Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Nov 27 – Dec 1)

RBNZ meeting, preliminary inflation data from Eurozone, PCE inflation from the US coupled with GDP data from the US, Canada and Switzerland as well as official PMI data from China and employment data from Canada will highlight the week ahead of us. Additionally, OPEC+ meeting will be held on Thursday November 30 in Vienna.

USD

FOMC minutes from the November meeting showed that decision to keep rates steady was unanimous. Participants agreed that current market conditions are restrictive and as such they put a downward pressure on economic activity. Tightening of financial conditions was helped by rising long-term yields which happened due to increase in term premium. Inflation remains elevated but long-term inflation expectations remain well anchored. Real GDP in Q3 was very strong and was driven by consumer spending. Members remain prepared to tighten further if the need arises.

The yield on a 10y Treasury started the week and year at around 4.44%, rose to 4.47%, then fell below 4.38% and finished the week at around 4.48%. The yield on 2y Treasury reached the high of 4.95%. Spread between 2y and 10y Treasuries started the week at -44bp then widened to -46bp as curve inverted further. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of no change at December meeting at 95% while there is a 5% chance of 25bp rate hike.

This week we will have second estimate of Q3 GDP, Fed’s preferred inflation measure PCE and ISM manufacturing PMI.

Important news for USD:

Wednesday:​

• GDP​

Thursday:​

• PCE​

Friday:​

• ISM Manufacturing PMI​

EUR

Preliminary November PMI data for the Eurozone saw improvements across all three measures. Manufacturing came in at 43.8 vs 43.4 as expected and up from 43.1 in October with German manufacturing continuing to move up, although at a very low level of 42.3. However, the optimism surrounding German economy gave EUR a nice boost. Services PMI came in at 48.2, up from 47.8 the previous month with Germany and France also posting improvements. Composite was at 47.1, up from 46.5 the previous month. All three readings are below 50 indicating that the economy is still in contraction, but at least there is a slowdown in declines. Still these PMI readings point to yet another negative quarter of GDP, but may prove to be a shallow one. Additionally. the report shows that there is a weakness in employment growth which, if continued, can translate into higher unemployment rate. Inflation is declining, but report shows that input costs increased in November compared to the previous month which may indicate that there is still a way to go in battle against inflation.

Final German Q3 GDP came in unchanged at -0.1% q/q while yearly figure came in at -0.4% vs -0.3% as preliminary reported. There was, however, a positive revision to Q2 GDP to 0.1% y/y. Still it paints a very bleak picture of a struggling economy. The biggest drag on GDP was personal consumption while government spending and business investment softened the blow and supported economic activity.

This week we will have preliminary November inflation data.​

Important news for EUR:

Thursday:​

• CPI​

GBP

BoE Governor testified in front of the Parliament and stated that they are on their way to reach the targeted level of 2%. He added that further rate hikes cannot be ruled out but for now they are in watchful data-dependent mode. Additionally, he stated that markets are underestimating the risk of inflation persistence.

Chancellor of Exchequer Jeremy Hunt announced that minimum wage for citizens older than 21 years will be raised by 10% and will total £11.44 per hour. Additionally, budget report contains information that taxes for businesses will be reduced and welfare benefits will be increased by 6.7%. Office for Budget Responsibility (OBR) sees CPI for 2023 at 7.4% vs 6.1% in March. 2024 CPI is seen at 2.8%, lower than 3% expected but way higher than seen in March. CPI is seen coming to target of 2% during 2025. OBR sees 2023 GDP at 0.6%, higher than 0.4% expected and much stronger than -0.2% seen in March. 2024 GDP is seen at 0.7%, higher than expected but this time lower than was seen in March (1.8%).

Preliminary PMI data for the month of November posted some encouraging results as all three readings beat expectations. Manufacturing improved to 46.7 from 44.8 in October. Services returned into expansion after a three month period of being below 50 and printed 50.5. This has helped lift overall economic activity as measured by the composite PMI to 50.1 from 48.7 the previous month, also back into expansion after three months of being in contraction. One concerning thing is that input costs rose for the first time in five months indicating that price pressures prove to be very sticky.

AUD

RBA minutes from the November meeting showed that risk of inflation expectations rising would increase if there was no change in rates. Board members stressed importance of preventing even mild increases in inflation expectations and stated that staff forecasts were based on one or two more rate hikes. Additionally, board members warned that there is a growing mindset among businesses to pass on price increases to consumers. These are hawkish remarks by RBA.

PBOC has left LPR rates unchanged as was expected. The 1-year LPR is at 3.45% while 5-year LPR is at 4.20%. Last week we had the biggest liquidity injection in almost seven years and with such a massive stimulus there was no need for rate cuts.

This week we will have official PMI and Caixin manufacturing data from China.

Important news for AUD:

Thursday:​

• Manufacturing PMI (China)​
• Non-Manufacturing PMI (China)​
• Composite PMI (China)​

Friday:​

• Caixin Manufacturing PMI (China)​

NZD

GDT auction saw flat dairy prices. Increase in Lactose prices was counteracted by a drop in Cheddar prices. Q3 retail sales came in stronger than expected with headline number being flat on quarter vs -0.8% q/q as expected and up from -1% q/q in Q2. The yearly number ticked a bit to -3.4% vs -3.5% in the previous quarter. Core retail sales printed 1% q/q improving significantly from -1.8% q/q in Q2.

This week we will have RBNZ meeting. No changes in rate are expected despite high inflation numbers.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

October inflation report was music to BoC ears. Headline inflation fell by more than expected and printed 3.1% y/y vs 3.8% y/y in September. Lower gasoline prices (-7.8%) were the biggest contributor for such a big drop. All three core measures have also declined with median at 3.6% y/y vs 3.9% y/y, trim at 3.5% y/y vs 3.7% y/y and common at 4.2% y/y vs 4.4% y/y the previous month. A small concern is inflation in services which rose to 4.6% y/y compared to 3.9% y/y in September while shelter component printed 8.2% y/y vs 7.3% y/y the previous month.

BoC Governor Macklem commented that inflation numbers are encouraging and that interest rates may be restrictive enough but added that in high inflation persists they will be ready to further increase rates. Near-term inflation expectations are slow to come down and that is concerning while long-term inflation expectations remain well anchored. He added that they are not considering rate cuts and that they will make decisions meeting-by-meeting.

This week we will have Q3 GDP and employment data.

Important news for CAD:

Thursday:​

• GDP​

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Japanese government has made first reduction in its view on economy in the last ten months. They see recovery stalling as week demand weighs in on capital spending and consumer expenditure. They also added that the pace of recovery is “pausing”. The latest poll of economists conducted by Reuters shows that over 80% of participants see BoJ abandoning negative interest rate policy in 2024.

Nationwide inflation data for the month of October saw headline number increase to 3.3% y/y from 3% y/y in September. CPI ex fresh food ticked to 2.9% y/y from 2.8% y/y the previous month for the first increase in four months. CPI ex fresh food, energy printed 4% y/y, down from 4.2% y/y in September. All readings are way above 2% inflation target and have been there for more than a year. Preliminary PMI for November saw manufacturing decline to 48.1 from 48.7 in October due to decreased demand and falls in output and new orders. Services increased to 51.7 from 51.1 the previous month which helped keep composite at 50.

CHF

SNB total sight deposits for the week ending November 17 came in at CHF476.9bn vs CHF476.3bn the previous week. SNB seems to have found a sweet spot for total sight deposits as a means to conduct monetary policy as they have been hovering in a CHF30bn range for more than three months.

This week we will have Q3 GDP data.

Important news for CHF:

Friday:​

• GDP​

 

[katetrades]

Forex Major Currencies Outlook (Dec 4 – Dec 8)

RBA and BoC meetings coupled with NFP data will be the highlights of the week which will also see Q3 GDP from Australia, trade balance from China and inflation from Switzerland.

USD

Fed Governor of Reserve Board Waller, a well-known hawk, stated that his confidence is growing that monetary policy is well-positioned to slow down the economy. He said that he is still data-dependent and he finds recent signs of moderating growth were encouraging. Soft landing is still possible and he added that there is no need to insist on rates staying high is inflation continues to decline. This effectively means that they can cut rates even if inflation is not down to 2% target if they feel confident that inflation is on its way down. When a hawk is not advocating for more rate hikes and sounds more dovish markets react fast and we have another round of USD selling and Treasury buying.

Second reading of Q3 GDP came in at 5.2% annualised, up from 4.9% annualised as preliminary reported. Personal consumption was revised down so now it added 2.44pp to the GDP from 2.69pp in the preliminary reading. Upward revisions were seen to fixed investment (0.42pp vs 0.15pp) and to government consumption (0.94pp vs 0.79pp). October PCE saw headline number drop to 3% y/y as expected from 3.4% y/y in September while core PCE fell to 3.5% y/y as expected from 3.7% y/y the previous month. Both personal income and spending increased by 0.2% m/m as expected for a smaller increase than in the previous month.

ISM manufacturing PMI missed expectations in November and came in at 46.7, same as in October. New orders category improved, drawing closer to expansion but inventories improved as well. There was a drop in employment component as well as in new export orders and overall production. Additionally, there was a surge in prices which came in at 49.9, up from 45.1 the previous month. This number indicates that inflation pressures are still present.

The yield on a 10y Treasury started the week and year at around 4.47%, rose to 4.52%, then fell to 4.25% and finished the week at around 4.21%. The yield on 2y Treasury reached the high of 4.99% and then fell below 4.63% as markets started to price in some rate cuts in Q1 of 2024. Spread between 2y and 10y Treasuries started the week at -47bp then tightened to -34bp as bull steepening gripped the curve. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at December meeting at almost 100%.

