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“I would warn against moving too far, that is into accommodative”. ECB Executive Board member Schnabel broke ranks with the dovish current inside the central bank in place since this summer. Given the inflation outlook, Schnabel thinks that the ECB can gradually move toward neutral if incoming data continue to confirm the ECB’s baseline scenario. She believes that neutral is somewhere between 2% and 3% with the current deposit rate (3.25%) being not so far from these levels. The ECB’s October lending survey highlighted that banks no longer think that rates are holding back loan demand while the housing sector seems to be bottoming out. It’s evidence that the impact of the ECB’s restrictive policy is fading visibly. We must add that more dovish governors see neutral more near the lower bound of Schnabel’s estimate. Her strong preference to a gradual approach means ruling out half-point moves, an idea EMU money markets are still contemplating. Schnabel’s argumentation isn’t just about upside inflation risks. She’s confident of reaching the 2% target next year, but warns that the road will be bumpy. Instead, the ECB Board member highlights the discrepancy between survey-data, heavily influenced by uncertainty stemming from political troubles and Europe and Trump’s election victory, and hard data which gives her confidence on a consumption-driven recovery. From a more technical perspective, she doesn’t want to use valuable policy space that will be needed in the future when the economy is facing shocks that monetary policy can deal with more effectively. The front-end of the EMU swap curve slightly underperforms (2y: +2 bps) on Schnabel’s comments, but the impact could have been bigger given the aggressive ECB cuts that money markets are still discounting. For the next three meetings, they count on nearly 100 bps of cumulative rate cuts meaning at least one larger move. The rate bottom end 2025 lays below neutral at 1.75%. Schnabel’s comments nevertheless raise the stakes for tomorrow’s national and Friday’s EMU November CPI inflation numbers. Risks could be asymmetric with the bigger corrective move coming on higher inflation numbers. US Treasuries outperform today with yields correcting 4.5 bps to 7 bps lower, the belly of the curve outperforming the wings.

The single currency managed to put aside some worries (tariff threat, risk of collapsing French government,…), backed by the more hawkish ECB rhetoric. EUR/USD recovered from 1.0480 to 1.0525 in first instance. As US eco data were published, a sniff of USD weakness even propelled the pair to 1.0580. Traders pared some positions going into tomorrow’s US public holiday (Thanksgiving) and thin trading on (Black) Friday. Final revisions to Q3 GDP showed marginally weaker personal consumption (3.5% Q/Qa from 3.7%) and a slightly softer core PCE deflator (2.1% from 2.2%). Mixed durable goods orders (ranging between -0.2% and +0.2% M/M depending on the metric) and weekly jobless claims (stable at 213k) were too close to expectations.

News & Views

The Czech National Bank published a concluding statement after the IMF’s article 4 mission to the country. The IMF assesses that the Czech economy is slowly regaining ground after unprecedented shocks with the country transiting from heavily manufacturing-based, export-oriented growth to a more mature and diversified economy. A prudent policy mix has underpinned a return to price stability while preserving fiscal and financial buffers. The IMF expects inflation to converge back towards 2% in 2025. Risks to growth are seen to the downside while risks to inflation appear balanced. The IMF staff sees ground to lower the policy rate further to a neutral level estimated at around 3%. They also suggests the central bank to gradually give way to forecast-based inflation targeting and react less to the latest incoming figures. Simply put, with inflation expectations well anchored, the CNB should no longer be upset by temporary increases in inflation caused by factors outside its control - for example, food or fuel prices. Finally, they also suggested that there is room for the CNB to gradually further reduce the size of its balance sheet, in particular the large currency reserves (+ 40% of GDP) to help limit the risk to the CNB’s financial position.

The second estimate of third quarter real GDP growth was unchanged at 2.8% quarter-over-quarter (annualized) – in line with the consensus forecast.

Looking under the hood, consumer spending was revised down to 3.5% (from the prior estimate of 3.7%), but this was entirely offset by an upgrade in non-residential fixed investment (3.8% vs. the prior 3.3%) and a smaller drag from inventory accumulation – now estimated to have shaved 0.1 percentage points (pp) from GDP (vs. the prior -0.2 pp).

Government spending expanded by a very healthy 5.0%, largely due to a sharp increase in defense spending (+13.9%). State & local spending rose 2.7%, up from Q2's 2.3%.

Net exports shaved 0.6 percentage points from Q3 growth (unchanged from the prior estimate), as another sizeable gain in imports (+10.2%) more than offset a healthy uptick in exports (+7.5%).

Real Gross Domestic Income (GDI) rose by 2.2% in the third quarter, virtually unchanged from Q2's downwardly revised reading of 2.0% (previously 3.4%). Corporate profits fell 1.1% (annualized) or $10.1 billion after accounting for inventory valuation and capital consumption adjustments. However, corporate profits measured as a share of GDP remains elevated at 13.0% (down from Q2's 13.2%).

• The average of real GDP and GDI, a supplemental estimate of domestic production, rose 2.5% in the third quarter or slightly weaker than the pace of growth suggested by the expenditure GDP data.

