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China’s Caixin Manufacturing PMI climbed to 51.5 in November, up from 50.3 in October and surpassing expectations of 50.5. This marks the fastest pace of growth since June, driven by a rebound in new orders, which rose at their quickest pace since February 2023, alongside renewed export growth. Output price inflation reached a 13-month high, and business confidence strengthened to its highest level in eight months.

Wang Zhe, Senior Economist at Caixin Insight Group, highlighted that manufacturers increased supply to meet expanded demand, with businesses purchasing more to build inventories. Input costs and output prices also rose, while supply chains remained stable.

However, employment continued to contract, underscoring lingering challenges. Wang noted that the economy faces "prominent downward pressure," with the government's stimulus measures yet to significantly impact the labor market and workforce expansion.

Full China Caixin PMI manufacturing release here.

Japan’s Manufacturing PMI was finalized at 49.0 in November, down from October’s 49.2, marking its lowest reading since March. The decline reflects ongoing challenges, with weaker demand leading to sustained declines in new orders and production levels.

S&P Global Market Intelligence’s Usamah Bhatti described the sector’s performance as "downbeat," noting subdued capacity pressures and firms reducing employment for the first time in nine months due to the lack of demand-driven growth.

Cost inflation remained elevated in November, prompting manufacturers to increase selling prices at a stronger rate to protect margins.

However, firms remain optimistic about the future, with confidence reaching its highest level since August. Optimism is supported by expectations of domestic and global economic recovery, alongside planned new product launches that could drive future sales.

Separately, capital spending rose 8.1% yoy in Q3, exceeding expectations of 6.7% yoy and accelerating from Q2’s 7.4% yoy growth. This marks the fastest annual growth in investment since Q4 last year, providing a silver lining amid subdued manufacturing activity.

Full Japan PMI manufacturing final release here.

Key Highlights

• EUR/USD started an upside correction from the 1.0335 zone.
• It cleared a connecting bearish trend line with resistance at 1.0520 on the 4-hour chart.
• USD/JPY is struggling and might drop below the 148.80 support.
• The US ISM Manufacturing Index could increase from 46.5 to 47.5 in Nov 2024.

EUR/USD Technical Analysis

The Euro formed a base above 1.0350 and started a recovery wave against the US Dollar. EUR/USD cleared the 1.0450 and 1.0500 levels to move into a positive zone.

Looking at the 4-hour chart, the pair surpassed a connecting bearish trend line with resistance at 1.0520 on the same chart. There was a move above the 38.2% Fib retracement level of the downward move from the 1.0936 swing high to the 1.0333 low.

The pair even tested the 100 simple moving average (red, 4-hour). On the upside, the pair could face resistance near the 1.0635 level.

The 50% Fib retracement level of the downward move from the 1.0936 swing high to the 1.0333 low is also near 1.0635. The first major resistance is near the 1.0650 level. A close above the 1.0650 level could set the tone for another increase.

The next major resistance could be the 200 simple moving average (green, 4-hour) at 1.0705, above which the price could climb higher toward the 1.080 resistance.

On the downside, immediate support sits near the 1.0500 level. The next key support sits near the 1.0450 level. Any more losses could send the pair toward the 1.0380 level.

Looking at USD/JPY, the pair remains in a bearish zone and there are chances of more downsides below the 148.80 support.

Upcoming Economic Events:

• Euro Zone Manufacturing PMI for Nov 2024 – Forecast 45.2, versus 45.2 previous.
• UK Manufacturing PMI for Nov 2024 – Forecast 48.6, versus 48.6 previous.
• US Manufacturing PMI for Nov 2024 – Forecast 48.8, versus 48.8 previous.
• US ISM Manufacturing Index for Nov 2024 – Forecast 47.5, versus 46.5 previous.

• Natural gas reversed from support zone
• Likely to rise to resistance level 3.550

Natural gas recently reversed up from the support zone located between the support level 3.150 (former multi-month high from May, June and October), 20-day moving average and the 50% Fibonacci correction of the upward impulse 1 from the start of November.