This week we will have ISM services PMI and NFP data. Headline number is expected to come at around 100k with the unemployment rate staying at 3.9%.

Important news for USD:

Tuesday:​

• ISM Services PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

Preliminary Eurozone CPI for the month of November dropped to 2.4% y/y from 2.9% y/y in October with expectations were for it to fall to 2.7% y/y. Inflation fell 0.5% m/m which is the biggest monthly decline since January of 2020. A huge drop in energy prices was the main culprit of falling inflation but there were also drops in services and non-energy industrial goods. There was also a big drop in core CPI reading which printed 3.6% y/y vs 3.9% y/y as expected and down from 4.2% y/y the previous month. Spain CPI came in at 3.2% y/y vs 3.7% y/y as expected while October reading was at 3.5% y/y. Core CPI also declined and printed 4.5% y/y vs 5.2% y/y the previous month. German CPI came in at 3.2% y/y vs 3.5% y/y as expected and down from 3.8% y/y in October while monthly reading printed -0.4%. French CPI also declined to 3.4% y/y from 4% y/y the previous month while expectation was for a decline to 3.7% y/y with monthly reading printing -0.2%. With headline inflation almost reaching the 2% target markets are fully pricing in a rate cut in April.

Final reading of French Q3 GDP saw it fall into contraction with -0.1% q/q print, down from 0.1% q/q as preliminary reported. Private consumption held well but it was offset by negative prints in inventories and net trade. Next week we will get final Q3 GDP reading for the Eurozone and with French and German readings showing negative growth we may see deeper contraction in the economy.

GBP

BoE Governor Bailey reiterated that it is too early to start any discussion on rate cuts and that getting inflation to the 2% target will be hard work. BoE MPC member Haskel, a well-known hawk, stated that tightness in labor market leads to inflation pressures, therefore the need to keep rates higher for longer than most are expecting is present.

Final manufacturing PMI for the month of November was revised up and to 47.2 from 46.7 as preliminary reported and up from 44.8 in October. The report shows that there was easing in downturn for output and new orders which helped push the reading up but there are issue with employment conditions which are seen weakening further.

AUD

CPI data for the month of October came in at 4.9% y/y vs 5.2% y/y as expected and down from 5.6% y/y in September. Motor fuel prices showed the biggest declines while there was also a drop in the main housing component. Trimmed mean inflation, one of the measures of core inflation, ticked down to 5.3% y/y from 5.4% y/y the previous month indicating that price pressures are still stubborn. Monthly data is not as precise as quarterly data, it does not encompass all components of CPI, however it is moving in the right direction and may deter RBA from hiking further next week. Private CAPEX for Q3 came in at 0.6% q/q vs 1% q/q as expected.

Official PMI data for November showed economy heading in the wrong direction. Manufacturing PMI came in at 49.4 vs 49.7 as expected and down from 49.5 in October. The sector continues to contract after a brief jump back into expansion in September. Services came in at 50.2 vs 51.1 as expected and down from 50.6 the previous month. It is barely hanging in expansion but it dragged composite to 50.4 from 50.7 in October. Caixin manufacturing PMI returned to expansion with 50.7 reading smashing expectations of 49.8 and up from 49.5 in October. The report showed improvements in production and surge in business confidence.

This week we will have RBA meeting and Q3 GDP data from Australia. No change to interest rate is expected. We will also get Caixin PMIs and trade balance data from China.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​
• Caixin Services PMI (China)​
• Caixin Composite PMI (China)​

Wednesday:​

• GDP​

Thursday:​

• Trade Balance (China)​

NZD

RBNZ has left the Official Cash Rate (OCR) at 5.5% as expected. The statement shows that inflation remains too high, therefore monetary policy will have to remain restrictive for longer period of time. Demand has been falling but by less than expected, nevertheless, committee remains confident that current level of rates is enough to further restrict demand. RBNZ is very attentive to inflation pressures and if they were to come stronger than anticipated, the OCR would likely need to increase further.

Minutes saw that members have discussed the possibility of the need for OCR increases. Updated OCR projections see it at 5.63% in March 2024 vs 5.58% previously, at 5.66% in December 2024 vs 5.5% previously, at 5.56% in March 2025 vs 5.36% previously and at 3.55% in December 2026. Annual CPI is seen to be 2.5% by December of 2024 vs 2.4% previously. At the press conference, Governor Orr stated that there is an upward bias to the rates but further rate hikes are not certain and added that decision on rate hikes are not constricted by policy meetings. This means they can raise rates at any moment in between meetings. Hawkish message and upward revisions for OCR will keep NZD supported.

Business confidence for November printed 30.8, up from 23.4 in October and highest print since March of 2015. Big increases were seen in construction, both commercial and residential as well as in export and investment intentions and in ease of getting credit. Drops were seen in wage, cost and inflation expectations.

CAD

Q3 GDP headlines were abysmal. GDP fell 1.1% annualised while it was expected to grow by 0.2% annualised. GDP fell 0.3% q/q while expectations were for increase of 0.2% q/q. However, when we dig into details we see that there was a massive upward revision to Q2 numbers (1.4% annualised vs -0.2% as reported and 0.3% q/q vs 0% as reported). Looking into details of Q3 GDP we can see that exports and inventories were the biggest drag while government consumption was the biggest contributor to the reading. Household consumption managed to be slightly positive on the quarter.

Employment report for November saw economy adding 24.9k jobs vs 15k as expected. The unemployment rate ticked higher to 5.8% as expected while participation rate stayed the same. Wages were unchanged at 5% y/y. Composition of jobs was very encouraging with full-time jobs increasing by 59.6k while part-time jobs fell by 34.7k. This employment report is yet another strong one and it will give BoC more breathing space as they will leave the rate unchanged at next week’s meeting.

This week we will have BoC meeting. With inflation coming down there will be no need for further rate hikes so we expect no change to the rate.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

Q3 CAPEX data saw it come in at 3.4% y/y as expected, down from 4.5% y/y in the previous quarter. On the other hand, company profits surged by 20.1% y/y, smashing the expectations and almost doubling the number from Q2 (11.6% y/y). Final manufacturing PMI for the month of November was revised up slightly to 48.3 from 48.1 as preliminary reported but still down from 48.7 in October. The report shows that output and new orders declined at a stronger pace while rate of inflation eased to a three-month low with selling prices starting to decline.

CHF

SNB total sight deposits for the week ending November 24 came in at CHF473.7bn vs CHF476.9bn the previous week. Sight deposits still within a well established range lasting for almost three months. Q3 GDP came in at 0.3% q/q vs 0.1% q/q as expected while Q2 reading was revised down to -0.1% q/q from being flat as previously reported. Yearly figure also showed increase in GDP of 0.3% while Q2 y/y figure was revised down from 0.5% to 0.3%.

This week we will get inflation data.

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Dec 11 – Dec 15)

Four major central banks, Fed, ECB, BoE and SNB all meet this week, coupled with inflation data from the US, preliminary PMI data from Eurozone and the UK and employment data from the uk and Australia makes this a massive week for the markets.

USD

ISM services for the month of November came in at 52.7 vs 52 as expected and up from 51.8 in October. The report shows new export orders and inventories jumping back into expansion with small improvement in employment category. New orders index was unchanged and still deep in expansion territory while there was a small drop in prices paid component. This report shows economy that is in a good shape.

November provided another stellar NFP report. Headline number was 199k vs 180k as expected. The unemployment rate dropped to 3.7% from 3.9% in October while participation rate ticked up to 62.8%. Hourly earnings rose 0.4% m/m vs 0.3% m/m as expected but 4% y/y vs 4.1% y/y as expected. There was a huge jump in manufacturing payrolls as auto strike ended and people returned to work.

The yield on a 10y Treasury started the week and year at around 4.2%, rose to 4.26%, then fell to 4.11% and finished the week at around 4.23%. The yield on 2y Treasury reached the high of 4.72%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -49bp as curve inverted further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at December meeting at 98% while probability of a 25bp rate hike is 2%. Probability of March 2024 rate cut fell to 47% post NFP.

This week we will have inflation and consumption data as well as Fed meeting. There will be no change in rate but we will get new dot plot projections. Markets are currently pricing four rate cuts in 2024, although they are being pared back a bit after strong NFP report, and they will be eager to see how their estimates match with those of the Fed.

Important news for USD:

Tuesday:​

• CPI​

Wednesday:​

• Fed Interest Rate Decision​

Thursday:​

• Retail Sales​

EUR

ECB Vice President de Guindos stated that falling inflation is a very welcoming sign and characterized it as a “positive surprise”. He cautioned that it is still too early to declare victory on inflation and reiterated that ECB remains in data-dependent mode. ECB Executive Board member Schnabel stated that further rate hikes are “rather unlikely” after last batch of inflation data which she called encouraging. She added that incoming data suggests that economy may be bottoming out but there are no signs of prolonged recession. Money markets are pricing in cuts more aggressively with cut in March being almost fully priced in.

Final November services PMI were revised higher on the back of almost a full point revision in German reading (49.6 vs 48.7) and printed 48.7 vs 48.2 as preliminary reported. This managed to lift composite to 47.6 from 47.1 as preliminary reported. The report mentions that services seem to be bottoming out but it states two concerning issues, one is that employment conditions fell for the first time in almost three years and two that high input prices persist making it difficult for companies to lower prices in the face of falling demand without making losses. Final Q3 GDP reading was unchanged at -0.1% q/q but yearly number was lowered and is now flat. Household consumption contributed with 0.2%, government expenditure added 0.1% and it was offset by drop in inventories of -0.3% and negative contribution from trade.

