showed consumers are optimistic that interest rates will not rise further and might even fall as inflation keeps slowing.
Japanese CPI comes in below market forecasts, but rises sequentially. Friday morning’s Japanese inflation data showed that CPI rose 3.3% versus 3.4% expected. The ‘supercore’ inflation data (ex. fresh food and energy) also rose less than expected at 4.0% YoY but exceeded last month’s 3.9%. Utility bills were higher as the government reduced subsidies in October – so this is likely a one-off factor. Higher utility bills and hotel fees drove the uptick. This increase was already telegraphed via this month’s Tokyo CPI data. However the increase in hotel fees could be more concerning – we know both strong demand and labour shortages are driving it.
All in all, this print will not worry the BoJ too much, especially given the negative GDP print earlier this month. The Japan flash composite PMI fell to 50.0 last week driven by weaker manufacturing. However, in the medium term, we still see the BoJ ending its negative rate policy and YCC, but the timing remains uncertain. Lower rates elsewhere have also reduced pressure on JPY – showing the BoJ were right not to turn more hawkish.
What to Watch
Yes, US core PCE is important, but watch income growth too! This Thursday, we get the Fed’s preferred inflation measure – the PCE (particularly core PCE). Dominique agrees with the consensus forecast of 0.2% MoM as this will follow the same pattern as the CPI, namely lower core services, largely because of lower energy prices in October.
However, more interesting this month is the broader PCE data for spend and income. Consensus expects personal income and expenditures to grow 0.2% MoM, implying an unchanged savings rate. Personal income coming in stronger than expected will provide a positive signal for consumer balance sheets and spending ahead.
Will European inflation continue down its dovish path? Eurozone November inflation will be the week’s main release. We expect the recent normalisation in core and services inflation can continue for now, but ECB policymakers will take little positivity from this. Accommodation inflation has tended to rise around December – its disinflation has masked higher inflation elsewhere in wage-intensive services.
Has Canada already entered a recession? The last two QoQ GDP prints in Canada have been 0.6% growth in Q2 and 0.0% in Q3. The labour market has also clearly loosened. Recent gains stem from part-time employment, while survey data continues to recede. A strong downside surprise would sustain dovish pricing.
Has the Swedish economy stablised? Wednesday sees the Swedish Economic Tendency Survey (ETS), which usually offers a good lead for YoY GDP growth. The ETS has been declining recently and suggests GDP YoY will continue to decline, in line with expectations (-1.4% YoY). The last reading was 84.7, so we will see if the latest data comes in higher as the PMIs have implied.
The Week Ahead: There was no Week Ahead this week as our researchers took a well-deserved break for Thanksgiving. However, be sure to tune in this week for more of Dominique’s thoughts and insights!