The upward reversal from the support level 3.150 stopped the previous minor correction 2 – which belongs to wave (3) from the start of November.

Given the clear daily uptrend, Natural gas can be expected to rise to the next resistance level 3.550 (which stopped the previous sharp impulse wave 1 earlier this month).

EURJPY broke support zone
•  Likely to fall to support level 156.00

EURJPY currency pair recently broke the support zone located between the support level 160.00 and the 61.8% Fibonacci correction of the upward impulse from September.

The breakout of the support level 160.00 accelerated the C-wave of the active ABC correction (2) from the end of October.

Given the clear daily downtrend, EURJPY currency pair can be expected to fall to the next support level 156.00 (which reversed the price sharply in August and September).

• US equities finished strong, driven by tech and retail stocks, with the S&P 500 reaching record highs.
• The US dollar weakened due to increased expectations of a December rate cut by the Federal Reserve.
• The upcoming week’s focus is on US jobs data, which could impact the Fed’s decision and the US dollar’s performance.

Week in Review: Geopolitics Drives Market Sentiment

A week largely dominated by geopolitical developments as the US celebrated the Thanksgiving Holidays ended with somewhat of a whimper. The lack of liquidity was evident on Thursday and Friday as markets looked to make sense of broad development along the geopolitical sphere.

Donald Trump kicked off the week with the threat of tariffs, his main targets being Mexico, Canada and of course China. Mexican President Claudia Sheinbaum did not take it lying down as she floated the idea of retaliatory tariffs. Brave of the incoming President but still a concern for market participants which also had an effect on currencies like Australian Dollar due to the country’s ‘commodity currency’ status and trade relationship with China.

Technically, Trump could use an executive order to implement tariffs on his first day in office. However, in reality, the timing is unclear. It’s likely the tariffs will be tied to his proposed tax cuts, and such a detailed plan would take time to get approval from Congress. Let’s see how this develops.

Israel and Hezbollah agreed to a ceasefire that began on Wednesday. Israel views its mission in Lebanon as a success, having eliminated much of Hezbollah’s leadership and destroyed many of its weapons. Hezbollah meanwhile views it as a success that Israel gained no ground in Southern Lebanon. A stalemate resembling the 2006 battle between the two. While the ceasefire offers hope in a conflict-filled region, achieving lasting peace will still take time.

The impact saw Oil prices face challenges as the geopolitical risk premium has for now at least disappeared. The only positive being that since an initial selloff on Monday Brent Crude prices remained rather steady for the rest of the week with a lot of choppy price action. Brent remains on course to finish the week around 3.1% down.

US equities enjoyed a surprisingly strong finish to the week with the S&P printing fresh record highs thanks to tech and retail stocks. Technology stocks, including Nvidia, helped raise the S&P 500, while industrial and financial stocks boosted the Dow. Nvidia’s stock went up by 2.4%.

Meanwhile, investors watched how shoppers reacted to big Black Friday discounts. Adobe Analytics predicted online spending would hit a record $10.8 billion, a 9.9% increase compared to last year’s Black Friday.

The S&P is on course for its biggest one-month rise since November 2023. The Russell 2000 index hit a record high earlier in the week, on pace for its steepest monthly rise so far this year.

The performance of Wall Street Indexes is reflected in fund flow data with investors pumping a substantial $12.19 billion into global equity funds, a jump of 32% compared with about $9.24 billion worth of net acquisitions in the week before, LSEG Lipper data showed. It marked the ninth consecutive weekly inflow.

Source: LSEG Data

The DXY struggled this week as the probability of a December rate cut from the Federal Reserve increased around 10%. A lot of this came down to the Fed meeting minutes release as well as robust jobs data.

Despite this USD weakness EUR/USD failed to break above the 1.0600 handle with Cable gaining some ground to trade back above the 1.2700 handle. Gold (XAU/USD) experienced a massive selloff to start the week but held above the $2600/oz handle before making its way back above the $2650/oz handle.