This week we will have ECB meeting and preliminary December PMI data. No change to rate is expected but change in tone to more dovish stance could come from ECB given falling inflation and weak economic data. Markets are pricing in rate cuts aggressively, with some pricing in 150bp of rate cuts, so if Lagarde pushes back there could be a rally in EUR.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

Friday:​

• S&P Manufacturing PMI (Eurozone, Germany, France)​
• S&P Services PMI (Eurozone, Germany, France)​
• S&P Composite PMI (Eurozone, Germany, France)​

GBP

Final services PMI reading for the month of November saw it revised up to 50.9 from 50.5 as preliminary reported. This is the first time that sector is in expansion since July. New work and employment categories managed to increase further while more concerning is that there is a noticeable drop in demand from clients combined with rising input costs. The main reason for rising input costs, fastest increase in four months, are wage increases. Composite was lifted into expansion, 50.7 from 50.1 as preliminary reported and 48.7 in October.

This week we will have employment data, preliminary December PMI data as well as BoE meeting. We will get no change to the policy but the tone of the statement will be scrutinized.

Important news for GBP:

Tuesday:​

• Payroll Change​
• Unemployment Rate​

Thursday:​

• BoE Interest Rate Decision​

Friday:​

• S&P Manufacturing PMI​
• S&P Services PMI​
• S&P Composite PMI​

AUD

RBA has left cash rate unchanged at 4.35% as was widely expected. The statement shows that, according to monthly CPI, goods sector inflation is continuing to moderate, but there was no data on services inflation. Data on services inflation will be seen on January 31 with quarterly CPI numbers. The statement continues with saying that “overall, measures of inflation expectations remain consistent with the inflation target,” Ultimately, the statement concludes with “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.” This reaffirms their data-dependent stance.

Q3 GDP came in at 0.2% q/q vs 0.4% q/q as expected and in Q2. This marks the slowest growth in two years. GDP printed 2.1% y/y, same as in the previous quarter. Household saving to income ratio decreased to 1.1% from 2.8% in Q2, the lowest since December of 2007, as higher prices erode peoples’ purchasing power causing them to spend more and save less while terms of trade fell 2.6%. Government spending was the biggest contributor to GDP growth combined with investment from public corporations. Inventories also added to the reading as lower exports caused a build up. On the other hand, net trade deducted from the reading as exports fell and imports rose. Household spending was flat on the quarter.

Caixin PMI services for the month of November expanded further and printed 51.5 vs 50.8 as expected and up from 50.4 in October. The report states faster increases in business activity and new orders as well as in overall confidence. Additionally, inflation pressures are seen weakening. Composite was lifted up into expansion with 50.6 reading compared to 50 the previous month. Trade balance data for November showed bigger than expected widening of surplus to $68.39bn from $56.5bn in October. Exports rose 0.5% y/y, more than expected, while imports declined 0.6% y/y, missing expectations. Declining imports pose questions about China’s recovery as they indicate weak domestic demand.

This week we will get employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​
• Industrial Production (China)​
• Retail Sales (China)​

NZD

Q3 terms of trade saw deterioration of 0.6% q/q as export prices fell by more than import prices. First December GDT auction saw prices increase by 1.6% led by increase in Cheddar prices. This could help improve terms of trade in Q4 and bring positive impact to the economy.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday:​

• GDP​

CAD

BoC left its cash rate unchanged at 5% as was widely expected. The main takeaways from the statement were that “higher interest rates are clearly restraining spending” and that disinflation is occurring at a faster pace. The statement concluded with “Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed” indicating hawkish stance from BoC. We think that bar for raising rates is very high but with with strong labor market and their potential impact on inflation officials have to be careful.

JPY

Tokyo area CPI for the month of November came in at 2.6% y/y vs 3.3% y/y in October while expectations were for it to decline to 3% y/y. Ex fresh food category came in at 2.3% y/y vs 2.4% y/y as expected and down from 2.7% y/y the previous month. Ex fresh food, energy, so-called “core core”, came in at 3.6% y/y vs 3.7% y/y as expected and down from 3.8% y/y in October. All three measures are above targeted 2% but they all declined and by more than expected. BoJ is planing to wait for spring wage negotiations and raise rates after that.

Labor cash earnings for the month of October rose 1.5% y/y from 0.6% y/y in September but due to the high inflation real wages are still negative and came in at -2.3% y/y. Household spending came in at -2.5% y/y vs -3% y/y as expected. Final reading of Q3 GDP was revised down to -0.7% q/q from -0.5% q/q as preliminary reported. Q2 GDP also saw revisions down as it now printed 0.9% q/q and 3.6% annualized, down from 1.2% q/q and 4.5% annualized. Household consumption declined by 0.2% while capital expenditure declined by 0.4%. Net trade was also a drag on the reading while only positive was government spending. Despite the data JPY had a massive week as Governor Ueda’s comments have been interpreted to mean faster exit from negative interest rate policy. GBPJPY has declined 650 pips in a day and USDJPY was down 550 pips in a week at one moment.

CHF

November CPI declined further and printed 1.4% y/y vs 1.7% y/y as expected and in October. Core CPI also ticked down to 1.4% y/y from 1.5% y/y the previous month. Inflation is beyond their 2% target so SNB will have no need to act at next week’s meeting. SNB total sight deposits for the week ending December 1 came in at CHF474.1bn vs CHF473.7bn the previous week. Still in a very tight range.

Important news for CHF:

Thursday:​

• SNB Interest Rate Decision​

 

[katetrades]

Forex Major Currencies Outlook (Dec 18 – Dec 22)

BoJ meeting and inflation data from the US, the UK and Canada will be the highlights of the week ahead of us.

USD

November inflation data came in line with expectations. Headline CPI came in at 3.1% y/y, tick down from 3.2% y/y in October. Energy component fell 2.3% m/m with gasoline prices dropping 6% m/m. Core CPI came in at 4% y/y, unchanged from October while it rose 0.3% m/m vs 0.2% m/m increase in October. Shelter component rose 0.4% m/m compared to 0.3% m/m increase the previous month and printed a 6.5% y/y increase. Services ex energy and shelter, Fed pays close attention to it, came in at hot 0.44% m/m. It should be running below 0.2% m/m in order for inflation to get down to 2%.

Fed has left Fed funds rate unchanged as was widely expected in the 5.25-5.50% range. In the statement they have acknowledged slowing economic growth and moderating job gains. Newly published dot plot shows rate at the end of 2024 at 4.6%, down from 5.1% as was seen in the September dot plot. Rate for the end of 2025 was downgraded to 3.6% from 3.9% in September while rate for 2026 was unchanged at 2.9%. Headline PCE and core PCE inflation are seen coming to the 2% level in 2026. GDP is expected to run below trend in 2024 at 1.4% before returning to trend in 2025.

Chairman Powell opened the press conference by acknowledging that inflation eased while there was no up in the unemployment rate. He added that policy rate is well in restrictive territory and that full effects of it are not yet felt. Powell admitted that they are at or near the peak of rate hikes cycle. He revealed that there was a discussion regarding rate cuts at the meeting. Powell stated that they are attentive to not making the mistake of holding rates high for too long. Additionally, Powell admitted that they will cut rates before inflation falls to 2%. There was a very dovish tone in the statement and press conference indicating that Fed is done with rate hikes and that rate cuts are on the table. Some analysts are now pricing in full 175bp of rate cuts for 2024. Fed’s Williams pushed back on those projections stating that it is premature to be thinking about rate cuts in March.

Retail sales for November printed 0.3% m/m vs -0.1% m/m as expected. Never underestimate US consumer as the old saying goes. The report shows that food services and drinking places saw biggest monthly gains followed by nonstore retailers and furniture stores. On the other hand, gasoline stations posted the biggest decline as gas prices fell. Control group, it goes into GDP calculation, saw increase of 0.4% m/m vs 0.2% m/m as expected while particularly strong result was in ex gas and autos category which rose 0.6% m/m from 0.1% m/m in October.

The yield on a 10y Treasury started the week and year at 4.23%, rose to 4.26%, then fell bellow 4% post FOMC meeting and finished the week at around 3.911%. The yield on 2y Treasury reached the high of 4.76% and also declined significantly after FOMC meeting. Spread between 2y and 10y Treasuries started the week at -48bp then widened to -53bp as curve inverted further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 88% while probability of a 25bp rate cut is 12%. Probability of March 2024 rate cut surged to 90% but subsequently declined to 68%.

This week we will have final Q3 GDP reading and Fed’s preferred inflation measure PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

ECB has left key interest rates unchanged as was widely expected. The report states that tighter financial conditions dampen demand and in that way help lower inflation. ECB plans to reduce PEPP reinvestments from H2 and 2024 and stop reinvestment under PEPP program at the end of 2024. New projections see inflation lower to 5.4% in 2023 and 2.7% in 2024 while inflation will print 2.1% in 2025 and 1.9% in 2026. ECB will remain data-dependent in making their decisions.

At the press conference President Lagarde explicitly stated that there was no talk about rate cuts. She added that risks to growth are tilted to the downside. Inflation is expected to increase in December due to base effects but it will continue declining afterwards. Lagarde stated that wages are not declining and that more data is needed. ECB policymaker Villeroy stated that nobody mentioned rate cuts at the December meeting and added that bank’s next move, if there are no economic surprises in the data, should be to lower rates.

Eurozone preliminary PMI data for the month of December provided us with picture of a further deteriorating economy. Manufacturing PMI was unchanged at 44.2 with Germany showing slight improvement while France dropping further. Services slid deeper into contraction with 48.1 vs 49 and down from 48.7 in November. Both German and French services readings declined and dragged Eurozone composite to 47 from 47.6 the previous month. Demand is weak throughout the Eurozone and that weighs heavily on consumption. The reports states that “Even though input prices increased at a modestly slower rate, companies were able to raise output prices even more than in previous months. This suggests that businesses were successful in transferring a portion of the cost increases to customers. The European Central Bank acknowledges this dynamic in its latest statement, noting that "domestic price pressures remain elevated."

