November’s US CPI rates, ECB, RBA and BoC to move the markets

The week is about to come to an end, and we have a look at what next week has in store for the markets. On Monday we make a start with Japan’s revised GDP rate for Q3 and October’s current account balance, while from China we get the November inflation metrics and later on we get Eurozone’s December Sentix index. On Tuesday, we get China’s trade data for November while RBA is to release its interest rate decision and later we get the Czech Republic’s November CPI rates. On Wednesday we get Japan’s Corporate Goods Price growth rate for November, BoC is to release its interest rate decision and we highlight the release of the US CPI rates for November. On Thursday we get Australia’s employment data for November, UKs’ GDP rates for October, Sweden’s CPI rates for November, the weekly US initial jobless claims figure and the PPI rates for November while from Switzerland SNB and from the Eurozone ECB are to release its interest rate decisions. On Friday we get Japan’s Tankan manufacturing and non-manufacturing indexes for Q4, UK’s manufacturing output growth rate, Norway’s GDP rates, Euro Zone’s industrial output and Canada’s manufacturing sales and Whole trade growth rates, all being for October. 

USD – US employment data due out today

On monetary level, Fed Chair Powell’s comments on Wednesday, may be perceived as an inclination towards the bank remaining on hold in their last meeting of the year which is set to occur on the 17th of December. In particular, Fed Chair Powell stated that “the good news is that we can afford to be a little more cautious as we try to find neutral”, implying that the Fed Chair may opt for the bank to remain on hold, which in turn could aid the dollar as it would imply a more gradual rate cutting cycle than what is currently expected by market participants. Specifically, market expectations are for the bank to cut by 25 basis points in their next meeting, with Fed Fund Futures currently implying a 72.7% probability for such a scenario to materialize. Yet, despite the probability being predominantly attributed to a rate cut by the Fed, we would not be surprised to see the bank remaining on hold.

On a macroeconomic level, we would like to stress that the November employment report at the time of writing has not yet been released and thus could easily change the Fed’s narrative over the upcoming week and potentially leading up to the Fed’s meeting. There are two metrics of the employment data which we would like to highlight, with the first being the NFP figure which is expected to come in at  202k which would be higher than last month’s figure of 12k and thus should it come in as expected or higher it may support the dollar and vice versa. Yet, given that last month’s figure was 12k, it comes as no surprise that we may see a “much higher” NFP figure such as the figure proposed by economists. Thus we turn our attention to the unemployment rate which expected to increase from 4.1% to 4.2%. Such a scenario may imply a loosening labour market, which in turn may increase pressure on the Fed to cut in their next meeting. However, should the unemployment rate remain steady or come in lower than 4.1%, it may have the opposite effect. Lastly,the US CPI rates for November are due out next week and could also play a key role in the greenbacks direction, where a figure higher than last month rate could aid the dollar and vice versa.

Analyst’s opinion (USD)

“It is our view that the Fed’s decision on whether they should cut interest rates or remain on hold, will be dictated by tomorrow’s employment data. We maintain our opinion that the Fed may be looking for an excuse to remain on hold, in an attempt to pre-emptively prepare for the incoming administration’s economic policies. Nonetheless, should a hawkish rhetoric emerge from the Fed, it could aid the greenback and vice versa”

GBP – Will the BoE cut four times next year?  

On a monetary level, we highlight the interview BoE Governor Bailey had with the Financial Times earlier on this week. The FT writes that when “asked if, under the BoE’s central forecast for 2025, the MPC would carry out four interest rate cuts, Bailey said ‘Yup’”. The clear admission by the BoE Governor, will be placed to the test on the 6th of February which would be the bank’s first meeting in the new year. In particular, GBP OIS currently implies a 69.1% for the bank to cut interest rates by 25 basis points. However, for the bank’s meeting on the 19th of December, the majority of market participants are currently anticipating the bank to remain on hold, with GBP OIS currently implying a 92.4% for such a scenario to materialize.

On a macroeconomic level, it may be a relatively quiet week for pound traders, as no major financial releases are expected from the UK next week. Nonetheless, some financial releases were worth noting this week. Specifically the manufacturing PMI figure for November, came in lower than expected at 48.0 versus the expected figure of 48.6  and the prior rate of 49.9, effectively implying a widening contraction of the UK manufacturing sector. Should financial releases stemming from the UK, paint a dire picture of the economy, it could curb the Governor’s ambitions of cutting interest rates four times next year.

Analyst’s opinion (GBP)

“Overall we expect fundamentals to lead the pound in the coming week. With the year coming to an end, it will be interesting to monitor the BoE’s accompanying statement in their final meeting of the year, given the Governor’s aims to cut interest rates four times next year. We also remain concerned about the Government’s budget whose impact may emerge in the near future”

JPY –Revised GDP rates in sight

On a monetary level, BOJ Governor Ueda’s comments earlier on this week caught our eye, with Reuters citing the Governor has having stated that “the timing of the next interest rate hike was approaching” which tends to imply that the bank may be preparing to hike interest rates in their next week. In turn, such a scenario could potentially aid the JPY, yet the Governor also warned that there was a big “question mark” on the economic outlook of the US economy, which may tend to blur the picture as to whether the bank intends to hike in their next meeting or not. Nonetheless, should the relatively hawkish sentiment be echoed from other BOJ policymakers as well, it could aid the JPY.

