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In focus today

In Norway, we expect core inflation to remain unchanged at 2.7% y/y in November, a tad lower than consensus at 2.8%. If we are proven right, this will once again be below Norges Bank's forecast from the latest MPR at 3.0%, and in isolation contribute to a downward revision of the rate path in the upcoming MPR. The risk to our forecast is if the increase in prices ahead of Black Week was larger than last year.

In Sweden, at 08:00 CET the SCB releases October GDP, production and consumption indicators. With both PMIs above 50 and consumer confidence going in a more positive direction in recent months, we expect positive m/m readings.

Overnight China starts the annual Central Economic Work Conference (CEWC) where the top leadership discusses and lays out economic priorities for the next year. It is a two-day meeting so we will likely not hear much until tomorrow (for more details see below).

Economic and market news

What happened overnight

In Australia, the Reserve Bank of Australia (RBA) kept its monetary policy unchanged overnight as expected. Markets were pricing in a very slim probability of a rate cut ahead of the meeting, but Governor Bullock noted that RBA did not even discuss cutting rates today. However, RBA's forward guidance was more dovish than before. It delivered no new economic forecasts, but still confirmed that the board had gained more confidence on inflation returning to target. RBA also acknowledged the recent downside surprise in Q3 GDP and Bullock did not write off the possibility of a cut at the next meeting in February. This pushed AUD/USD lower near 0.64, as markets are now pricing in 55% likelihood of the first cut in February. We have maintained a downward-sloping forecast profile for AUD/USD, but the current level is not far away from our 12M target of 0.63.

In China, exports slowed in November to 6.7% y/y (cons: 8.5%), while imports fell markedly below expectations to -3.9% y/y (cons: 0.3%) - the weakest print in nine months. This points to economic strain amid looming U.S. tariffs under incoming President Trump, highlighting the need for stronger domestic stimulus measures. More clarity on this may emerge following yesterday's Politburo meeting and the upcoming CEWC meeting.

What happened yesterday

In the euro area, the Sentix indicator declined to -17.5 in December from -12.8, marking the lowest level this year after rebounding in the past months.

In China, the Politburo held a meeting ahead of the CEWC meeting overnight, where they vowed to implement a "more active" set of tools to expand domestic demand in 2025. They also cited that the property market would stabilise. Interestingly, the Politburo altered course - for the first time since 2009 - emphasizing that monetary policy would be moderately loose, in contrast to their usual expression of "prudent". At the same time, they also stated that fiscal policy would become more active in tandem with a strengthening of the extraordinary counter-cyclical adjustment.

In continuation of the akin policy message in September, this underscores that the economy now has a higher priority for China's top leadership. With the outlook of trade war with the US, China's leaders likely see an even bigger need to deal with the struggling domestic economy more forcefully. Hence, a looming trade war could be a blessing in disguise for China.

Equities: Global equities were lower yesterday, primarily dragged down by the US, while other regions, including Europe were higher. It was a relatively slow start to the week, but we anticipate busier days ahead with a focus on central banks. With the US underperforming, we also had defensives outperforming cyclicals following a significant underperformance last week. Similarly, the VIX ticked higher, which could be seen as indicative of a risk-off mode. However, we interpret this more as a sign that recent movements have been overly rapid, rather than a fundamental shift in the narrative. In the US yesterday: Dow -0.5%, S&P 500 -0.6%, Nasdaq -0.6%, and Russell 2000 -0.7%. This morning, the picture is mixed in Asia, with China outperforming, buoyed by renewed hopes for stimulus. US and European futures are currently lower.

FI: Global rates rose through yesterday's uneventful session, reversing the declines seen on Friday following the NFP. The 10Y US Treasury yield rose 5bp throughout the day, while the short end of the US curve was less changed with markets still discounting 22bp of cuts at next week's meeting. EGB yields saw only marginal moves throughout Monday with no important data releases and the ECB in silence mode ahead of the Thursday decision. The 5y5y EUR inflation swap rate crept back below 2% as energy prices declined. This is certainly being noticed at the ECB, where the risk of undershooting medium-term target has gained attention recently.

FX: A quiet start to the week with no significant moves in G10 FX. EUR/USD remains range-bound in the mid-1.05 to 1.06 area. The JPY weakened as markets question whether the Band of Japan will proceed with a hike next week. Scandies gained against the EUR, with EUR/SEK dropping below 11.55 and EUR/NOK slipping below 11.75.

Daily Pivots: (S1) 0.6390; (P) 0.6430; (R1) 0.6481; More...