GBP

November payroll change came in at -12k vs 39k in October. October unemployment rate remained at 4.2% while wages fell for the second month in a row and printed 7.2% 3m/y and 7.3% 3m/y for ex bonus wages. Wages falling down by more than expected present encouraging sign for BoE. October GDP came in at -0.3% m/m vs 0% m/m as expected and 0.2% m/m in September. All three sectors, services, production and construction, contributed negatively to the reading. Q4 has started on a much weaker note than expected and GDP was flat for the previous 3 months.

BoE has left the rate unchanged at 5.25% as widely expected. The vote came in at 6-3 also as expected with 3 members voting for a 25bp rate hike. They now see inflation at 4.5% by the end of the year, compared to 4.75% previously but add that it will take more time to bring inflation down. They are remaining data-dependent and are prepared to tighten further if evidence of more persistent inflationary pressures appear. Governor Bailey stated that they cannot confirm that interest rates have reached its peak and he pushed back on rate cuts adding that it is way too early to speculate on them. Much more hawkish sounding message than the one provided by Fed.

Preliminary December PMI data showed manufacturing dropping to 46.4 from 47.2 after three months of improvements in the sector. Services sector continued to strengthen and printed 52.7, up from 50.9 in November and thus managed to push up composite to 51.7 from 50.7 the previous month. There is a clear division between sectors in the economy as can be seen from the results and prices of goods are seen falling while prices of services are still elevated putting doubt whether inflation will come down as fast as expected.

This week we will have November inflation and final Q3 GDP data.

Important news for GBP:

Wednesday:​

• CPI​

Friday:​

• GDP​

AUD

Yet another strong employment report from Australia. November employment change came in at 61.5k smashing expectations of 11k. In October the economy added 55k jobs making this second consecutive stellar report. The unemployment rate rose to 3.9% from 3.7% in October but it was due to increase in participation rate to 67.2% from 67% the previous month. Almost all of jobs added were full-time (57k) with part-time filling in the rest (4.5k). This report will keep RBA debating what to do at their February meeting.

Deflationary data are coming from China. Headline inflation for the month of November printed -0.5% y/y vs -0.1% y/y as expected. Weak consumer demand coupled with falling oil prices pushed CPI deeper into deflation. PPI has shown a decline of 3% y/y while a decline of 2.8% y/y was expected. These numbers show that there is ample space for fiscal stimulus and PBOC obliged. They have kept 1-year MLF rate at 2.5% as widely expected but injected 1.45tln yuan into the system while only 650bn yuan was maturing today. This means that they have injected stimulus of 800bn yuan which is highest recorded monthly injection.

November economic activity data saw industrial production increase 6.6% y/y vs 5.6% y/y as expected and up from 4.6% y/y shown in October. Retail sales, on the other hand, missed expectations although they posted a very healthy increase (10.1% y/y vs 12.5% y/y as expected and up from 7.6% y/y the previous month). China had lockdown restrictions in November of 2022, meaning the base for comparison was low and that is the main reason for high numbers. Reports from Reuters are circulating that China will set its 2024 GDP target at around 5%.

NZD

Q3 GDP disappointed coming in at -0.3% q/q vs 0.2% q/q as expected and -0.6% y/y vs 0.5% y/y. Additionally, Q2 readings were revised down to 0.5% y/y and 1.5% y/y. The report shows declines in manufacturing, transportation, construction and wholesale. RBNZ has left open option to raise rates between meetings, but with growth crumbling we think that further rate hikes will not be delivered.

CAD

October manufacturing sales printed a 2.8% m/m decline. Wholesale posted second month of declines coming in at -0.5% m/m after a -0.6% m/m decline in September. Housing starts in November plunged to 212.6k from 272.3k the previous month. CAD has managed to benefit from post-Fed drop in USD but incoming economic data are not encouraging.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Preliminary December PMI showed manufacturing slipping further into contraction and coming in at 47.7, down from 48.3 in January. Manufacturing has been in contraction since May and this reading matches the February low. For number lower than this we have to go back all the way to 2020 during pandemic. Services posted a great improvement to 52 from 50.3 previous month thus lifting composite back into expansion with 50.4 print. The report shows stronger decline for output, new orders and new export orders in the manufacturing sector while services shows stronger growth in all of those categories. One concerning factor is that input prices sed stronger growth for both sectors indicating mounting inflation pressures.

This week we will have BoJ meeting. No changes to rate are expected but we could see abandoning of Yield Curve Control.

Important news for JPY:

Tuesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending December 8 came in at CHF471.7bn vs CHF474.1bn the previous week. Deposits remain in the well defined range that is now lasting for over four months. SNB has left policy rate unchanged at 1.75% as was widely expected. CPI projections have been lowered and they now show CPI at 1.9% in 2024 vs 2.2% previously and CPI at 1.6% in 2025 vs 1.9% previously. The part of the statement showing bank’s willingness to further tighten has been omitted indicating that the bank is now on hold. SNB Chairman Jordan stated that they are no longer focused on forex sales adding that risks to inflation are currently balanced. He added that members believe that current stance of monetary policy is appropriate.

We will be taking a well deserved break and will continue publishing our weekly report in 2024. TradersWay analytics team wishes you Merry Christmas and Happy New Year!​

 

[katetrades]

Forex Major Currencies Outlook (Jan 8 – Jan 12)

Inflation week is ahead of us as the US, China and Switzerland publish inflation reports.

USD

ISM Manufacturing for the month of December improved to 47.4 from 46.7 in November. Expectations were for it to improve to 47.1. Manufacturing has spent entire 2023 in contraction territory and has not been in expansion since October of 2022. Production was the only component that was in expansion with 50.3, up from 48.5 in November. New orders index declined to 47.1 making it sixteenth month in contraction. Employment improved to 48.1 from 45.8 the previous month while the biggest positive was a big drop in prices paid component which came in at 45.2 from 49.9 in November. With inflation pressures easing Fed will be more confident that they are on path to achieve much coveted “soft landing”.

Minutes from the December meeting revealed that participants see policy rates to likely be at its peak. “A number” of participants questioned for how long monetary policy should remain restrictive. All participants observed that clear progress on bringing inflation down to 2% has been made in 2023. However, progress on inflation has been uneven with core services component continuing to increase at elevated pace. There was also talk about preparing to reduce the size of balance sheet run off, QT, which will be a hot topic of discussion at the next press conference.

Headline December NFP number printed 216k vs 170k as expected. The unemployment rate was unchanged at 3.7% y/y vs 3.8% y/y as expected, however participation rate recorded a big drop to 62.5% from 62.8% in November. Wages increased 0.4% m/m and 4.1% y/y. These numbers refute market’s pricing of Fed rate cuts as jobs are stable and wages are increasing at a healthy pace. Digging into the details we can see that there was a downward revision of 71k jobs in the past two months. Additionally, government added 52k jobs with health care adding 38k jobs.

ISM services posted a big miss in December as they came in at 50.6 vs 52.6 as expected and down from 52.7 the previous month. The biggest drop was seen in the employment category which plunged to 43.3 from 50.7 the previous month. This number indicates that businesses are not hiring. Prices paid component also declined as did new orders, new export orders and inventories. The numbers from report are very dovish.

The yield on a 10y Treasury started the year at 3.88%, rose to 4.10% and finished the week at around 4.05%. The yield on 2y Treasury started the year at 4.25% and reached the high of 4.48%. Spread between 2y and 10y Treasuries started the year at -37bp then widened to -38bp as curve inverted further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 94% while probability of a 25bp rate cut is 6%. Probability of a March rate cut is at 66%.

This week we will get December inflation data and it is expected to come in unchanged from previous month.

Important news for USD:

Thursday:​

• CPI​

EUR

Final December manufacturing PMI was revised up to 44.4 from 44.2 as preliminary reported with positive revisions to German and French readings. Italy beat the expectations while Spain missed. Still, absolute measures show Spain to decline at the slowest pace while France declines fastest. Although number is very low it still marks a seven month high. The report shows that growing number of firms shows optimism regarding their output over the next 12 months. Final services for Eurozone improved to 48.8 on the back of improvements in German and French readings as well as Spain beating the expectations. New business opportunities continued to weaken while input prices continued to increase with companies successfully passing higher costs to consumers. Composite PMI came in at 47.6 unchanged from November.

Preliminary December inflation numbers saw headline CPI at 2.9% y/y vs 3% y/y as expected and up from 2.4% y/y in November. Both German and French preliminary CPI readings for December came in higher than previous month and printed 3.7% y/y. Declining energy base effects were the main culprits for increase in inflation. A very encouraging sign was seen in core CPI which declined to 3.4% y/y from 3.6% y/y in November while markets were expecting a decline to 3.5% y/y. These numbers give confidence to ECB that pause is the right way to go for now and that rate cuts in the second half of the year, or from June, are justified.

GBP

Unlike Eurozone manufacturing reading, final December UK manufacturing PMI was revised down to 46.2 from 46.4 as preliminary reported and down from 47.2 in November. New orders and output declined and there was a further decline in business optimism. The report sees a gloomy future for manufacturing sector stating drop in input prices due to weaker demand as one shining light. Final services reading was revised up to 53.4 from 52.7 as preliminary reported and up from 50.9 in November indicating a healthy and rising sector. New orders and business activity both increased in December. Input prices have been increasing but doe to cost-of-living crises companies are not capable of fully transferring costs to consumers. Composite improved to 52.1 from 50.7 the previous month.