Key Implications

Third quarter economic growth remained solid, expanding well above trend, with underlying domestic demand accounting for all of last quarter's gain. Beyond the housing market and some elements of commercial real estate, there are few signs that elevated interest rates are materially weighing on domestic activity.

The U.S. economy will likely end the year on a solid footing, thanks to a resilient consumer and softening (albeit still expanding) business investment. As highlighted in our Quarterly Q&A publication, the outlook for next year has become a little more uncertain. The potential for higher tariffs and large-scale deportations pose notable downside risks to the outlook. But that needs to be weighed against the potential for further tax cuts and a lighter touch on regulation, both of which could lift animal spirits and provide some (if not a complete) growth offset. For now, we've lowered our 2025 GDP forecast by four-tenths to 1.7% but will adjust accordingly as more concrete policies are announced following President-elect Trump's inauguration on January 20th.

Daily Pivots: (S1) 1.0428; (P) 1.0486; (R1) 1.0548; More...

EUR/USD's recovery extends higher today but stays below 1.0609 resistance. Intraday bias remains neutral and further decline is still in favor. On the downside, break of 1.0330 will resume the fall from 1.1213. Also, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication. Nevertheless, firm break of 1.0609 will confirm short term bottoming, and turn bias back to the upside for 1.0760 support turned resistance first.

In the bigger picture, immediate focus is now on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 1.2511; (P) 1.2564; (R1) 1.2620; More...

GBP/USD recovers further today but stays below 1.2713 resistance. Intraday bias stays neutral and further decline remains in favor. On the downside, break of 1.2486 will resume the fall from 1.3433 to 1.2298 cluster support zone. However, firm break of 1.2713 will indicate short term bottoming, and turn bias back to the upside for 55 D EMA (now at 1.2882).

In the bigger picture, a medium term top should be in place at 1.3433, and price actions from there are correcting whole up trend from 1.0351 (2022 low). Deeper decline is now expected as long as 55 D EMA (now at 1.2893) holds, to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.

Daily Pivots: (S1) 0.8840; (P) 0.8868; (R1) 0.8892; More…

USD/CHF dips lower today but stays above 0.8800 support so far. Intraday bias remains neutral and further rise is in favor. Break of 0.8956 will resume the rally from 0.8374, and target 0.9223 key resistance next. However, firm break of 0.8800 will confirm short term topping and turn bias back to the downside for 55 D EMA (now at 0.8713).

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

Daily Pivots: (S1) 152.57; (P) 153.53; (R1) 154.07; More...

USD/JPY's corrective fall from 156.74 is extending lower and intraday bias stays on the downside. Deeper fall should be seen to 38.2% retracement of 139.57 to 156.74 at 150.18, but strong support is expected there to bring rebound. On the upside, above 153.23 minor resistance will turn intraday bias back to the upside for retesting 156.74. However, decisive break of 150.18 will argue that whole rise from 139.57 could have completed, and bring deeper fall to 61.8% retracement at 146.12 next.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Yen is asserting dominance in today’s markets, benefiting from notable decline in US and European benchmark treasury yields. US 10-year yield, in particular, is seeing a renewed drop, which is gaining momentum alongside the weakening USD/JPY. This raises the risks that both could be reversing their rallies that began in mid-September. However, with reduced liquidity during the US Thanksgiving holiday, current price actions could be exaggerated, leaving markets to await next week for more definitive trend signals.

Overall in the currency markets, New Zealand Dollar is the second-best performer today after Yen, as investors continue to digest RBNZ's latest rate projections. The central bank’s guidance has left markets divided on whether February will bring another 50bps rate cut or a more modest 25bps adjustment. Meanwhile, Euro ranks third, partly supported by hawkish remarks from a senior ECB official. Despite this, Euro’s movement still appears more like consolidation of its recent losses rather than a clear trend reversal. On the weaker side, Dollar leads the day’s losses, followed by Loonie and Aussie. Both currencies remain under pressure from trade and domestic growth concerns. Sterling and Swiss Franc are holding middle positions.

Technically some attention is now on whether Dollar’s current pullback could evolve into a broader bearish reversal. Key levels to watch include 1.0609 resistance in EUR/USD, 1.2713 resistance in GBP/USD, and 0.8800 support in USD/CHF. A decisive break of these levels across multiple pairs would signal that Dollar’s recent rally is over, paving the way for more sustained downside.

In Europe, at the time of writing, FTSE is down -0.11%. DAX is down -0.37%. CAC is down -0.89%. UK 10-year yield is down -0.0588 at 4.296. Germany 10-year yield is down -0.019 at 2.172. Earlier in Asia, Nikkei fell -0.80%. Hong Kong HSI rose 2.32%. China Shanghai SSE rose 1.53%. Singapore Strait Times fell -0.12%. Japan 10-year JGB yield is up 0.0047 at 1.075.

US initial jobless claims falls to 213k, vs exp 220k

US initial jobless claims fell -2k to 213k in the week ending November 23, below expectation of 220k. Four-week moving average of initial claims fell -1k to 217k.

