Weekly Market Recap (04-08 December)

<p>Monday</p><p>BoJ Noguchi reiterated the central bank’s focus on
wage growth to reach their 2% target sustainably with no policy change in
sight:</p><ul><li>It's true the impact
of elevated global inflation is reaching Japan's economy with consumer
inflation exceeding the BoJ's 2% target since the spring of 2022.</li><li>But the rise (in
inflation) is mostly due to cost-push factors amid higher import prices.</li><li>To achieve our 2% inflation
target, we must see price rises backed by sustained wage increases.</li><li>While annual spring
wage negotiations this year achieved wage hikes unseen in 30 years, we've
only just reached a stage where the possibility of achieving our target
has come into sight.</li></ul><p>The Switzerland November CPI missed expectations with
both the measures comfortably in the SNB’s 0-2% target range:</p><ul><li>CPI Y/Y 1.4% vs.
1.7% expected and 1.7% prior. </li><li>CPI M/M -0.2% vs.
-0.1% expected and 0.1% prior.</li><li>Core CPI Y/Y 1.4% vs.
1.5% prior.</li></ul><p>ECB’s de Guindos (neutral – voter) maintained his
neutral stance as the central bank keeps a “wait and see” approach:</p><ul><li>Recent inflation
data is good news.</li><li>It's been a
'positive surprise'.</li><li>But it is too early
to declare victory.</li><li>Increase in wages
can still have an impact on inflation.</li><li>Monetary policy
stance will be data dependent.</li></ul><p>Tuesday</p><p>The Tokyo CPI for
November fell further:</p><ul><li>CPI
Y/Y 2.6% vs. 3.3% prior.</li><li>Core
CPI Y/Y 2.3% vs. 2.4% expected and 2.7% prior.</li><li>Core-Core
CPI Y/Y 2.7% vs. 2.7% prior.</li></ul><p>The Chinese Caixin Services
PMI for November beat expectations:</p><ul><li>Caixin Services PMI
51.5 vs. 50.8 expected and 50.4 prior.</li></ul><p>Key
points from the report:</p><ul><li>Business activity
and new orders increase at quickest rates in three months.</li><li>Confidence around
the year-ahead improves.</li><li>Inflationary pressures weaken.</li></ul><p>The RBA left the cash
rate unchanged at 4.35% as expected with a slightly dovish tone:</p><ul><li>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.</li><li>Board remains
resolute in its determination to return inflation to target.</li><li>The limited
information received on the domestic economy since the November meeting
has been broadly in line with expectations.</li><li>Outlook for
household consumption also remains uncertain.</li><li>The monthly CPI
indicator for October suggested that inflation is continuing to moderate,
driven by the goods sector; the inflation update did not, however, provide
much more information on services inflation.</li><li>Measures of
inflation expectations remain consistent with the inflation target.</li><li>Conditions in the
labour market also continued to ease gradually, although they remain tight.</li><li>Domestically, there
are uncertainties regarding the lags in the effect of monetary policy.</li><li>Higher interest
rates are working to establish a more sustainable balance between
aggregate supply and demand in the economy.</li><li>Holding the cash
rate steady at this meeting will allow time to assess the impact of the
increases in interest rates on demand, inflation and the labour market.</li></ul><p>The Eurozone PPI
for October came in line with expectations:</p><ul><li>PPI Y/Y -9.4% vs.
-9.5% expected and -12.4% prior.</li><li>PPI M/M 0.2% vs.