Volatility continues in AUD/USD but it's still staying in range above 0.6371 temporary low. Intraday bias remains neutral and further decline is expected with 0.6511 resistance intact. On the downside, below 0.6371 will resume the fall from 0.6941 to 0.6348 support, and then 0.6269. Nevertheless, considering bullish convergence condition in 4H MACD, firm break of 0.6511 will confirm short term bottoming, and turn bias back to the upside for 55 D EMA (now at 0.6568) next.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term consolidation to the down trend from 0.8006. More sideway trading could be seen above 0.6169, but overall outlook will stay bearish as long as 0.6941 resistance holds. Firm break of 0.6169 will resume the down trend to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806 next.

Australian Dollar dropped sharply in Asian session following a significant dovish turn in RBA's communication. After holding rates steady at 4.35%, the central bank signaled growing confidence that inflationary pressures are easing, marking a departure from its previously vigilant tone. While May remains the most likely timing for a rate cut according to many economists, traders are increasingly pricing in a February reduction, now seen as a real possibility.

Meanwhile, optimism around China's economic stimulus faded as markets shrugged off state media reports of President Xi Jinping's “full confidence” in achieving economic growth targets. Hong Kong stocks remained subdued, reflecting the market's demand for more concrete and actionable measures from policymakers. The upcoming Central Economic Work Conference is now in focus, with investors seeking clarity on 2025 economic priorities and strategies. Without substantive developments, sentiment around China’s recovery efforts may remain tepid.

Overall in the currency markets, Aussie is the day’s weakest currency so far, closely followed by Kiwi and then Dollar. On the other hand, Swiss Franc is the strongest performer, with Euro and Sterling also gaining ground. Canadian Dollar and Yen showed mixed performances.

Technically, USD/CAD's breach of 1.4177 resistance suggests that larger up trend is resuming. Further rise is now in favor as long as 1.4092 support holds. Next target is medium term projection level at 1.4391.

In Asia, Nikkei rose 0.43%. Hong Kong HSI is up 0.17%. China's Shanghai SSE is up 0.74%. Singapore Strait Times is up 0.56%. Japan 10-year JGB yield is up 0.0223 at 1.064. Overnight, DOW fell -0.54%. S&P 500 fell -0.61%. NASDAQ fell -0.62%. 10-year yield rose 0.048 to 4.199.

RBA holds rates steady, dovish shift raises odds of Feb cut

RBA held its cash rate steady at 4.35% as widely expected, but the accompanying statement marked a clear pivot towards a more dovish stance. While May remains the more likely timing for the first rate cut, February is now emerging as a real possibility, depending on upcoming Q4 jobs and inflation data from Australia.

The most striking change in the RBA's statement was its removal of the phrase "not ruling anything in or out" regarding future monetary policy decisions. This change aligns with the board's growing "confidence that inflationary pressures are declining." RBA acknowledged that some upside risks to inflation have eased and noted the gap between aggregate demand and supply capacity is continuing to narrow.

Recent activity data, according to the RBA, has been “on balance softer than expected,” with the central bank pointing out risks of a slower-than-anticipated recovery in consumer spending. These factors collectively suggest a step away from inflation vigilance and a move closer to easing policy.

Governor Michele Bullock later emphasized that the wording adjustments in the statement were deliberate. While she clarified that a rate cut was not discussed during today's meeting, she acknowledged uncertainty over whether one could occur as early as February.

Markets responded swiftly, with swaps traders raising the probability of a February rate cut to over 60%, up from 50% the previous day. Market expectations now fully price in two rate reductions by May.

Australia’s NAB confidence turns negative to -3 as business conditions deteriorate

Australia’s NAB Business Confidence index slid sharply to -3 in November, down from 5 in October, returning to below average levels. Business conditions also weakened notably, dropping from 7 to 2, marking declines across trading, profitability, and employment metrics. Trading conditions fell to 5 from 13, profitability shifted into negative territory at -1 from 5, and employment conditions edged down to 2 from 3.

Cost pressures showed little relief, with input costs largely unchanged. Labor cost growth held steady at 1.4% in quarterly terms, while purchase cost growth edged slightly higher by 0.2 percentage points to 1.1%. On the pricing side, output price growth remained unchanged at 0.6% in quarterly terms, with retail price growth retreating to 0.6% and recreation and personal services easing slightly to 0.7%.

China's trade data highlights persistent import weakness amid export slowdown

China's trade data for November showed weak signals as exports grew 6.7% yoy to USD 312.3B, down sharply from October's 12.7% yoy expansion and missing expectations of 8.5% growth.