AUD

Official PMI data from China for the month of December showed manufacturing continue to slip down into contraction printing 49 vs 49.5 as expected and down from 49.4 in November. New orders component is declining further indicating weak activity. Services PMI inched up to 50.4 from 50.2 the previous month but expectations were for a 50.5 reading. Composite dipped slightly to 50.3 from 50.4 in November. Caixin manufacturing PMI, measuring small and medium sized enterprises, fared better and ticked up to 50.8 from 50.7 the previous month while it was expected for it to dip to 50.4. The report shows that both output and new orders increased at faster pace. Caixin services beat expectations and rose further into expansion with 52.9 reading, up from 51.5 the previous month while composite printed 52.6, a seven month high.

This week we will get inflation data from China.

Important news for AUD:

Friday:​

• CPI (China)​

NZD

NZD had a turbulent start of the year as rebalancing of portfolios took its toll on the risk on currencies. However, it seems that Kiwi has carved out a bottom post NFP and we could see some nice strength throughout the coming week.

CAD

December employment report was a mixed bag. Employment change was 0.1k, basically unchanged, vs 13.5k as expected. The unemployment rate remained at 5.8% while tick higher to 5.9% was expected. Wages surged 5.7% y/y vs 5% y/y in November. All of the jobs added were part-time jobs (23.6k) while full-time jobs saw a big decline (23.5k). There are signs of weakening job market but with wages running hot it is not what BoC wants to see.

JPY

Final December manufacturing PMI was revised up to 47.9 from 47.7 as preliminary reported, but still down from 48.3 in November. The report highlights weaker external demand but higher input prices. Firms, however, remain hesitant to continue passing higher costs to consumers. Final services were revised down to 51.5 from 52 as preliminary reported but up from 50.8 in November. The report shows that business volume improved led by domestic consumers. On the other hand, there was a big increase in prices from service sector that will keep inflation elevated.

CHF

Swissy was the best performing currency, out of majors, with its incredible surge in the last couple of trading days in 2023. However, 2024 has started slow and Swissy lost ground against all major pairs only to regain its strength as the week progressed.

This week we will get inflation data.​

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Jan 15 – Jan 19)

Q4 GDP from China, inflation data from the UK and Canada, employment data from the UK and Australia will highlight the week ahead of us.

USD

December CPI report came in hotter. Headline number came in at 3.4% y/y vs 3.2% y/y as expected and up from 3.1% y/y in November. Monthly reading showed an increase of 0.3% compared to 0.2% as expected. Energy component declined 2% y/y but rose 0.4% m/m. Core reading slid but not as much as expected as it printed 3.9% y/y vs 3.8% y/y as expected and down from 4% y/y the previous month. Shelter was the biggest contributor to price increases as it rose 0.4% m/m but rose 6.2% y/y compared to 6.5% y/y increase the previous month. Prices of used cars increased 0.5% m/m. The so called “super-core” measure, core services CPI ex housing, Fed pays close attention to it, rose 0.4% m/m. Real wages were crushed by high inflation as they declined by 0.2% m/m compared to them increasing by 0.5% m/m the previous month. Overall it is a hawkish report for the USD as markets will need to recalculate their cut bets.

The yield on a 10y Treasury started the week at 4.05%, rose to 4.10% and finished the week at around 3.96%. The yield on 2y Treasury started the week at 4.40% and reached the high of 4.48% only to collapse post CPI and finish the week at around 4.14%. Spread between 2y and 10y Treasuries started the week at -34bp then tightened to -18bp as curve started to steepen again. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 93% while probability of a 25bp rate cut is 7%. Probability of a March rate cut is at 83%.

This week we will have consumption data.

Important news for USD:

Wednesday:​

• Retail Sales​

EUR

November volume of retail sales came in at -0.3% m/m as expected while there was a positive revision to October reading (0.4% m/m vs 0.1% m/m as previously reported). Consumers in the Eurozone are still struggling with higher prices and detailed report shows that only automative fuel saw increase of 1.4% m/m while food, drink and tobacco and non-food products recorded declines of 0.1% m/m and 0.4% m/m respectively.

December sentiment data for the Eurozone points to strengthening of economic activity. Sentiment indicator jumped to 96.4 from 94 in November making it a third consecutive month of improvements. Services sentiment made a big jump improving to 8.4 from 5.5 the previous month. Consumer confidence is still at very low levels but it also showed an improvement coming in at -15 compared to -16.9 in November. It reflects better current conditions but also improved expectations for the period of next 12 months. ECB Governing Council member Isabel Schnabel stated that it is too early to discuss rate cuts and that although inflation is coming down additional data confirming that will be needed for any changes in monetary policy to occur.

GBP

November GDP printed an increase of 0.3% m/m compared to 0.2% m/m as expected. Services output rose by 0.4% m/m and was the main contributor to the GDP reading while construction output declined by 0.2% m/m and was the biggest drag. Chances of a recession have declined and BoE may wait a bit further before beginning with rate cuts.

This week we will have employment and inflation data.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Wednesday:​

• CPI​

AUD

November monthly inflation reading came in at 4.3% y/y vs 4.4% y/y as expected and down from 4.9% y/y in October. Monthly reading comprises of around 70% of the weight of the quarterly CPI basket, so although it does not show a full picture it could be used as a good approximation. The next Q4 quarterly reading will come on January 31 and it will have a big impact on RBA thinking process. Retail sales for the same month increased 2% m/m compared to 0.2% m/m increase the previous month.

December inflation data from China saw CPI decline by -0.3% y/y vs -0.4% y/y as expected. This makes it a third consecutive month of outright deflation. Big declines in pork prices are pushing CPI into negative territory. Trade data showed widening of surplus to $75.34bn, more than expected, as both exports (2.3% y/y vs 0.5% y/y in November) and imports (0.2y/y vs -0.6% y/y in November) increased.

This week we will get employment data from Australia as well as Q4 GDP, production and consumption data from China.

Important news for AUD:

Wednesday:​

• GDP (China)​
• Industrial Production (China)​
• Retail Sales (China)​

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

The ANZ World Commodity Price Index rose 2.4% m/m in December. It tracks 17 major commodity exports from New Zealand. Increase in dairy prices had the most impact on the rise of the overall index. This is a positive impact for Kiwi and the economy.

CAD

November building permits declined 3.9% m/m, much more than expected 1.7% m/m decline. CAD has been struggling throughout the week but managed to gain some momentum against the USD after the US CPI report.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Tokyo are inflation for December saw headline number come down to 2.4% y/y from 2.6% y/y in November. Ex fresh food category also declined as it came in at 2.1% y/y, down from 2.3% y/y the previous month. However, ex fresh food, energy category, the “core core”, was unchanged at 3.6% y/y, almost double the BoJ’s target of 2%. Household spending for November recorded further declines as it fell by 2.9% y/y while a decline of 2.3% y/y was expected. Higher costs are weighing on consumption and will have negative impact on Q4 GDP. Nominal wages have managed to eek a positive reading increasing 0.2% y/y in November but when we take into account the inflation then we get a decline of 3% y/y in real wages. BoJ is paying close attention to wages and it is expected for wages to increase significantly after the Spring wage negotiations which will then lead to BoJ adjusting their ultra loose monetary policy.

CHF

Swiss inflation turned higher in December. Headline CPI came in at 1.7% y/y vs 1.5% y/y as expected and up from 1.4% y/y in November. Core CPI came in at 1.5% y/y, a tick up from 1.4% y/y the previous month. Numbers should deter any talk about easing coming from SNB. As they are still way below 2% there is no need for them to change the course of their policy and will remain firm in the pause mode. SNB total sight deposits for the week ending January 5 came in at CHF468.8bn vs CHF462.9bn the previous week. Total sight deposits are in a narrow range between CHF462bn abd CHF476bn for the past two months.​

 

[katetrades]

Forex Major Currencies Outlook (Jan 22 – Jan 26)

BoJ, BoC and ECB open the year for central banks meetings, we will also have advanced Q4 GDP from the US as well as preliminary January PMI data from the Eurozone and the UK.

USD

Fed Governor Waller gave a speech in which he confirmed that economic data from the past few months is consistent with Fed cutting this year. He added that cuts need to be calibrated carefully and Fed will be able to cut if there is no rebound in inflation or inflation stays high. He emphasized that his view is consistent with three 25bp rate cuts suggested by Fed in December dot plot and added that timing and actual number of cuts will be dependent on the incoming data. According to him financial conditions remain restrictive and he is now more confident that inflation is on its to the 2% target. In the Q&A session he said that Fed is now in a peculiar position, they can cut rates without shocking the economy. He characterised 4% growth as a bit high, but not by much and commented that overnight repo facility does not need to have funds in it. Currently there are around $600bn in it and they could all be drained.

The old saying “never underestimate the strength of US consumer” proved true once again. Retail sales in December came in at 0.6% m/m vs 0.4% m/m as expected. Control group, used for GDP calculation, rose 0.8% m/m indicating a very healthy consumer and a strong Q4 GDP reading. The report shows that biggest gain in retail sales were from clothing, nonstore retailers and general merchandise stores. Declines were found in health and personal care stores as well as in furniture stores.

The yield on a 10y Treasury started the week at 3.94%, rose to 4.18% and finished the week at around 4.15%. The yield on 2y Treasury started the week at 4.15% and reached the high of 4.40%. Spread between 2y and 10y Treasuries started the week at -21bp then widened to -24bp as curve inverted further after a strong retail sales report. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 97% while probability of a 25bp rate cut is 3%. Probability of a March rate cut plunged from 70% at the start of the week to 55%.

This week we will get preliminary Q4 GDP, Atlanta Fed’s forecast is for 2.4% annualized, and Fed’s preferred inflation metric PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

January German ZEW survey showed sentiment improve to 15.2 from 12.8 in December as majority of participants expect ECB to cut interest in the first half of this year. German statistical office released preliminary estimate and it shows that German economy shrank by 0.3% in 2023. Their estimates see Q4 GDP declining also by 0.3%.