0.2% expected and 0.5% prior.</li></ul><p>ECB’s Schnabel
(hawk – voter) changed her tone to a more neutral stance after the latest
inflation report:</p><ul><li>Further rate hikes
"rather unlikely" after latest inflation data.</li><li>Inflation developments
are encouraging, fall in core prices remarkable.</li><li>Must be careful
about guiding policy for many months out.</li><li>Current level of
restriction is sufficient, has increased confidence 2% target will be met
in 2025.</li><li>But must not declare
victory prematurely.</li><li>Inflation is on the
right track, but more progress is needed.</li><li>No prolonged
recession is seen.</li><li>Data suggests
economy may be bottoming out.</li></ul><p>The US ISM
Services PMI for November beat expectations:</p><ul><li>ISM Services PMI
52.7 vs. 52.0 expected and 51.8 prior.</li><li>Employment index 50.7 vs. 50.2 prior.</li><li>New orders index
55.5 vs. 55.5 prior.</li><li>Prices paid index
58.3 vs. 58.6 prior.</li><li>New export orders
53.6 vs. 48.8 prior.</li><li>Imports 53.7 vs. 60.0 prior.</li></ul><p>The US Job Openings for
October missed expectations by a big margin with a negative revision to the
prior reading:</p><ul><li>Job Openings 8.733M
vs. 9.300M expected and 9.350M prior (revised from 9.553M).</li><li>Hires 3.7% vs. 3.7% prior. </li><li>Separations rate 3.6% vs. 3.6% prior.</li><li>Quits 2.3% vs. 2.3%
prior. </li></ul><p>Wednesday</p><p>The Australian Q3 GDP
missed expectations:</p><ul><li>GDP Q/Q 0.2% vs.
0.4% expected and 0.4% prior.</li><li>GDP Y/Y 2.1% vs.
1.8% expected and 2.1% prior.</li></ul><p>BoJ’s Himino just echoed
the other members’ comments with the usual focus on wage growth:</p><ul><li>BoJ will patiently
maintain easy policy until sustained, stable achievement of price target
is in sight.</li><li>Japan's financial
system is likely resilient enough to weather stress from transition to
higher interest rates.</li></ul><ul><li>If we do not get the
timing exit procedures wrong, the impact of a positive wage-inflation
cycle will likely benefit wide range of households, companies.</li></ul><ul><li>Must make
appropriate decision on exit timing, procedure by scrutinising wage,
inflation developments.</li><li>BoJ must achieve
situation where inflation slows ahead, but not too much.</li></ul><ul><li>Japan is seeing
steadily changes in price, wage behaviour.</li></ul><ul><li>Solid progress is
observed in the transformation of firms' wage- and price-setting
behaviour.</li><li>Price rises
beginning to affect wages.</li><li>Pass-through from
wages to inflation is also returning somewhat.</li><li>Without virtuous
cycle between wages and prices, Japan will most likely revert to the
deflationary state in the past.</li></ul><ul><li>When Japan returns
to an economy with positive interest rate, that could improve households'
balance as a whole.</li><li>If inflation
expectations have heightened, that would mean impact of rise in real
interest rate could be smaller than that of nominal rate.</li></ul><p>The Eurozone
Retail Sales for October missed expectations:</p><ul><li>Retail
Sales M/M 0.1% vs. 0.2% expected and -0.1% prior (revised from -0.3%).</li><li>Retail
Sales Y/Y -1.2% vs. -1.1% expected and -2.9% prior.</li></ul><p>BoE’s Bailey
(neutral – voter) reaffirmed the central bank’s “wait and see” approach:</p><ul><li>Outlook for
inflation is uncertain.</li><li>Rates likely to need
to remain around current levels.</li><li>We remain vigilant
to financial stability risks that might arise.</li></ul><p>ECB’s Kazimir
(hawk – voter) pushed back against markets’ rate cuts expectations:</p><ul><li>Further
rate hike is unlikely to be needed but market bets for Q1 rate cut are science
fiction.</li></ul><p>The US ADP missed
expectations:</p><ul><li>ADP 103K vs. 130K
expected and 106K prior (revised from 113K).</li></ul><p>Details:</p><ul><li>Small (less than 50
employees) 6K vs. 19K prior.</li><li>Medium firms (500 –
499) 68K vs. 78K prior.</li><li>Large (greater than
499 employees) 33K vs. 18K prior.</li></ul><p>Changes in pay:</p><ul><li>Job stayers 5.6% vs.
