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We standardise WoW price changes across different markets to allow for cross-market comparisons.
Last Week’s Highlights
US jobs data surprised higher. Friday’s NFP data surprised modestly on the upside, with 199,000 jobs added in November versus consensus expectations of 180,000. The unemployment rate also surprised, falling back to 3.7% from a two-year high of 3.9% in October. This eased the market’s fears of a recession trigger called the ‘Sahm Rule’. In response, short-term yields rose, and the USD gained support (Chart 2 and 3).
BoJ signalled end of easy policy. Hawkish comments from BoJ’s Himino and Ueda triggered renewed speculation of a BoJ hike. This strengthened JPY/USD to the low-144 level, its highest in nearly four months, from about 146.8 at the end of the prior week (Chart 2).
ECB’s Schnabel’s dovish pivot. The ECB’s influential board member Schnabel signalled a shift to a dovish stance, saying ‘The most recent inflation number has made a further rate increase rather unlikely’. This was the first time previously hawkish-leaning Schnabel has signalled the ECB could be done. However, she has not yet greenlit rate cuts. This makes the ECB now more dovish than the BoE, which is still nervous about inflation’s trajectory given the lack of clarity from wage data.
What to Watch
CPI Tuesday – expect a downside surprise! The main data release in the US this week will be CPI, where consensus expects core inflation to rise 0.3%. Dominique sees potential for a downside surprise this month driven by lower energy prices, which may feed into core inflation as well.
It is ECB week in Europe – we think rates will remain unchanged. The ECB meets on Thursday and is likely to leave rates unchanged at 4.0% depo in line with market consensus. Henry expects the tone will match Schnabel’s most recent comments, with forecasts adding to the dovish picture. The most recent decline in gas prices will have occurred after the data blackout, but the winter risk to energy prices remains a worry for the ECB in the near term.
Speaking of central banks on hold, the BoE is up next. The Bank of England also meets on Thursday and is likely to leave its base rate unchanged at 5.25%. Without updated unemployment data, it will struggle to change the tone. However, if labour market data comes in stronger than expected in the coming months, markets may have to curtail rate cut expectations.
That UK labour market data arrives on Tuesday. Henry expects a continued reduction in vacancies and elevated wage growth albeit with a clear sign of deceleration.
BCB forecast to cut by 50 bps: Banco Central do Brazil’s last MPC meeting for this year is on Wednesday. We and the market expect a cut of 50bps, bringing rates to 11.75%. This aligns with BCB guidance at the last meeting: it noted that 50bp cuts was an appropriate pace. We believe the central bank will be less hawkish given more benign inflation behaviour – inflation should close this year below the target’s upper band for the first time since 2020.
The Week Ahead: Watch Andrew and Dominique the most recent labour market data, why Dominique changed her Fed view for 2024 as well as her view of the US deficit going forward.
(The commentary contained in the above article does not constitute an offer, a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.