The precious metal will still finish the week down around 2% having traded at a peak of around $2720/oz in the early hours of Monday morning.

The Week Ahead: US Jobs Data to Dominate

Asia Pacific Markets

The week ahead in the Asia Pacific region sees an uptick in economic data releases.

In China, PMI data will be important this week. On Saturday morning, the National Bureau of Statistics (NBS) will release the official manufacturing and non-manufacturing PMI. There is an expectation that the manufacturing PMI will rise slightly to 50.3 from 50.1, showing signs of steady growth. The Caixin manufacturing PMI will be out on Monday.

In Japan, real cash earnings might see a small growth of 0.1% year-on-year in October. With strong labor earnings, the Bank of Japan could raise interest rates in December.

In Australia, markets have quite a bit of high impact data to deal with. Having had a bumper week in lieu of tariff threats against China which sent the Aussie through some volatility the week ahead may prove similar.

Retail sales kicks things off on Monday before we get some GDP data on Wednesday and to round the week off, trade balance data will be released on Thursday.

Europe + UK + US

In developed markets, the focus moves back to the US and jobs date with the NFP due out for release on Friday.

Last month, non-farm payrolls only increased by 12,000, much lower than expected. Hurricane Milton caused big job losses in Florida, where employment dropped by 38,000 compared to its usual growth of 13,000.

This suggests that Hurricane Milton has had a significant impact on payroll data, now with those issues out of the way there is a chance the number could be higher this week. A print around the 220k mark is very much a possibility with the unemployment rate also key to help the Fed ahead of the December meeting.

If unemployment rises to 4.2% and jobs growth comes in around the 220k mark there is a greater chance of a Fed rate cut in December and this could lead to US Dollar weakness.

In Europe and the UK there is a lack of high impact data releases. However we do have a speech by ECB President Christine Lagarde on Wednesday which could provide some insight into where the ECB is leaning regarding December rate cuts.

The slight improvement in Eurostat sentiment as well as the uptick in German inflation which rose to 2.2% year-on-year, up from 2.0% YoY in October will likely rule out a 50 bps cut. Any sign from Lagarde in her speech could stoke some short-term volatility for the Euro.

Chart of the Week

This week’s focus could have been either USD/JPY that has a broken a key medium-term ascending trendline or the chart i have chosen which is GBP/USD.

Cable has benefited from rising expectations that the Bank of England (BoE) will hold rates steady at the December meeting while the Fed are now projected to cut by 25 bps. The impact of this repricing has seen GBP/USD push away from support at the 1.2500 key level to trade just shy of resistance at 1.27500.

As things stand GBP/USD is at intriguing area heading into next week. Price is currently just below resistance at 1.2750 with a key confluence area around the 1,2800 handle where you have the descending trendline and the 200-day MA at 1.2819.

This as the RSI period 14 approaches the 50 neutral level with a break above likely signaling a shift in momentum. If this coincides with a trendline break bulls may be emboldened and this could push GBP/USD toward the 1.3000 psychological level once more. A lot of this will hing on the DXY as well and how the US Dollar performs next week.

A trendline rejection could lead to a retest of the 1.2750 and 1/2618 support areas. A break of these areas could see sellers return and push price beyond the previous lows of around 1.2480. An interesting week ahead indeed.Equity

GBP/USD Daily Chart – November 29, 2024

Source:TradingView.Com (click to enlarge)

Key Levels to Consider:

Support

• 1.2618
• 1.2500
• 1.2480

Resistance

• 1.2750
• 1.2800
• 1.2942

Canadian Highlights

• The threat of a 25% tariff on Canadian goods by President-elect Trump earlier this week impacted financial markets – pressuring the loonie lower by about 1.5%. It currently sits at 71 cents U.S.
• If implemented, the tariffs would result in a significant drag on the Canadian economy.
• GDP growth was soft in the third quarter, but the details were much stronger, supporting our call for a small rate cut as opposed to another 50-bps move.