ECB Chief Economist Lane stated that most complete wage data will be available only for the June meeting thus pushing back on market’s early rate cut bets. ECB hawks Holzmann and Nagel added that early wage data show high increases and that it is much too early to talk about rate cuts. They are also wary that once the story about rate cuts becomes proliferated markets will grab it and take it much further than policymakers intended thus potentially seriously damaging all that has been done so far. ECB policymaker Villeroy spoke in Davos and stated that it is too early to call victory on inflation adding that rate cut is coming this year, but did not want to specify when. ECB President Lagarde spoke in Davos and stated that “too optimistic markets are not helpful in fight against inflation”. She then added that it is likely that rates will be cut by the Summer. Hawks and doves in the ECB are not aligned when it comes to the path of future rate cuts.

This week we will have preliminary January PMI data as well as well as ECB meeting. No changes to the policy rate are expected. The focus will be on press conference for further clues regarding when can we expect first rate cut.

Important news for EUR:

Wednesday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​

Thursday:​

• ECB Interest Rate Decision​

GBP

December payroll change saw a decline of 24k jobs. November reading was revised up so it shows 9k jobs added. November unemployment rate remained unchanged at 4.2%. Wages continued to decline as average weekly earnings came in at 6.5% 3m/y vs 7.2% 3m/y the previous month and earnings ex bonus printed 6.6% 3m/y vs 7.2% 3m/y in November. Wages remain elevated but their trend is clearly to the downside which should put downward pressure on prices.

Inflation data for December was unwelcome. Headline CPI printed an increase of 4% y/y, up from 3.9% y/y in November while markets expected a tick down to 3.8% y/y. Core CPI reading was unchanged at 5.1% y/y while markets expected a decline to 4.9% y/y. Services inflation was the biggest contributor as it rose by 0.7% m/m and 6.4% y/y vs 6.3% y/y in November showing that disinflationary path is not a straight line.

This week we will get preliminary January PMI data.

Important news for GBP:

Wednesday:​

• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

After two very strong job reports we got one abysmal report. December employment change came in at -65.1k vs 17.6k as expected. The unemployment remained unchanged at 3.9% due to big drop in the participation rate, 66.8% from 67.2% in November. The composition of jobs was dreadful as full-time employment saw a loss of 106.6k jobs! Part-time added 41.5k jobs. Labour market is easing and further inflation pressures will not come from wages.

Chinese Q4 GDP came in at 1% q/q as expected, but down from 1.5% q/q in Q3. Yearly figure printed a growth of 5.2% vs 5.3% as expected, but up from 4.9% in the previous quarter. December figures saw industrial production at 6.8% y/y vs 6.6% y/y as expected, but retail sales at 7.4% y/y vs 8% y/y as expected. Mixed activity data but GDP beat the 5% target. PBOC made no changes to their 1-year MLF rate and left it at 2.50%. Markets were looking for a rate cut to 2.40%. PBOC has added liquidity in the market by adding more loans instead of cutting rates.

NZD

Business confidence in Q4 showed a big improvement as it printed -2%, up from -52% in Q3. The report shows easing in labour market conditions and inflationary pressures. Concerns have now shifted to the demand side as week demand poses problems for businesses. Kiwi received a small boost after the news but remained under pressure from strong USD for the entire week.

This week we will get Q4 inflation data.

Important news for NZD:​

Tuesday:

• CPI​

CAD

December CPI report printed 3.4% y/y as expected. It was 3.1% y/y in November. BoC core CPI reading declined to 2.6% y/y from 2.8% y/y the previous month. The main reason inflation increased was due to base effects coming out of the calculation. With core CPI coming in stronger than expected BoC will not be pressured to cut rates soon and markets are now pricing out January and March rate cuts.

This week we will have a BoC meeting. No changes to the policy are expected, however we may get a more dovish tone from the BoC indicating that rate cuts are soon to come.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

Core machinery orders, a good proxy for CAPEX six to nine months in the future, plunged in November 4.9% m/m and 5% y/y. Final industrial production for the same month saw declines of 0.9% m/m and 1.4% y/y. National inflation data for the month of December saw all three measures decline from their November readings. Headline CPI printed 2.6% y/y, down from 2.8% y/y, Ex fresh food printed 2.3% y/y, down from 2.5% y/y while ex fresh food energy, so called core-core, printed 3.7%, a tick down from 3.8% y/y the previous month. All three measures are above targeted 2% but the are slowly returning towards the target. BoJ members are not convinced that inflation has sustainably reached 2% target, therefore they are reluctant to make any changes to monetary policy. Tertiary industry index for the month of November came in at -0.7% m/m thus falling for the third straight month.

This week we will have BoJ meeting. No changes to rate or YCC are expected as recent wage and activity data came in weaker than expected.

Important news for JPY:

Tuesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending January 12 came in at CHF476.3bn vs CHF468.8bn the previous week. A decent jump in the deposits but still within a well-established range that is been in play since November of 2023.​

 

[katetrades]

Forex Major Currencies Outlook (Jan 29 – Feb 2)

We are in for a massive week that will see Fed and BoE meetings, preliminary Q4 GDP and January CPI from the Eurozone, NFP and Q4 CPI data from Australia. Additionally, we will get QRA from Treasury and earnings from big tech companies.

USD

Fed has announced that they will not be extending their Bank Term Funding Program (BTFP) which is scheduled to end on March 11. The program was introduced last year when regional bank crisis escalated led by the failure of Silicon Valley Bank. Starting immediately the rate charged to banks that use funding from this program will be raised by 50bp. So far banks have used BTFP as an arbitrage opportunity, borrowing at lower costs with BTFP and lending at higher to Fed thus recording a profit, but with rate hikes this will come to an end.

Preliminary Q4 GDP reading came in at 3.3% annualized vs 2% annualized as expected, Atlanta Fed predicted 2.4% annualized. The biggest highlight is GDP deflator, measure of inflation, which plummeted to 1.5% from 3.3% in Q3. Expectations was for it to drop to 2.3%. Consumer spending rose 2.8% q/q while government spending rose 3.3% q/q. Net trade contributed 0.43pp to the GDP print. GDP for 2023 is seen at 2.5%. Such a strong GDP reading increases probability of economy achieving a soft landing.

December PCE data showed headline number staying at 2.6% y/y as expected while core PCE dropped to 2.9% y/y from 3.2% y/y in November while a decline to 3% y/y was expected. Digging into details of the report we can see that services ex energy and housing component rose 0.3% m/m, higher than 0.1% m/m increase the previous month. On the other hand, 6-month annualized inflation fell to 1.9% and 3-month annualized to 1.5%. With them below the 2% target chances of a rate cut are increasing and USD is weakening. Personal spending ripped higher by 0.7% m/m vs 0.4% m/m as expected while personal income rose 0.3% m/m as expected.

The yield on a 10y Treasury started the week at 4.13%, rose to 4.20% and finished the week at around 4.15%. The yield on 2y Treasury started the week at 4.38% and reached the high of 4.42%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -19bp as curve steepened further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 97% while probability of a 25bp rate cut is 3%. Probability of a March rate cut is around 50%.

This week we will get Fed meeting, Quarterly Refinancing Announcement (QRA) from Treasury, ISM manufacturing PMI and NFP on Friday. Fed is expected to stay pat, acknowledge encouraging growth and inflation data and emphasize data dependence. Investors will be on the lookout for the talk about QT reduction. Headline NFP number is expected to print around 162k with the unemployment rate staying at 3.7%.

Important news for USD:

Wednesday:​

• QRA​
• Fed Interest Rate Decision​

Thursday:​

• ISM Manufacturing PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB lending survey for Q4 showed that banks continue to tighten their credit standards as well as business demand for loans weakening. High interest rates are the main reason for lower demand for credit. The report shows that demand will continue to get weaker and credit lending standards will continue to tighten which is another signal that rate cuts will come in the first half of the year. Ifo has revised German 2024 GDP to 0.7% from 0.9% seen the previous month.

Preliminary January PMI data in the Eurozone showed a split in the economy, but this time manufacturing improved while services declined. Manufacturing came in at 46.6 vs 44.8 as expected and up from 44.4 in December. Both German and French readings improved as well with German reading improving for the sixth consecutive month. The report shows that output, new orders and employment are all improving. Services reading slipped to 48.4 from 48.8 the previous month with declines seen in German and French readings. The report states that companies are expanding their workforce in services sector which is a very encouraging sign. Composite PMI ticked up to 47.9 from 47.6 in December while Germany and France saw small declines in their respective readings.

ECB has left key interest rates unchanged as was widely expected, deposit rate is at 4%. Inflation is moving in the right direction of the medium-term inflation outlook. Tight financing conditions are helping to weaken demand and push down inflation. President Lagarde stated at the press conference that risks to economic data remain tilted to the downside and that economy likely stagnated in Q4. In the Q&A section she revealed that consensus when talking about rates was that it is premature to cut them. She reiterated that they are data dependent and the importance of wage growth data.

This week we will have preliminary Q4 GDP and January CPI data.

Important news for EUR:

Tuesday:​

• GDP​

Thursday:​

• CPI​

GBP

Activity data from the UK surprises to the upside. Preliminary January PMI saw manufacturing improve to 47.3 from 46.2 in December and higher than 46.7 as expected. Services continued to move higher into expansion and printed 53.8, up from 53.4 the previous month and thus lifted composite reading to 52.5 from 52.1 in December. The report shows that businesses are becoming more optimistic regarding future growth prospects. This reading shows that UK economy is on a path for a positive GDP reading in Q1. BoE may look at this data and decide that there is no need to rush with rate cuts.

