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Weekly Market Outlook: Euro CPI, US Core PCE, US NFP, and Jobs Data.

Weekly Market Outlook

Weekly Market Outlook — The US economic data will dominate the agenda in the coming week after the Thanksgiving downtime that led to further weakness for the greenback. There will be a lot of attention paid to the latest payroll report as well as PCE inflation readings. As well as the CPI numbers out of Australia, Europe, and Switzerland, Canadian GDP figures will also be important to keep an eye on, while OPEC’s monthly decision is also worth watching for a possible output increase.

Key Data to watch on the Economic Calendar this week 

Monday, 28 November

Tuesday, 29 November

Wednesday, 30 November 

Thursday, 1 December

Friday, 2 December

USD: Jobs report to lead the busy week

The Fed‘s hawkish remarks may have prevented the US dollar from sliding further, but they weren’t enough to boost it much. The November jobs report and a handful of other key indicators could have a big impact on the greenback, which appears to be more at risk on the downside. 

Tuesday will be a quiet day for economic data, with only home prices and the consumer confidence index in the spotlight. On Wednesday, second estimates of third quarter GDP growth may show some improvement. ADP’s employment report – a precursor to Friday’s official numbers – will also be released, along with the Chicago PMI and pending home sales. 

Upon hearing the CPI readings were surprisingly soft, investors will be watching the core PCE price index on Thursday to see if it is also significantly below forecasts. As compared to last month, it is expected to rise 0.3% month-over-month in October. The report includes information about personal income and spending. 

On Thursday, the ISM manufacturing PMI will also be crucial. In November, the alternative S&P Global manufacturing PMI fell below 50, but forecasts indicate that ISM will avoid a contraction by easing to 50.0. 

Recession fears would likely be exacerbated if Friday’s nonfarm payrolls report also disappoints. It is estimated that the US economy added 200k jobs in November, down from 261k in October. A slight monthly moderation in average hourly earnings growth is expected, while unemployment is expected to rise to 3.8%. 

The Fed funds rate seems to be on track for 5%. Since inflation appears to have peaked and Fed officials seem to be in agreement on this, it is good news for risk appetite if there is bad news about the economy. It would be easier to cut rates sooner rather than later if the jobs market and economy were too slow. Such a development would eliminate the threat of a further hawkish shift. Although it could be detrimental to the dollar, it would probably boost Wall Street sentiment.

EUR: ECB to reveal clues with flashing CPI 

The inflation rate in the euro area hit double digits in October, even though it may be on the decline in America. It will be interesting to see whether price pressures continued to simmer in November based on the flash estimates out on Wednesday. As for the harmonized index of consumer prices (HICP), the headline rate is expected to ease to 10.4% y/y. It is also expected that the core rate, which excludes food and energy prices, will drop 0.1 percentage point to 6.3%. 

ECB policymakers are still undecided about the size of the next rate hike when they meet on December 15. Stronger-than-expected figures would increase the likelihood of a 75-basis-point rise rather than a 50-basis-point increase. As a result, it’s doubtful how many additional 75-bps increases the ECB can implement, even if the Eurozone prints very hot.  

A new contraction in economic activity was reported in the latest flash PMI surveys in November, so investors are looking forward to Tuesday’s economic sentiment indicator for further signs of a deteriorating economic environment, while Friday’s producer price index is expected to hold some interest as well. Nevertheless, if investors increase their wagers on a 75-bps rise, the euro may extend its latest gains at least in the interim.

CHF: CPI eyed as Swiss Franc recovers

As the European Central Bank considers its next move, the Swiss National Bank must also decide how large to go in December. The Swiss consumer price index was running at a ‘mere’ 3% annual clip in October, unlike the rest of Europe, which suffers from high inflation. 

Neither the country nor its economy is in the same danger of recession, as it recorded a quarterly growth rate of 0.3% in the second quarter. It will be interesting to see how both data points turn out this week. Firstly, on Tuesday, we will get the GDP estimate, and then on Thursday, the inflation estimates. 

Swiss franc markets have rallied strongly following the dollar’s retreat, but the rebound reached a ceiling at 0.9355. In that case, higher-than-expected CPI figures might tip the franc over the barrier as the SNB would likely raise rates by 50 bps instead of 25 bps.

CAD: Various risks pile up for the Loonie

In addition to the U.S., Canada will also report GDP data this week, but this will be overshadowed by the employment reports due on Friday. Tuesday’s data is expected to reveal a slowdown in GDP growth in the third quarter. In October, 108k new jobs were added to the Canadian labor market, which is more pressing for the Bank of Canada. It is possible that policymakers may reconsider further reducing the pace of rate increases if employment increases at such a fast pace in November. 

At its last meeting, the BoC raised interest rates by only 50 basis points, and investors expect an increase of 25 basis points at the December meeting. 

In the event that the Canadian job numbers move those odds in favor of a 50-bps hike, the Canadian dollar could enjoy a significant boost. Nonetheless, the OPEC-non-OPEC meeting on Thursday poses a downside risk to the loonie. Some reports have suggested that Saudi Arabia might push for an increase in oil production at the upcoming meeting to offset the EU’s price cap on Russian oil exports that will take effect in the coming month. 

A decline in oil prices could hurt oil-linked currencies such as the loonie, but a weakness of the dollar would mitigate the losses, and risk assets, in general, would be boosted if oil prices fell in response to the alliance’s decision to raise output.

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