U.S. Highlights

• The Federal Reserve’s preferred inflation metric, core PCE, accelerated to a six-month high in October.
• The Federal Reserve’s minutes from its November meeting showed members broadly favored a gradual return to a more neutral policy stance.
• President-elect Trump announced that he would implement a 25% tariff against Canada and Mexico, and an additional 10% tariff against China on inauguration day.

Canada – Scare Tactics

That didn’t take long. This week President-elect Trump surprised markets (and analysts) with the threat of a 25% across-the-board tariff on Canadian and Mexican-made goods, which would be implemented as soon as the incoming administration takes office in January. The clearest impact from this announcement was seen on the Canadian dollar, which dropped about 1 cent (or about 1.5%) on the news, before regaining some of that lost ground over the course of the week. Equities declined and bond yields continued their descent, although the relatively muted response suggests that markets have yet to fully embrace the potential downsides from a Canada/U.S. trade skirmish.

This threat isn’t to be taken lightly in our view. In a prior report, we analyzed a scenario where a 10% U.S. tariff was slapped on all Canadian exports, with in-kind retaliation by Canada (see here). We found that Canada’s economic growth would slow to a crawl, inflation would see a boost, and the loonie would tumble under 70 cents US (Chart 1). Obviously, a tariff rate more-than-double the one used in the analysis would exacerbate these already severe outcomes. All provinces would take a hit through weaker exports, although some (like Alberta, New Brunswick, and Ontario) would likely feel it more than others given their tight trade linkages with nearby states. Others, like PEI and Saskatchewan could see a larger inflation boost through Canadian tariff retaliation, given their relatively high concentration of U.S. content.

Fortunately, there’s at least one reason to be hopeful that this is a negotiating tactic. Namely, U.S. economic growth would suffer (see our latest Quarterly Q&A for a detailed analysis), given the deep interconnectedness of industries such as energy and autos between the U.S. and Canada. A trade clash between the two countries would deliver not only economic damage, but political pain for the U.S. This backdrop would also be negative for stock markets, which Trump has shown a sensitivity to in the past.

We’ve yet to incorporate these threats into our baseline view, but we’ll be watching. So will the Bank of Canada, which stands ready to incorporate whatever policies eventually do flow from the incoming U.S. administration, according to Deputy Governor Mendes this week. In the here-and-now, the Bank has an interest rate decision on December 11th and will be using the hard economic data to guide its actions.

Since the Bank’s October decision, we’ve seen a steady flow of hawkish data - like the recent back up in core inflation and a retail sales report that showed solid spending momentum heading into the final quarter of the year. This morning’s third quarter GDP report was another important piece of the puzzle before the December decision, and the data offered mixed messages. On the one hand, overall GDP growth was modest, and soft monthly showings in September and October will make the BoC’s call for a Q4 growth acceleration to 2% more difficult to achieve. On the other hand, domestic demand was solid, fueled by healthy gains in both goods and services consumption. Given this, a 25-bps cut (versus a larger 50 bps move) seems the more likely outcome next month.

U.S. – Turkey with a Side of Trade Uncertainty

The Thanksgiving holiday-shortened week came with several important updates on the economy, including a pulse check on the American consumer and the Fed’s preferred inflation metric. An additional layer of uncertainty was also introduced into the mix as President-elect Trump announced that he would implement tariffs on the nation’s three largest trading partners on the first day of his presidency. Financial markets were largely unperturbed by this news, as the S&P 500 rose 1.0% on the week, while the ten-year Treasury yield fell 20 basis-points (bps) as of the time of writing.

Financial markets are likely discounting the possibility of these tariffs actually being implemented, as a blanket tariff of at least 25% on roughly $1.3 trillion in annual U.S. goods imports would have broadly negative implications for the U.S. economy (see Question 1 here). Tariffs would also likely apply upward pressure to domestic inflation, chipping away at real income growth and complicating the ability of the Federal Reserve to normalize interest rates over the coming year. Whether these tariffs enter into force in two months’ time is unknown, but uncertainty related to foreign trade policy is likely to remain elevated under the incoming administration.