This week we will have BoE meeting. Taking into account recent UK data we expect no change to monetary policy. We will get new projections an a press conference after the meeting so we may see inflation forecast revised down.

Important news for GBP:

Thursday:​

• BoE Interest Rate Decision​

AUD

PBOC has decided to make no changes to LPR rates. The 1-year rate is left at 3.45% while 5-year rate stayed at 4.20%. LPR (Loan Prime Rate) is rate used as a benchmark for loans (1-year is used) and mortgages (5-year is used). Investors have hoped that bad economic data from China will push PBOC into cutting rates, but so far they are not obliging to market requests. PBOC has announced a 50bp RRR (Reserve Required Ratio) cut. The cut will apply from February 5. Rumors have started circulating in Chinese media that PBOC will cut MLF rate in Q1. MLF rate is a benchmark rate that commercial banks in China use to borrow funds from PBOC.

This week we will get Q4 CPI data from Australia which will be very important data input for the coming RBA meeting. We will also get official PMI data from China.

Important news for AUD:

Wednesday:​

• CPI​
• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​

NZD

Inflation data for Q4 came in as expected at 0.5% q/q and 4.7% y/y. Inflation is down from 1.8% q/q and 5.6% y/y increases in Q3. Inflation in New Zealand is divided into “Tradable” which is primarily driven by international demand and “Non-tradable” which is mainly driven by domestic demand. “Non-tradable” inflation surged by 5.9% y/y and 1.1% q/q, coming in much higher than 0.8% q/q as expected and indicating that domestic price pressures are not subsiding. RBNZ sectoral factor model inflation declined to 4.5% y/y from 5.2% y/y in the previous quarter. Overall, inflation pressures are easing which will be well accepted by RBNZ, but caution remains as domestic demand is still strong and pushes prices higher.

CAD

BoC held the interest rate at 5% as was widely expected. The bank expects growth to remain close to zero in Q1 of 2024 and then to pick up around the middle of the year. GDP projection is for 0.8% growth in 2024 and 2.4% in 2025. Regarding inflation statement says “The Bank expects inflation to remain close to 3% during the first half of this year before gradually easing, returning to the 2% target in 2025. While the slowdown in demand is reducing price pressures in a broader number of CPI components and corporate pricing behaviour continues to normalize, core measures of inflation are not showing sustained declines.” The statement concludes with “Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.” There is no mention of rate hikes giving this statement a clearly dovish tone. At the press conference BoC Governor Macklem stated that they have not ruled out future rate hikes and that if inflation accelerates they are prepared to raise rates but markets are not buying it.

JPY

New year but same old BoJ as they decided to make no changes to their monetary policy. Interest rate stays at -0.1% and yield on 10y JGB will fluctuate around 0% with 1% being a flexible upper bound. New projections saw no changes to core-core inflation while core inflation was lowered for 2024. GDP projections see lower growth in 2024 than projected in October but higher in 2025 than projected in October. BoJ Governor Ueda put some hawkish comments at the press conference stating that likelihood of achieving 2% inflation target is increasing. He reiterated the importance of spring wage negotiations and added that more companies are mulling wage hikes. Higher wages are necessary to sustainably achieve 2% inflation target. Ueda remarked that loose policy will continue for as long as necessary and added that change in policy is possible even if there is no change to quarterly outlook.

Preliminary January PMI data saw improvements across the sectors. Manufacturing ticked up to 48 from 47.9 in December on the back of slight improvements in output and new orders. They are still in contraction territory though. Services posted much bigger improvement as they printed 52.7 vs 51.5 the previous month. There was a big jump in new business growth and improvement in foreign demand. Composite was thus lifted to 51.1 from 50 in December. Tokyo area CPI for the month of January saw headline and ex fresh food numbers drop to 1.6% y/y from 2.4% y/y and 2.1% y/y in December respectively. Only core-core, CPI ex fresh food, energy, came in above BoJ’s 2% inflation target and printed 3.1% y/y, still down from 3.6% y/y the previous month.

CHF

SNB total sight deposits for the week ending January 19 came in at CHF473.4bn vs CHF476.3bn the previous week. A small decline but still within well-established range.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 5 – Feb 9)

RBA meeting, inflation data from China, employment data from New Zealand and Canada as well as PMI data from the US and China will highlight the week ahead of us.

USD

Fed has left rate unchanged in the range of 5.25-5.50% as widely expected. The accompanying statement was changed in several places. There was no mention of "additional policy tightening" and this part was added "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." With this expression Powell has effectively pushed back on expected rate cuts. There was no mention of QT taper, the discussion about it has been moved to March, giving this statement a hawkish bias.

During the press conference Powell clarified that expression "greater confidence" refers to desire of FOMC members to see more good data on inflation. He added that they give the most credence to 12 month inflation, y/y. Powell stated rate cuts will come this year but that it is unlikely that rate cut in March is not the base case. Additionally, he clarified the importance of jobs data and stated that if jobs data weakens rate cuts may come sooner. The Chairman did not want to call "soft landing" achieved.

ISM manufacturing PMI for the month of January came in at 49.1, up from 47.4 in December, Big jumps were recorded in new orders and in prices paid. Both came in above 52 and while former is very encouraging the latter is concerning. New orders were in contraction since May of 2022. ECI (Employment Cost Index) for Q4 came in weaker than expected indicating that inflation pressures from wages are subsiding. Q4 unit labour cost rose by 0.5% vs 1.1% as expected and it added to the notion of declining inflation pressures.

First NFP of 2024 smashed expectations by almost doubling them and came in at 353k vs 180k as expected. The unemployment rate was unchanged at 3.7% as well as participation rate at 62.5%. Wages jumped significantly with weekly earnings coming in at 0.6% m/m vs 0.3% m/m as expected and 4.5% y/y vs 4.1% y/y as expected. Some weak points are drop in hours worked and the fact that almost all of the jobs added are part-time jobs. The biggest job gains were in education and health, they added 112k. Leisure and hospitality added only 11k. We got a 74k increase in professional/business services, 64k in trade & transport and 45k added in retail. Scorching hot report gave boost to USD as rising wages warn that inflation may prove sticky. Chances of a March rate cut have dropped significantly and most likely March cut is off the table.

The yield on a 10y Treasury started the week at 4.14%, rose to 4.14%, dropped to 3.87% and finished the week strong post-NFP at around 4%. QRA announcement showed that Treasury will issue $760bn vs $811bn as expected. There has been a bid in bonds due to lower than expected supply and yield on 10y fell below 4%. The yield on 2y Treasury started the week at 4.34% and reached the high of 4.36%. Spread between 2y and 10y Treasuries started the week at -22bp then widened to -38bp post-NFP as curve inverted further in expectation that Fed will stay higher for longer. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at March meeting at 80% while probability of a 25bp rate cut is at 20%. Probability of a May rate cut is around 75%.

This week we will have ISM Services PMI.

Important news for USD:

Monday:​

• ISM Services PMI​

EUR

ECB Vice President de Guindos stated that progress on inflation has been encouraging with recent good news on inflation front and added that they will start cutting interest rates when they are sure of meeting 2% inflation goal. He added that inflation risks are tilted to the downside. ECB Centeno stated that they are data dependent but that he is not in favor of wing for wage data before cutting rates. ECB Kazimir stated that rate cut is more likely in June than in April. These comments illustrate the divide in ECB while markets almost fully price in a 25bp rate cut in April.

Preliminary Q4 GDP reading from Eurozone showed a flat economy with a measly 0.1% y/y growth. French economy was also flat q/q but rose 0.7% y/y. German GDP came in at -0.3% q/q as expected and -0.2% y/y. Spain and Italy had their respective GDPs come in positive and beat expectations. Technical recession is avoided but growth is missing.

Preliminary Eurozone CPI for the month of January came in at 2.8% y/y vs 2.9% y/y in December with a 0.4% m/m drop. Energy prices were the biggest contributor to declines due to base effects, while services inflation was not changed at 4%. Core CPI ticked down to 3.3% y/y from 3.4% y/y the previous month. Spain CPI surprised to the upside while French and German readings continued to decline with German CPI printing 2.9% y/y, the lowest level since July of 2021.

GBP

BoE has left the bank rate unchanged at 5.2% as widely expected but the vote was interesting. It came in at 6-3 with two members, Haskel and Mann, voting for a 25bp rate hike while Dhingra, the most dovish member voted for a 25bp rate cut. GDP growth has been weak recently but it is expected to pick up. CPI has come in below November projections and inflation is expected to come to 2% in Q2 and then increase again in Q3 and Q4. CPI is seen at 2.75% by the year end, 2.3% in two years and 1.9% in three years. Risks surrounding domestic prices and wages are more evenly balanced while "risks around its modal CPI inflation projection are skewed to the upside over the first half of the forecast period, stemming from geopolitical factors". The statement reveals that "monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term" as well as reiteration of data dependence. There was no mention of policy tightening indicating that despite the two members who voted for rate hike the bank is firmly in pause mode. Governor Bailey stated in the press conference that they are not yet at the place to lower rates. With BoE not sounding as dovish as expected markets are now moving rate cuts further into the future with June being almost fully priced in.​

AUD

Q4 CPI data showed 0.6% q/q increase compared to 1.2% q/q increase in Q3 and 4.1% y/y vs 4.3% y/y as expected, down from 5.4% y/y in the previous quarter. Core measure, trimmed mean, came in at 0.8% q/q and 4.2% y/y, both down from 1.2% q/q and 5.2% y/y in Q3. These numbers are encouraging and will be well received by RBA, but markets should not get ahead of themselves and price in aggressive rate hike cycle. Next week’s meeting will deliver a pause.

