Weekly Market Outlook (18-22 November)

UPCOMING
EVENTS:

• Monday: US NAHB Housing Market Index.
• Tuesday: RBA Meeting Minutes, Canada CPI, US Housing
  Starts and Building Permits.
• Wednesday: PBoC LPR, UK CPI, Eurozone Wage Growth.
• Thursday: Canada PPI, US Jobless Claims.
• Friday: Australia/Japan/EU/UK/US Flash PMIs, Japan CPI,
  UK Retail Sales, Canada Retail Sales.

Tuesday

The Canadia CPI
Y/Y is expected at 1.9% vs. 1.6% prior, while the M/M figure is seen at 0.3%
vs. -0.4% prior. The focus will be on the underlying inflation measures with
the Trimmed Mean CPI Y/Y expected at 2.4% vs. 2.4% prior, while the Median CPI
Y/Y is seen at 2.4% vs. 2.3% prior.

The BoC is now focused
on growth as inflation has been inside the target band for several months while
economic activity slowed down. The market is pricing a 35% chance of another 50
bps cut in December, so lower than expected inflation readings will likely
raise those probabilities.

Wednesday

The PBoC is
expected to keep the LPR rates unchanged at 3.1% for the 1 year and 3.6% for
the 5 year. Deflationary forces remain in place and the market continues to
signal that they need to do more.

The PBoC pledged
more monetary policy support with another cut in the reserve requirement ratio
to accommodate additional government bond issuance likely coming by the end of
the year. The central bank should do much more though as real interest rates
are still too high.

The UK CPI Y/Y is
expected at 2.2% vs. 1.7% prior, while the M/M figure is seen at 0.5% vs. 0.0%
prior. The Core CPI Y/Y is expected at 3.2% vs. 3.2% prior. Last time, the UK inflation data missed expectations by a big margin with
services inflation dropping to 4.9% from 5.6% in the prior month.

In the meantime,
we’ve also got a soft labour market report and a lower than expected GDP
print. The market is currently pricing just a 22% probability of another 25 bps
cut in December, but that should increase if we were to get another miss in the
CPI data.

Thursday

The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
after a spike to the cycle highs in the last couple of weeks due to distortions
coming from hurricanes and strikes, are now turning around.

This week Initial
Claims are expected at 223K vs. 217K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior reading saw a
decrease to 1873K vs. 1884K prior.

Friday

Friday is going to
be the Flash PMIs Day for many major economies. The market is going to focus
majorly on the Eurozone, UK and US PMIs as they are likely to influence the
interest rate expectations:

• Eurozone Manufacturing PMI: 46.0 expected vs. 46.0
  prior.
• Eurozone Services PMI: 51.5 expected vs. 51.6
  prior.
• UK Manufacturing PMI: 49.9 expected vs. 49.9
  prior.
• UK Services PMI: 52.0 expected vs. 52.0 prior.
• US Manufacturing PMI: 48.8 expected vs. 48.5
  prior.
• US Services PMI: 55.3 expected vs. 55.0 prior.

The Japanese Core
CPI Y/Y is expected at 2.2% vs. 2.4% prior. Inflation isn’t really an issue for
Japan as the underlying measures are basically at target. Nonetheless, the
probabilities for a rate hike in December increased to 55% recently as the
Japanese Yen continued to depreciate non-stop due to the rally in Treasury
yields. One of the main reasons why the BoJ hiked rates last time was the fast
depreciation of the JPY.