On the inflation front, price pressures appeared to rise in October, as the annual change in the Fed’s preferred price index, core PCE, hit a six-month high. The acceleration was driven by a broad-based uptick in non-housing services inflation (Chart 1). We don’t expect this to be a sustained deviation from the disinflation trend, with our baseline forecast for core PCE returning to the Federal Reserve’s 2% target by the second half of next year.

Elevated price growth last month still worked to take a bite out of real personal consumption expenditures (PCE) growth, as it decelerated relative to the prior month. Slower consumption growth was also in part driven by an uptick in the household savings rate for the first time in nine-months. Hurricane Milton’s impact on the southeast may have distorted the month’s data but spending is likely to pick up this month on the back of holiday shopping and Black Friday deals. In the fourth quarter we expect real PCE growth to decelerate relative to the prior quarter’s strong reading but remain healthy overall.

Cumulatively, the economy remains on a solid footing, which when combined with sticky inflation and elevated trade uncertainties supports the current patient approach adopted by the Federal Reserve over the past few months. The FOMC November meeting minutes released this week reiterated this sentiment, noting that a gradual normalization of monetary policy continues to be warranted by present economic conditions. Next week’s employment report will offer an important update for the Fed, with consensus expectations calling for 200k new jobs to be created after Hurricane Milton and the Boeing strike weighed on the prior month’s reading (Chart 2). Incoming data will continue to drive the Fed’s decisions moving forward, with market expectations currently pointing towards another 25bps cut in December.

Canadian and U.S. jobs reports on Friday will highlight the growing underperformance of the Canadian labour market compared to the U.S.

We expect Canadian employment edged up 10,000 with the unemployment rate rising to 6.7% in November from 6.5% in October. Canada has steadily posted job growth, but not fast enough to keep up with growth in the labour force as the population continues to rise rapidly. The past two months were an exception—the unemployment rate ticked lower for the first time since January in September and held at that level in October—but largely because of a sharp pullback in the share of, particularly younger, workers giving up their job search. The unemployment rate is still running almost 1 percentage point above year-ago levels and hiring demand has continued to slow with job openings falling. Data from the latest Survey of Employment Payrolls and Hours showed September job openings were still down 18% year-over-year. We expect the labour force participation rate to partially reverse the 0.3 percentage point decline over the last two months.

The U.S. labour market, on the other hand, has remained firm, supported by resilient economic growth. We look for U.S. payroll employment to bounce back 157,000 in November after a 12,000 increase in October. That October increase was the smallest rise since the pandemic, but the reading was distorted by disruptions from hurricanes and strikes. The unemployment rate (which is less impacted by those disruptions) is expected to hold steady at 4.1% for a third consecutive month in November. That would still be up from 3.7% a year ago, but below a recent “peak” 4.3% in the summer.

Beneath the surface, the U.S. labour market is still showing signs of softening. Job openings have continued to fall, and quit rates are at their lowest level since 2020. We continue to expect the unemployment rate will edge higher into next year, but it’s still historically low. We see it “normalizing” rather than faltering with support from an unusually large government budget deficit.

The Bank of Canada and U.S. Federal Reserve will take these employment readings into consideration before their final policy decisions of the year in December. We continue to expect deeper interest rate cuts will come from the BoC than the Fed in the year ahead, reflecting substantial and persistent underperformance in Canadian economic growth and easing inflation pressures.

Week ahead data watch

• We expect the Canadian trade deficit narrowed to $0.3 billion in October from -$1.3 billion in September, mainly driven by higher exports. Oil prices rose in October, pushing up the energy trade balance.
• We expect U.S. trade deficits narrowed to $75B in October. According to the advance trade report, the goods deficit shrank $9.6B, with declines in both goods exports and imports.

Monday, Dec 2, 2024

Tuesday, Dec 3, 2024

Wednesday, Dec 4 2024

Thursday, Dec 5, 2024

Friday, Dec 6, 2024