Official PMI data from China for the month of January saw improvements across the sectors. Manufacturing came in at 49.2 as expected, up from 49 in December. Services came in at 50.7 vs 50.6 as expected and up from 50.4 the previous month. Composite was lifted to 50.9 from 50.3 in December. IMF wants more monetary policy easing from PBOC and said that RRR cut which will take effect from February 5 is a move in right direction. Caixin manufacturing PMI printed 50.8 in January, unchanged from December, but stronger than 50.6 as expected. The report shows that total new orders remain in expansion while new export orders increased for the first time in seven months indicating growing foreign demand. Business confidence improved to a nine-month high.

This week we will have RBA meeting. No change in monetary policy is expected and language should shift from tightening to easing in the future. We will also get Caixin PMIs as well as inflation data from China.

Important news for AUD:

Monday:​

• Caixin Services PMI (China)​
• Caixin Composite PMI (China)​

Tuesday:​

• RBA Interest Rate Decision​

Thursday:​

• CPI (China)​

NZD

December trade balance deficit shrank substantially as it printed -NZD332m from -NZD1250m in November. Exports declined slightly while there was an almost NZD1bn drop in imports. January business confidence improved to 36.6 from 33.2 in December. Improvements were seen in commercial construction and ease of credit with pricing intentions and inflation expectations declining. On the other hand, there was a huge drop in residential construction.

This week we will get Q4 employment data.

Important news for NZD:

Tuesday:​

• Employment Change​
• Unemployment Rate​

CAD

November GDP came in at 0.2% m/m vs 0.1% m/m as expected. Good producing industries grew by 0.6% m/m. December advanced reading sees GDP rising by 0.3% m/m which puts preliminary Q4 GDP reading at 0.3%.

This week we will get employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

The unemployment rate ticked down in December and it is now at 2.4%. Preliminary December industrial production data saw rebound compared to November but a smaller than expected improvements and January data is seen declining. Retail sales declined in December. BoJ Summary of Opinion showed that monetary policy should be maintained patiently and that positive wage-inflation spiral must be further strengthened.

CHF

SNB total sight deposits for the week ending January 26 came in at CHF472.2bn vs CHF473.4bn the previous week. Just a slight modification to the deposits as their multi-month range tightens further. SNB Chairman Jordan stated that inflation increased in January due to VAT and electricity prices but that is still below targeted 2%.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 12 – Feb 16)

Inflation data from the US, the UK and Switzerland, Q4 GDP from the UK and Japan as well as employment data from the UK and Australia coupled with consumption data from the US will highlight a very busy week ahead of us.

USD

OECD has raised global growth forecast based on the very strong data coming from the US. Global growth for 2024 is now seen coming at 2.9% vs 2.7% previously while US GDP for 2024 is seen at 2.1% vs 1.5% previously. US GDP for 2025 is unchanged at 1.7%. Eurozone growth was lowered for both 2024 and 2025 while UK and China GDP were left unchanged for both years. OECD issued a warning stating that if problems around Red Sea persist it can add 0.4% to the CPI reading in a year’s time.

ISM services PMI for the month of January printed 53.4 vs 52 as expected and up from 50.5 the previous month. Employment showed a significant jump and returned into expansion with a 50.5 reading. As a reminder it plunged to 43.8 in December. There was also an improvement in new orders which moved further into expansion. One concerning factor is jump in prices paid category which printed 64! If price pressures prove to be more sticky than Fed and markets expect we could see higher rates for longer.

Fed's Senior Loan Officer Opinion Survey (SLOOS) reported that banks further tightened their lending standards in the Q4, but the pace of tightening was slower than in previous quarters. Banks also reported weaker demand for commercial and industrial loans and that weaker demand is coming from companies of all sizes. Tightening of lending standards was also seen in loans to the household sector. Higher rates are dampening demand for credit which in turn will have impact on economic growth. That is not yet seen in the economic data, but if this trend persists we can see it becoming a problem for the economy from Q2.

Headline December CPI was revised down to 0.2% m/m from 0.3% m/m as preliminary reported. Powell has highlighted that he will be closely watching this revision and incorporate this information into his decision. He wants to see that progress on inflation is being made, that inflation is falling as fast as reported, and he got a confirmation in the revised reading.

The yield on a 10y Treasury started the week at 4.02%, rose to 4.18% and finished the week at around 4.14%. The yield on 2y Treasury started the week at 4.37% and reached the high of 4.49%. Spread between 2y and 10y Treasuries started the week at -36bp then tightened to -30bp as curve steepened. The 2y10y is inverted for over eighteen months. We had very positive 10y and 30y auctions that were dominated by surge in indirect demand. FedWatchTool sees the probability of no change at March meeting at 80% while probability of a 25bp rate cut is at 20%. Probability of a May rate cut is around 68%.

This week we will have January inflation and consumption data.

Important news for USD:

Tuesday:​

• CPI​

Thursday:​

• Retail Sales​

EUR

Final January services for the Eurozone were unchanged at 48.4, down from 48.8 in December with composite coming in at 47.9, up from 47.6 the previous month on the back of stronger manufacturing sector. There were no significant revisions to the preliminary reading, although it is notable that French readings were revised up.

GBP

Final services reading was revised up in January to 54.3 from 53.8 as preliminary reported and up from 53.4 in December. Services sector is holding the UK economy and it is doing better than expected job. The reading is an eight month high. Strong output growth and rebounding new orders are stated in the report as well as declining price pressures which will be warmly accepted by the BoE. Composite reading was also revised up and printed 52.9 vs 52.1 the previous month.

This week we will have employment, inflation and preliminary Q4 GDP data.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Wednesday:​

• CPI​

Thursday:​

• GDP​

AUD

RBA has decided to leave cash rate at 4.35% as expected. The board acknowledged recent encouraging data on inflation but stated that it will take some time yet before inflation is sustainably in the targeted range of 2-3%. Goods inflation dropped faster than expected while services inflation declined slower than expected. The statement clearly says "The Board needs to be confident that inflation is moving sustainably towards the target range." similar as the other central banks. The outlook remains uncertain. New projections see GDP in 2024 at 1.8% and in 2025 at 2.8% wlth CPI in 2024 at 3.2% and in 2025 at 2.8%. Both are lower than previously at 2% and 3.5% for 2024 and 2.4% and 2.9% for 2025 respectively. During the press conference RBA governor Bullock stated that there is still “little way to go” to bring inflation down. She also said that recent inflation data are good, but there is still number 4 in front of the CPI data. Risks remain balanced and she did not rule out anything regarding monetary policy leaving the door open for both hikes and cuts.

Caxin services PMI for the month of January declined to 52.7 from 52.9 in December and pulled down composite with it to 52.5 from 52.6. Those numbers are still well in the expansion territory so they are not causing concern. RRP 50bp cut took effect on February 5. The main goal of the cut is to increase liquidity by increasing the amount banks can lend and thus help stimulate the economy. January CPI came in at -0.8% y/y for a fourth consecutive month of deflationary readings. The reading is the lowest since 2009. Food prices, pork prices mainly, showed biggest decline and it has been in deflation for seven months. It is possible that they will revert back as demand for pork jumps during Lunar New Year, the period right in front of us.

This week we will have employment data.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Employment report for Q4 showed the unemployment rate ticking up to 4% from 3.9% in Q3 while an increase to 4.2% was expected. Participation rate ticked down to 71.9% while employment change increased by 0.4% q/q. Labor cost index slipped to 3.9% y/y from 4.1% y/y in the previous quarter but less than expected 3.8% y/y. A combination of smaller than expected increase in the unemployment rate and smaller than expected drop in labor cost index speaks of still tight labor market and it gave Kiwi a boost. ANZ has stated on Friday that recent data surprised to the upside and that it can lead to RBNZ hiking rates to 6% from current 5.5% at incoming meetings in February and April. Kiwi accepted the news and ran away with it higher.

CAD

Building permits fell off a cliff in December as they recorded a 14% m/m plunge. November reading saw negative revision and now shows a drop of 5% m/m compared to a drop of -3.9% m/m as previously reported. The declines were seen in both residential and non-residential sectors. Although this series is a very volatile and sharp cold weather in December is to blame, same blame has to go towards high rates and it has to be acknowledged that this is a rather bad data point. BoC meeting minutes showed concern regarding inflation, more precisely regarding “persistent inflation and lowering rates 'prematurely' in Jan policy-setting meetings”.

January employment report was mixed. Employment change came in at 37.3k vs 15k as expected. Additionally, the unemployment rate ticked down to 5.7% from 5.8% in December while markets were expecting an increase to 5.9%. However, good news stop there. Participation rate ticked down to 65.3% from 65.4% the previous month. More concerning is that full-time jobs declined by 11.6k and entire increase in employment came in from part-time jobs (48.9k). Wages declined significantly and printed 5.3%, down from 5.7% in December.

JPY

Final services reading for January was revised up to 53.1 from 52.7 as preliminary reported and up from 51.5 in December. The report shows big increase in business confidence. Composite was lifted to 51.5 from 50 the previous month. December average wages managed to rise 1% y/y, more than expected, but when taking inflation into account, real wages are still deeply negative. That is reflected in household spending which dropped again in December 2.5% y/y. Household spending has not had a positive reading since February of 2023. BoJ will wait for the results of Spring wage negotiations (Shunto) before deciding whether to normalize monetary policy.

This week we will have preliminary Q4 GDP data.

Important news for JPY:

Thursday:GDP
CHF

SNB total sight deposits for the week ending February 2 came in at CHF481.2bn vs CHF472.2bn the previous week. Some noticeable jump, but still within well established range.

This week we will have inflation data.

Important news for CHF:

Tuesday:​

• CPI​