Export performance varied across key regions, with shipments to the US rising 8% yoy, to the EU up 7.2% yoy, and to ASEAN growing by 14.9% yoy. However, exports to Russia declined by -2.5% yoy.

On the import side, the picture was decidedly more negative. Imports fell by -3.9% yoy, marking the steepest decline since September 2023, and missing expectations of a slight 0.3% yoy increase.

Weakness was broad-based, with imports from ASEAN dropping -3% yoy, the US contracting by -11% yoy, and the EU and Russia both registering declines of -6.5% yoy. These numbers underscore persistent weak domestic demand, consistent with recent data showing subdued consumer inflation.

Trade balance widened from USD 95.7B to 97.4B, above expectation of USD 92.0B.

Looking ahead

Germany CPI final will be released in European session. Later in the day, US will release NFIB business optimism and non-farm productivity Q3.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6390; (P) 0.6430; (R1) 0.6481; More...

Volatility continues in AUD/USD but it's still staying in range above 0.6371 temporary low. Intraday bias remains neutral and further decline is expected with 0.6511 resistance intact. On the downside, below 0.6371 will resume the fall from 0.6941 to 0.6348 support, and then 0.6269. Nevertheless, considering bullish convergence condition in 4H MACD, firm break of 0.6511 will confirm short term bottoming, and turn bias back to the upside for 55 D EMA (now at 0.6568) next.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term consolidation to the down trend from 0.8006. More sideway trading could be seen above 0.6169, but overall outlook will stay bearish as long as 0.6941 resistance holds. Firm break of 0.6169 will resume the down trend to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806 next.

The RBA remains on hold with the cash rate kept at 4.35%. But the Board is gaining confidence in its own forecasts that inflation is coming down.

As expected, the RBA Board held the cash rate steady at 4.35% following its meeting this week. The Board remains concerned that underlying inflation remains above target, with the key trimmed mean measure at 3.5% over the year to the September quarter. It infers from this level of inflation that aggregate demand continues to outstrip aggregate supply. The Board is therefore resolved to keep monetary policy restrictive until it is clear inflation is returning to target on the desired timetable.

It still expects that it will be ‘some time yet’ before inflation returns sustainably to the 2–3% target and approaches the midpoint of 2½%. However, it has changed its language and is no longer saying that it is ‘not ruling anything in or out’, as it had in every statement since March. The word ‘vigilant’ has also been cut from the post-meeting statement. Rather, the Board is ‘gaining some confidence that inflationary pressures are declining in line with these recent forecasts’. In other words, we are getting closer to the point that the RBA will be comfortable cutting rates. And in a shift in view that will surprise almost nobody, it no longer feels the need to flag the possibility of a rate hike. The post-meeting statement highlighted that ‘some of the upside risks to inflation appear to have eased’.

Indeed, some of the Governor’s answers in the post-meeting media conference opened the door to a more dovish view than we have seen from the Bank recently, including in her most recent speech. That said, her opening statement and answers today continued to emphasise the RBA’s assessment that aggregate demand exceeds aggregate supply and the current level of (trimmed mean) inflation is the best indicator of where that balance lies.

The Board assesses that monetary policy is ‘working as expected’ in bringing demand and supply into alignment, with the gap between the two continuing to close. Although there was still a nod to weak productivity growth, the post-meeting statement also highlighted the downside risks to household consumption and thus overall growth and the labour market.

Since the last Board meeting, Wage Price Index (WPI) and national accounts data have been released. The WPI data was noticeably softer than would be required to meet the RBA’s November forecast for growth over 2024, as we noted at the time. Similarly, although the RBA did flag that it expected consumption to be flat in the September quarter, GDP overall was softer than consensus and, we suspect, the RBA’s own expectations. (The RBA only publishes forecasts for June and December quarters, not the intervening March and September quarters.) A Q4 bounce large enough to match the RBA’s forecasts for 2024 growth is unlikely to eventuate for either series. Further downgrades to the RBA’s near-term forecasts can therefore be expected in the February round.

In today’s statement, the Board acknowledged that wage pressures had eased more than it previously expected. During the media conference, the Governor initially sought to characterise the data flow as showing the ‘real-side’ data (output, consumption) as soft but the nominal side – inflation – as still too high. It was only after some further questioning that the downside surprise on wages growth – an important nominal variable – got a mention.

Similar to earlier RBA communications, the Board statement pointed to the apparent stabilisation in the unemployment rate and some other measures of labour market tightness as signs that the labour market was still in a state of more than full employment. Indeed, the language of the paragraph on the labour market was only minimally changed from last month, bar some minor factual updates and a decision not to start a sentence with ‘But’.

