Weekly Market Outlook (02-06 December)

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Weekly Market Outlook (02-06 December)

UPCOMING
        EVENTS:

• Monday: Australia Retail Sales, China Caixin
          Manufacturing PMI, Switzerland Retail Sales, Switzerland Manufacturing
          PMI, Eurozone Unemployment Rate, Canada Manufacturing PMI, US ISM
          Manufacturing PMI, Fed's Waller.
• Tuesday: Switzerland CPI, US Job Openings.
• Wednesday: Australia Q3 GDP, China Caixin Services PMI,
          Eurozone PPI, US ADP, Canada Services PMI, US ISM Services PMI, Fed Chair
          Powell.
• Thursday: Switzerland Unemployment Rate, Eurozone Retail
          Sales, US Jobless Claims, OPEC.
• Friday: Japan Average Cash Earnings, Canada Labour
          Market report, US NFP, US University of Michigan Consumer Sentiment.

Monday

The US ISM
    Manufacturing PMI is expected at 47.5 vs. 46.5 prior. The S&P Global Manufacturing PMI came in as expected but the details showed once again
    an improvement and a much better future outlook.

In fact, the manufacturing
    sector optimism hit a 31-month high amid improved sentiment due to reduced
    political uncertainty following the US Presidential Election. Moreover, expectations
    of lower interest rates, lower inflation, and better economic conditions
    contributed to positive outlooks, as well as a more business-friendly incoming
    administration.

Tuesday

The Switzerland
    CPI Y/Y is expected at 0.8% vs. 0.6% prior. Inflation in Switzerland has been falling
    pretty fast but despite that, the SNB kept on cutting rates by just 25 bps. The
    Swiss Franc is still relatively strong, and it's been hurting Swiss exporters.
    The market is pricing a 72% chance of another 25 bps cut in December with the
    remaining probability for a 50 bps move.

Recently, SNB's Chairman Schlegel said that they might reintroduce negative interest
    rates if necessary. Schlegel took charge in October, and it sounds like he's
    not afraid of taking more aggressive actions be it larger rate cuts or strong
    interventions.

The US Job
    Openings are expected at 7.480M vs. 7.443M prior. The last report surprised to the downside with the quits rate ticking
    slightly lower and the hiring and layoffs rates remaining relatively stable.
    It's a labour market where at the moment it's hard to find a job but there's
    also low risk of losing one. There's a good chance that things will improve
    next year though and there have been some positive signs already.

Wednesday

The US ADP is
    expected at 150K vs. 233K prior. The last report surprised to the upside triggering a hawkish
    repricing in interest rates expectations. Although the ADP has a poor track
    record in predicting the NFP, the recent market's sensitivity to labour market
    data makes it a market moving event. I don't see the market repricing the rate
    cuts expectations further based on labour market data though. The main event
    this month will be the US CPI on the 11th of December.

The US ISM
    Services PMI is expected at 55.6 vs. 56.0 prior. This survey hasn't been giving
    any clear signal in the past couple of years as it's just been ranging since
    2022. The last report though jumped to a new cycle high, which highlights the
    pick up in economic activity with the expected rate cuts and now a more
    business-friendly incoming administration, with expectations of looser
    regulations, tax cuts and so on.

Thursday

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 215K vs. 213K prior, while there's no consensus for Continuing
    Claims at the time of writing although the prior release saw a decrease to
    1907K vs. 1908K prior.

Friday

The Japanese
    Average Cash Earnings Y/Y is expected at 2.6% vs. 2.8% prior. The Tokyo CPI recently accelerated giving the JPY a boost as the market sees good
    chances of a rate hike in December.

The commentary
    from BoJ officials has been mixed but leaning into a slightly hawkish stance.
    The probability for a 25 bps hike in December stand at 56% but an upside
    surprise in the wage data could see those probabilities tick higher.

The Canadian
    Labour Market report is expected to show 27.5K jobs added in November vs. 14.5K
    in October and the Unemployment Rate to tick higher to 6.6% vs. 6.5% prior. The
    BoC is now focused on growth as they met their inflation target.

Following Friday's
    Canadian GDP report, the market increased the probabilities for a
    50 bps cut in December to 52%. Better than expected jobs data will likely see
    the 25 bps cut getting back in favour.

The US NFP report
    is expected to show 195K jobs added in November vs. 12K in October and the
    Unemployment Rate to tick higher to 4.2% vs. 4.1% prior. The Average Hourly
    Earnings Y/Y are seen at 3.9% vs. 4.0% prior, while the M/M measure is seen at
    0.3% vs. 0.4% prior.

The last report
    was negatively impacted by strike activity and hurricanes, so the market just
    ignored it, especially since the focus was on the US Presidential Election. The
    labour market data throughout November has been positive, so the expectations
    going into this NFP report are skewed to the upside.

As previously
    mentioned, I don't see the market repricing the rate cuts expectations further
    based on labour market data. The main event this month will be the US CPI on
    the 11th of December. In my opinion, the Fed is going to cut by 25
    bps anyway but revise the dot plot to show just two rate cuts in 2025 (in line
    with the market's pricing) and communicate a pause to gather more information.

                This article was written by Giuseppe Dellamotta at www.forexlive.com.

Source: Weekly Market Outlook (02-06 December)

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