UPCOMING EVENTS:
- Monday: Switzerland CPI.
- Tuesday: Tokyo CPI, China Caixin Services PMI, RBA Policy Decision, Eurozone PPI, Canada Services PMI, US ISM Services PMI, US Job Openings.
- Wednesday: Australia GDP, Eurozone Retail Sales, US ADP, BoC Policy Decision.
- Thursday: China Trade data, Switzerland Unemployment Rate, US Challenger Job Cuts, US Jobless Claims.
- Friday: Japan Wage data, US NFP, University of Michigan Consumer Sentiment.
Monday
The Swiss CPI Y/Y is expected to remain unchanged at 1.7% vs. 1.7% prior, while the M/M measure is seen at -0.1% vs. 0.1% prior. The inflation rate in Switzerland has been in the SNB’s 0-2% target for a long time for both the headline and core measures. The central bank is unlikely to hike even if we get a small beat as the data might be distorted due to temporary rent and energy price increases.
Tuesday
The RBA is expected to keep the cash rate unchanged at 4.35% after they hiked by 25 bps in November. RBA’s Governor Bullock has kept a hawkish tone recently as the central bank is now more worried about inflation expectations getting out of hand. The data, on the other hand, has been mixed but skewed towards weakness as the PMIs fell further into contraction and the Monthly CPI missed expectations across the board, although the Trimmed Mean measure fell by just 0.1%.
The US ISM Services PMI is expected to increase to 52.0 vs. 51.8 prior. The recent S&P Global Services PMI beat expectations, but the most notable take from the report was the line saying that “as a result of subdued demand and decreasing backlogs, companies reduced their workforce for the first time since June 2020, affecting both service providers and goods producers. Cost pressures eased, with input prices rising at the slowest rate in over three years”.
The US Job Openings is expected to fall to 9.350M vs. 9.553M prior. The labour market has been showing clear signs of weakening lately and despite the volatility in Job Openings, the trend is self-explanatory. This will be the first major US labour market report for the week and it’s highly likely that it will be market moving.
Wednesday
The US ADP is expected to show 128K jobs added in November compared to 113K in October. The market at the moment is more focused on the labour market weakness, so a strong report might trigger some reaction but it’s likely to be reversed soon after as the market will look forward to the NFP release.
The BoC is expected to keep interest rates steady at 5.00% vs. 5.00% prior. This move is supported by the recent Governor Macklem’s comments where he said that “interest rates may now be restrictive enough” and the CPI report where all the figures fell further, especially for the underlying inflation measures, which is what the BoC is most focused on. Moreover, last week’s labour market report, despite being good, showed another increase in the unemployment rate.
Thursday
The US Jobless Claims continue to be one of the most important releases every week as it’s a more timely indicator on the state of the labour market. Initial Claims keep on hovering around cycle lows, which shows us that layoffs have not yet picked up notably, but Continuing Claims are now rising at a fast pace and that’s indicative of people finding it harder to get another job after being laid off. This week the consensus sees Initial Claims at 223K vs. 218K prior, while there’s no estimate at the time of writing for Continuing Claims, although the last week’s number was 1927K vs. 1841K prior.
Friday
The US NFP is expected to show 175K jobs added compared to 150K in October and the Unemployment Rate to remain unchanged at 3.9%. The culprit for the pickup in growth is expected to be attributed to the end of the United Auto Workers strikes in October which weighed on the Manufacturing payrolls in the prior report.
The Average Hourly Earnings Y/Y is expected to cool further to 4.0% vs. 4.1% prior, while the M/M measure is seen ticking up to 0.3% vs. 0.2% prior. As a reminder, the last report missed expectations across the board with all measures pointing to weakness like the increase in the unemployment rate and the decrease in average weekly hours worked.
There’s been lots of chatter on the Sahm Rule Indicator lately, so let’s see what’s that about. The Sahm Rule Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months. The minimum three-month average from the previous 12 months is at 3.5%, so we will need a spike to 4.3% in the next report to bring the three-month average to 4.0% and reach the 0.50 threshold. With such a spike though, we won’t need to look at the indicator to conclude that a recession might have already started.
The University of Michigan Consumer Sentiment is expected at 61.8 vs. 61.3 prior. This indicator measures how the consumers see their personal finances compared to the Consumer Confidence which is more weighted towards the labour market outlook. It’s been falling steadily since June while inflation expectations spiked higher in the recent couple of months despite the huge drop in gasoline prices. Nevertheless, the NFP will overshadow this report, so it could be market moving only if it’s in line with the NFP release.