On a macroeconomic level, we note the release of Japan’s Tankan index figures next Friday. Should the figures point to a healthy Japanese economy, it could aid the Yen and even further, could provide a boost to the bank’s ambitions to continue on their rate hiking cycle. On the flip side, should they come in lower than last month’s figure, it could have the opposite implications which in turn may weigh on the JPY. However, the revised GDP rate for Q3 on Monday may be the key event for Yen traders next week, as should the Japanese economy continue growing, it could paint a positive image for the overall economic situation which in itself may aid the Yen and vice versa.

Analyst’s opinion (JPY)

“In general we highlight BOJ Governor Ueda’s comments this week, which could influence the bank’s accompanying statement in their next meeting. Overall, looking at 2025 where major banks are expected to cut interest rates, the BOJ may stand out with its rate hike approach which could in general aid the Yen”

EUR – ECB interest rate decision in view

On a monetary level, the ECB interest rate decision is set to occur next week, with the majority of market participants widely expecting the bank to cut by 25 basis points, with ECB OIS currently implying a 92.2% probability for such a scenario to materialize. Overall, should we see a more dovish rhetoric emerging from ECB policymakers, it could further amplify the market’s expectations of a rate cut in their meeting next week which in turn may weigh on the EUR.

On a macro level we highlight Germany’s manufacturing PMI figure which came in lower than expected implying a widening contraction of Germany’s manufacturing sector. Overall, the services and manufacturing PMI figures for Germany , France and the Zone may have varied slightly, yet they all share a common denominator which is that they remain in contraction territory. In turn, should we see key economic metrics remaining in contraction territory it could weigh on the EUR. Whereas, should we see an improvement in general, it may alleviate the concerns regarding the Eurozone’s economic health and thus may aid the common currency.

The political situation in France certainly doesn’t help investor confidence in the Zone. France’s Government has failed to survive a no-confidence vote, which in turn now complicates the political situation in France. Thus, further political instability in one of the two most important countries in the Eurozone could weigh on the common currency. Moreover, this may be further aggregated by Germany’s early elections next February and thus we will continue to closely monitor the situation.

Analyst’s opinion (EUR)

“Overall, the political situation in Europe is a continuing concern for us. In particular, the recent no-confidence vote in France and Germany’s elections next year, are worrying especially during times when stability is key.In terms of monetary policy, we maintain our view that the ECB may have no alternative but to cut interest rates in their meeting next week, as the Zone faces economic hardship and thus should monetary policy remain restrictive it may raise recession worries’

AUD – RBA decision next week

On a monetary level, the RBA’s interest rate decision is set to occur on Tuesday, with the majority of market participants currently expecting the bank to remain on hold at 4.35%. Specifically, AUD OIS currently implies an 87.5% probability for such a scenario to materialize and thus attention may turn to the banks accompanying statement. In which should RBA policymakers hint towards potential rate hikes in their next meeting, it could aid the AUD and vice versa.

On a macroeconomic level, we would like to expand on our previous comment based on the recent financial releases stemming from Australia. Australia’s GDP rate for Q3 came in lower than expected, implying that the economy expanded at a slower rate than what was expected by economists. The expansion in itself is a positive for the Aussie, yet the lower than expected rate may be of concern for policymakers. Thus, next week’s employment data will also be crucial, where a loosening labour market may increase calls for the bank to cut rates and vice versa.   

Analyst’s opinion (AUD)

“In the coming week, the RBA’s decision may take the spotlight away from the Employment data for November which is due out on Thursday. In our view, the RBA may raise concerns about the resiliency for the economy and thus any “hawkish” mentions may be limited to remaining on hold rather than potential rate hikes.”

CAD – BoC interest rate decision next week

On a monetary level, the BoC’s interest rate decision is set to occur next Wednesday with the majority of market participants currently expecting the bank to cut by 25 basis points, with CAD OIS currently implying a 53.4% probability for such a scenario to materialize. In such a scenario we may see the CAD weakening, yet traders may be also interested in the bank’s accompanying statement. Should policymakers showcase a willingness to continue cutting interest rates it could weigh on the Loonie, whereas any hesitation could aid the CAD.

On a fundamental level, given Canada’s oil-producing status, the Loonie may also be inadvertently influenced by the recent geopolitical escalation in Syria. Specifically, anti-regime forces have made significant advances and thus placing the delicate “stability” in the region under threat. In the event that the oil fields in the region are under threat, it may lead to concerns about oil supply from the region, which in turn could aid oil prices and thus by association the CAD. 

 

On a macro level, Canada’s employment data at the time of this report has not been released and thus could change the perspective and the market’s expectations on the interest rate decision that is to be taken by the BoC next week. Hence, should the employment data imply a resilient labour market it could aid the CAD and vice versa.

Analyst’s opinion (CAD)

“We see the case for the BoC to cut interest rates despite the manufacturing PMI coming in higher than expected. In our view, we need to begin looking at the relationship between Trudeau and Trump, as tariffs on Canadian goods could alter the BoC’s monetary policy path”