The concentration of recent employment growth in the non-market sector did not rate a mention in the post-meeting statement. In the media conference, however, the Governor was asked about the risk that employment growth in the non-market sector slows. So far, the RBA seems content to rely on other sectors bouncing back in time, along with household consumption. We hope it is right, but we are not confident that handover will happen quickly enough.

Overall, the tone of today’s communication was less hawkish than the November round, appropriately so given the data flow since then. The ‘more than one good quarter’ language from the November minutes has again been clarified to indicate that other data matter, too, rather than the meaning some observers took (‘at least two quarters of good CPI data from here’). As we noted at the time, even if that was the right interpretation, things can pivot quickly if the data flow demands it.

We have recently revised our view of the likely path of the cash rate to a base case of a first cut in May. As we said at the time, though, we cannot entirely rule out an earlier start date of 18 February or 1 April should outcomes continue to undershoot the RBA’s expectations, especially for trimmed mean inflation. Today’s change of language represents a welcome acknowledgement that disinflation remains on track and that we are getting closer to the point that some of the current policy restrictiveness can be withdrawn. And in the media conference, the Governor conceded that there were scenarios in which the Board ended up cutting in February, while prudently choosing not to describe one.

In acknowledging that reality, the RBA has clearly tilted the probabilities back towards an earlier start date for the rate-cutting phase than where it stood a few weeks ago. It does not, however, shift that balance of probabilities enough to change our base case to be earlier than May just yet. The RBA still assess aggregate demand as exceeding aggregate supply. While ever it continues to believe this, it will be cautious about embarking on rate cuts. Any shifts back towards an earlier timetable depend on the data flow from here, especially on the labour market and trimmed mean inflation.

China's trade data for November showed weak signals as exports grew 6.7% yoy to USD 312.3B, down sharply from October's 12.7% yoy expansion and missing expectations of 8.5% growth.

Export performance varied across key regions, with shipments to the US rising 8% yoy, to the EU up 7.2% yoy, and to ASEAN growing by 14.9% yoy. However, exports to Russia declined by -2.5% yoy.

On the import side, the picture was decidedly more negative. Imports fell by -3.9% yoy, marking the steepest decline since September 2023, and missing expectations of a slight 0.3% yoy increase.

Weakness was broad-based, with imports from ASEAN dropping -3% yoy, the US contracting by -11% yoy, and the EU and Russia both registering declines of -6.5% yoy. These numbers underscore persistent weak domestic demand, consistent with recent data showing subdued consumer inflation.

Trade balance widened from USD 95.7B to 97.4B, above expectation of USD 92.0B.

Australia’s NAB Business Confidence index slid sharply to -3 in November, down from 5 in October, returning to below average levels. Business conditions also weakened notably, dropping from 7 to 2, marking declines across trading, profitability, and employment metrics. Trading conditions fell to 5 from 13, profitability shifted into negative territory at -1 from 5, and employment conditions edged down to 2 from 3.

Cost pressures showed little relief, with input costs largely unchanged. Labor cost growth held steady at 1.4% in quarterly terms, while purchase cost growth edged slightly higher by 0.2 percentage points to 1.1%. On the pricing side, output price growth remained unchanged at 0.6% in quarterly terms, with retail price growth retreating to 0.6% and recreation and personal services easing slightly to 0.7%.

Full Australia NAB business confidence release here.

RBA held its cash rate steady at 4.35% as widely expected, but the accompanying statement marked a clear pivot towards a more dovish stance. While May remains the more likely timing for the first rate cut, February is now emerging as a real possibility, depending on upcoming Q4 jobs and inflation data from Australia.

The most striking change in the RBA's statement was its removal of the phrase "not ruling anything in or out" regarding future monetary policy decisions. This change aligns with the board's growing "confidence that inflationary pressures are declining." RBA acknowledged that some upside risks to inflation have eased and noted the gap between aggregate demand and supply capacity is continuing to narrow.

Recent activity data, according to the RBA, has been “on balance softer than expected,” with the central bank pointing out risks of a slower-than-anticipated recovery in consumer spending. These factors collectively suggest a step away from inflation vigilance and a move closer to easing policy.

Governor Michele Bullock later emphasized that the wording adjustments in the statement were deliberate. While she clarified that a rate cut was not discussed during today's meeting, she acknowledged uncertainty over whether one could occur as early as February.

Markets responded swiftly, with swaps traders raising the probability of a February rate cut to over 60%, up from 50% the previous day. Market expectations now fully price in two rate reductions by May.

Full RBA statement here.