5.7% prior – slowest since September 2021.</li><li>Job changers 8.3% vs. 8.4% prior.</li></ul><p>The BoC left
interest rates unchanged at 5.00% as expected:</p><ul><li>Statement repeats
that BoC "is prepared to raise the policy rate further if
needed".</li><li>Data "suggest
the economy is no longer in excess demand".</li><li>BoC saw
"further signs that monetary policy is moderating spending and relieving
price pressures".</li><li>The slowdown in the
economy is reducing inflationary pressures in a broadening range of goods
and services prices.</li><li>Governing Council
wants to see further and sustained easing in core inflation.</li><li>The global economy continues
to slow, and inflation has eased further.</li><li>US growth has been
stronger than expected but is likely to weaken in the months ahead.</li><li>Growth in the euro
area has weakened.</li><li>Oil prices are about
$10-per-barrel lower than was assumed in the October MPR.</li><li>The US dollar has
weakened against most currencies, including Canada’s.</li><li>Higher interest
rates are clearly restraining spending: consumption growth in the last two
quarters was close to zero.</li><li>The labour market
continues to ease: job creation has been slower than labour force growth.</li></ul><p>ECB’s Villeroy
(neutral – voter) reaffirmed that the central bank is done with rate hikes and
the next step is rate cuts in 2024:</p><ul><li>Disinflation is
happening more quickly than we thought.</li><li>This is why, barring
any shocks, there will not be any new rise in rates. The question of a
rate cut could arise in 2024, but not right now.</li></ul><p>Thursday</p><p>BoJ Governor Ueda didn’t
say anything explicitly about an exit from the current easy policy BUT you can
clearly read between the lines that they are considering rate hikes:</p><ul><li>Japan's economy to
continue recovering moderately, supported mainly by accommodative
financial conditions and effects of economic stimulus measures.</li><li>Uncertainty over
Japan’s economy extremely high.</li><li>Closely watching the
impact of financial, forex markets on the Japanese economy, prices.</li></ul><ul><li>Will patiently
continue monetary easing under YCC to support economic activity, cycle of
wage growth.</li></ul><ul><li>We have not yet
reached a situation in which we can achieve price target sustainably and
stably and with sufficient certainty.</li></ul><ul><li>Challenging situation remains.</li><li>It'll become even
more challenging towards the end of this year and into early 2024.</li></ul><ul><li>BoJ has not made
decision on which interest rate to target once we end negative interest
rate policy.</li><li>Options include
raising rate applied to financial institutions' reserves at BoJ, or revert
to policy targeting overnight call rate.</li></ul><ul><li>Don't have any
specific idea in mind on how much we will raise rates once we end negative
rate policy.</li></ul><ul><li>Whether to keep
interest rate at zero or move it up to 0.1%, and at what pace short-term
rates will be hiked after ending negative rate policy, will depend on
economic and financial developments at the time.</li><li>Achieving 2% trend
inflation can be defined as a state where economy, void of new shocks, can
see inflation sustained around 2% and wage growth somewhat above that
level.</li><li>Would be difficult
to choose which monetary policy tools to mobilise when exit from stimulus
draws near.</li><li>BoJ to work closely
with govt while monitoring currency, financial market moves.</li><li>Service spending
increasing moderately as a trend.</li><li>What's important
from here is for wages to keep rising and underpin consumption.</li></ul><p>The Switzerland
Unemployment Rate for November ticked higher to 2.1% vs. 2.0% prior, while the
Seasonally adjusted unemployment rate remained unchanged at 2.1% vs. 2.2%
expected.</p><p>The US Challenger
Job Cuts for November increased to 45.51K vs. 36.84K prior. Compared to the
same month last year, job cuts are down by roughly 41% but then again there was
an exceptional number of tech layoffs in November of 2022. The 45.51K layoffs
last month brings the year-to-date total to 686,860 and that's roughly a 115%
