UPCOMING EVENTS:
- Monday: China CPI.
- Tuesday: RBA Policy Decision, US NFIB Small Business Optimism Index.
- Wednesday: Japan Tankan Index, Japan PPI, US CPI, BoC Policy Decision.
- Thursday: Australia Labour Market report, SNB Policy Decision, ECB Policy Decision, US PPI, US Jobless Claims, New Zealand Manufacturing PMI.
- Friday: BoJ Tankan Index, UK GDP.
Monday
The Chinese CPI Y/Y is expected at 0.5% vs. 0.3% prior, while the M/M measure is seen at -0.4% vs. -0.3% prior. Real rates in China continue to be too high when there’s a strong need for very low and even negative rates in such economic circumstances. Chinese officials keep pledging more support but overall, they’ve been pretty slow in doing so.
Tuesday
The RBA is expected to keep the Cash Rate unchanged at 4.35%. The central bank continues to maintain the neutral stance as core inflation has been slow to return inside their 1-3% target band. Nonetheless, the disinflationary trend remains intact, and the next move is going to be a rate cut with the market pricing in the first one in April 2025.
Wednesday
The US CPI Y/Y is expected at 2.7% vs. 2.6% prior, while the M/M measure is seen at 0.2% vs. 0.2% prior. The Core CPI Y/Y is expected at 3.3% vs. 3.3% prior, while the M/M reading is seen at 0.3% vs. 0.3% prior.
The market is pricing an 85% chance of a rate cut at the upcoming FOMC meeting and a total of three rate cuts by the end of 2025. We will likely need a very hot report to force them to skip the December cut as it looks like they really want to deliver another cut before pausing.
If the data comes out as expected or even lower, it shouldn’t change much in terms of market pricing, but it will likely trigger a selloff in the US Dollar and a rally in bonds.
The BoC is expected to cut interest rates by 50 bps bringing the policy rate to 3.25%. The market’s expectations kept on swinging back and forth between 25 and 50 bps in the past weeks as we got a higher than expected CPI report that strengthened the probabilities for a 25 bps cut, but then a weaker than expected GDP report brought back the chances to basically a 50-50 scenario. The soft labour market report on Friday though sealed the case for a 50 bps cut.
Thursday
The Australian Labour Market report is expected to show 25K jobs added in November vs. 15.9K in October and the Unemployment Rate to tick higher to 4.2% vs. 4.1% prior. The market is pricing in a bit more than two rate cuts in 2025. Weaker than expected data going forward should see the market pricing in more rate cuts.
The market is pricing in a 57% probability of a 50 bps cut for the SNB. Inflation has been much lower than the central bank’s forecasts and the strength in the Swiss Franc didn’t help either. The new SNB’s Chairman Schlegel seems more resolute than his predecessor as he flagged negative rates if needed to dampen the appetite for the safe-haven franc.
The ECB is expected to cut interest rates by 25 bps bringing the policy rate to 3.00%. The market’s pricing has been very aggressive lately due to a series of weaker than expected economic releases, but the majority of ECB’s officials pushed back against a 50 bps cut in December. After this week’s cut, the market sees five more in 2025 which could turn out to be too much if things pick up next year.
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 221K vs. 224K prior, while there’s no consensus for Continuing Claims at the time of writing although the prior release saw a decrease to 1871K vs. 1896K prior.