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.

Underlying inflation remains too high.

Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. Measures of underlying inflation are around 3½ per cent, which is still some way from the 2.5 per cent midpoint of the inflation target.

The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026. The Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain.

The outlook remains uncertain.

While underlying inflation is still high, other recent data on economic activity have been mixed, but on balance softer than expected in November.

Growth in output has been weak. National accounts for the September quarter show that the economy grew by only 0.8 per cent over the past year. Outside of the COVID-19 pandemic, this is the slowest pace of growth since the early 1990s. Past declines in real disposable income and the ongoing effect of restrictive financial conditions continued to weigh on household consumption spending, particularly on discretionary items.

A range of indicators suggest that labour market conditions remain tight; while those conditions have been easing gradually, some indicators have recently stabilised. The unemployment rate was 4.1 per cent in October, up from 3.5 per cent in late 2022. That said, employment grew strongly over the three months to October, the participation rate remains close to record highs, vacancies are still relatively high and average hours worked have stabilised. At the same time, some cyclical labour market indicators, including youth unemployment and underemployment rates, have recently declined.

Wage pressures have eased more than expected in the November SMP. The rate of wages growth as measured by the Wage Price Index was 3.5 per cent over the year to the September quarter, a step down from the previous quarter, but labour productivity growth remains weak.

Taking account of recent data, the Board’s assessment is that monetary policy remains restrictive and is working as anticipated. Some of the upside risks to inflation appear to have eased and while the level of aggregate demand still appears to be above the economy’s supply capacity, that gap continues to close.

The central projection is for growth in household consumption to increase as income growth rises. September quarter data suggest that both incomes and consumption had recovered a little slower than forecast, but more recent information has suggested a pick-up in consumption in October and November. There is a risk that any pick-up in consumption is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market. More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slow growth in the economy and weak productivity outcomes at a time of excess demand, and while conditions in the labour market remain tight.

There remains a high level of uncertainty about the outlook abroad. Most central banks have eased monetary policy as they become more confident that inflation is moving sustainably back towards their respective targets. They note, however, that they are removing only some restrictiveness and remain alert to risks in both directions, namely weaker labour markets and stronger inflation. Geopolitical uncertainties remain pronounced.

Sustainably returning inflation to target is the priority.

Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint. Recent data on inflation and economic conditions are still consistent with these forecasts, and the Board is gaining some confidence that inflation is moving sustainably towards target.

The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Key Highlights

• WTI Crude Oil prices are struggling to recover above the $70.00 resistance zone.
• A connecting bearish trend line is forming with resistance at $69.75 on the 4-hour chart.
• Gold prices could advance if there is a clear move above $2,700.
• EUR/USD must surpass 1.0700 to gain bullish momentum.

WTI Crude Oil Price Technical Analysis

WTI Crude Oil price found support near the $67.00 zone. A base was formed and the price started a short-term recovery wave above $68.00.

Looking at the 4-hour chart of XTI/USD, the price traded above the 38.2% Fib retracement level of the downward move from the $70.57 swing high to the $67.04 low. It seems like the bulls are facing hurdles near the $70.00 zone.

The price is also below the 100 simple moving average (red, 4-hour) and the 200 simple moving average (green, 4-hour). There is also a connecting bearish trend line forming with resistance at $69.75 on the same chart.

The trend line is close to the 76.4% Fib retracement level of the downward move from the $70.57 swing high to the $67.04 low. The main hurdle is still near the $70.00 zone, above which the price may perhaps accelerate higher.

In the stated case, it could even visit the $71.50 resistance. Any more gains might call for a test of the $72.80 resistance zone in the near term.

On the downside, the first major support sits near the $67.80 zone. A daily close below $67.80 could open the doors for a larger decline. The next major support is $66.00. Any more losses might send oil prices toward $65.00 in the coming days.

Looking at Gold, there was a steady increase above the $2,650 level and the bulls could now aim for a move above $2,700.

Economic Releases to Watch Today

• US Nonfarm Productivity for Q3 2024 - Forecast +2.2%, versus +2.2% previous.

GBPNZD reversed from key resistance level 2.1840
• Likely to fall to support level 2.1600

GBPNZD currency pair recently reversed down from the resistance zone between the key resistance level 2.1840 (which has been reversing the pair from July) and the upper daily Bollinger Band.

The downward reversal from this resistance zone will likely form the daily Japanese candlesticks reversal pattern Shooting Star.

Given the strength of the resistance level 2.1840 and the overbought daily Stochastic, GBPNZD currency pair can be expected to fall toward the next support level 2.1600.