increase to the year-to-date total for last year through to November.</p><p>The US Jobless
Claims beat expectations across the board:</p><ul><li>Initial Claims 220K
vs. 222K expected and 219K prior (revised from 218K).</li><li>Continuing Claims
1861K vs. 1910K expected and 1925K prior (revised from 1927K).</li></ul><p>BoC’s Gravelle
acknowledged the progress on inflation:</p><ul><li>Gravelle noted that
housing imbalances have serious consequences for shelter price inflation,
contributing 1.8 percentage points to the total October inflation rate of
3.1%.</li><li>Emphasized the need
for Canada to have more homes and a housing supply that is more responsive
to increases in demand.</li><li>Pointed out that a
jump in demographic demand, coupled with existing structural supply
issues, could explain why rent inflation continues to climb.</li><li>Stressed the
importance of all levels of government working together on housing
policies to boost supply.</li><li>Urged the reduction
of barriers to adding capacity and ensuring market flexibility to meet
future changes in housing demand.</li><li>Warned that without
more house building, inflationary pressures in the shelter sector could
continue to build.</li><li>Highlighted that
rent inflation reached a 40-year high in October, with housing supply not
keeping pace with recent increases in immigration.</li><li>Reported that
housing activity grew 8.3% in Q3 but remains far below the level needed to
meet growing housing needs.</li><li>Commented that
recent increases in immigration have boosted near-term consumption but
haven't significantly affected inflation.</li><li>Noted that the
economy is now roughly in balance, with a focus on monitoring inflation
expectations, wage growth, and corporate pricing behaviour.</li><li>Stressed the
importance of indicators in assessing whether inflation is on a sustained
path to the 2% target.</li><li>Said that the market
has been relatively right on their previous two or three decisions, so it
seems like it’s taking in the data in the same way they are.</li></ul><p>Friday</p><p>The Japanese Average Cash Earnings increased in
October on a year-over-year basis marking the 22nd consecutive month
of rising wages:</p><ul><li>Average Cash
Earnings Y/Y 1.5% vs. 0.6% prior (revised from 1.2%).</li><li>Real wages Y/Y -2.3%.</li></ul><p>The US NFP report beat expectations across the board:</p><ul><li>NFP 199K vs. 180K
expected and 150K prior.</li><li>Two-month net
revision -35K vs -101K prior.</li><li>Unemployment rate 3.7%
vs. 3.9% expected and 3.9% prior.</li><li>Participation rate 62.8% vs. 62.7% prior.</li><li>U6 underemployment
rate 7.0% vs. 7.2% prior.</li><li>Average hourly
earnings M/M 0.4% vs. 0.3% expected and 0.2% prior.</li><li>Average hourly
earnings Y/Y 4.0% vs. 4.1% expected and 4.0% prior (revised from 4.1%).</li><li>Average weekly hours
34.4 vs. 34.3 expected and 34.3 prior.</li><li>Change in private
payrolls 150K vs. 153K expected.</li><li>Change in
manufacturing payrolls 28K vs. 30K expected.</li><li>Household survey 747K
vs. -348K prior.</li><li>Birth-death
adjustment 4K vs. 412K prior.</li></ul><p>The University of Michigan Consumer Sentiment beat
expectations across the board with a big dip in inflation expectations:</p><ul><li>Consumer Sentiment
69.4 vs. 62.0 expected and 61.3 prior.</li><li>Current conditions
74.0 vs. 68.5 expected and 68.3 prior.</li><li>Expectations 66.4 vs.
57.0 expected and 56.8 prior.</li><li>One -year inflation
3.1% vs. 4.5% prior.</li><li>Five-year inflation
2.8% vs. 3.2% prior.</li></ul><p>The highlights for next week will be:</p><ul><li>Tuesday: Japan PPI, UK Labour Market report, NFIB Small
Business Optimism Index, US CPI.</li><li>Wednesday: UK GDP, Eurozone Industrial Production, US PPI, FOMC
Policy Decision, New Zealand GDP.</li><li>Thursday: Australia Labour Market report, SNB Policy Decision,
BoE Policy Decision, ECB Policy Decision, US Retail Sales, US Jobless Claims,
New Zealand Manufacturing PMI.</li><li>Friday: Australia/Japan/Eurozone/UK/US Flash PMIs, China
Industrial Production and Retail Sales, Eurozone Wage data, US Industrial
Production, PBoC MLF.</li></ul><p>That’s all folks. Have a nice weekend!</p>

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