Continuing claims rose 9k to 1907k in the week ending November 16, highest since November 13, 2021. Four-week moving average of continuing claims rose 13.5k to 1890k, highest since November 27, 2021.

US durable goods orders rises 0.2% mom, ex-transport orders up 0.1% mom

US durable goods orders rose 0.2% mom to USD 286.6B in October, below expectation of 0.4% mom. Ex-transport orders rose 0.1% mom to USD 189.5B, below expectation of 0.2% mom. Ex-defense orders rose 0.4% mom to USD 266.6B. Transportation equipment orders rose 0.5% mom to USD 97.1B.

ECB’s Schnabel advocates gradual approach, cautions against over-easing

ECB Executive Board member Isabel Schnabel stressed the importance of a cautious approach to monetary easing, warning against shifting policy into "accommodative territory."

Speaking to Bloomberg, Schnabel stated that ECB could “gradually move toward neutral” if incoming data continue to align with the bank’s baseline projections. However, she rejected market expectations for accommodative policy, remarking, “From today’s perspective, I do not think that would be appropriate.”

Schnabel also dismissed speculation about larger rate moves, such as half-point cuts, expressing “a strong preference for a gradual approach.”

She cautioned that cutting rates prematurely, even if inflation were to fall short, could be counterproductive if deeper structural issues underlie the economic weakness.

In her view, “the costs of moving into accommodative territory could be higher than the benefits,” particularly as it would deplete policy options needed for future shocks that monetary measures could address more effectively.

Schnabel estimates the neutral interest rate to fall within the 2% to 3% range. With the deposit rate currently at 3.25% after three quarter-point cuts this year, she noted, “we may not be so far” from neutrality now.

Germany’s Gfk consumer sentiment plunges to -23.2, rising concerns over job security

Germany’s GfK Consumer Sentiment Index fell sharply for December, dropping from -18.4 to -23.3, far below expectations of -18.8. This marks the lowest level since May 2024 (-24.0) and reflects a significant deterioration in household confidence as the year ends.

November saw economic expectations decline from 0.2 to -3.6, marking the fourth consecutive drop and the weakest level since February. Income expectations also plunged, falling from 13.7 to -3.5, while willingness to buy slipped further from -4.7 to -6.0. In contrast, willingness to save increased from 7.2 to 11.9, highlighting a defensive shift in household behavior.

“Consumer sentiment in Germany is therefore currently at a level comparable to the end of 2023,” noted Rolf Bürkl, consumer expert at NIM, adding that “consumer uncertainty has increased again recently, as evidenced by the rising willingness to save.” Bürkl highlighted several contributing factors, including rising concerns over job security due to reported job cuts, production relocations, and an uptick in insolvencies.

RBNZ cuts rates by 50bps; projections indicate slower easing ahead

RBNZ delivered a widely expected 50bps cut to its Official Cash Rate, bringing it down to 4.25%. The central bank maintained easing bias, stating that if economic conditions align with projections, “the Committee expects to be able to lower the OCR further early next year.”

Governor Adrian Orr did not rule out another large cut in February during the post-meeting press conference. But RBNZ now forecasts the cash rate will drop to around 3.5% by the end of 2024, signaling smaller moves or pauses to assess the impact of prior easing.

On the economic front, RBNZ expects -0.2% contraction in Q3 2024, followed by recovery to 0.3% growth in Q4. Growth is anticipated to strengthen to a steady 0.6% quarterly rate through 2025 and 2026. “Economic growth is expected to recover during 2025, as lower interest rates encourage investment and other spending,” the central bank noted. .

Inflation is projected to slow from 2.2% currently to 2% by early 2025, but RBNZ forecasts show it picking up again and remaining between 2.0% and 2.5% through early 2027.

Australian CPI steady at 2.1% in Oct, underlying inflation shows mixed trends

Australia’s monthly CPI was unchanged at 2.1% yoy in October, below expectations of a rise to 2.5% yoy. This marks the lowest annual inflation rate since July 2021.

Core inflation metrics presented mixed signals, with CPI excluding volatile items and holiday travel slowing from 2.7% yoy to 2.4% yoy. However, trimmed mean CPI, a preferred gauge of underlying inflation, rose from 3.2% yoy to 3.5% yoy, signaling persistent inflationary pressures in certain sectors.

At the group level, notable price increases were observed in Food and non-alcoholic beverages (+3.3%), Recreation and culture (+4.3%), and Alcohol and tobacco (+6.0%). These were partly offset by a sharp decline in Transport prices, which fell -2.8%, driven by lower fuel costs.

Michelle Marquardt, head of prices statistics at the Australian Bureau of Statistics, noted that "the falls in electricity and fuel had a significant impact on the annual CPI measure this month." She highlighted the value of core inflation measures, such as the trimmed mean, in offering deeper insights into inflation trends amid significant price fluctuations.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 152.57; (P) 153.53; (R1) 154.07; More...

USD/JPY's corrective fall from 156.74 is extending lower and intraday bias stays on the downside. Deeper fall should be seen to 38.2% retracement of 139.57 to 156.74 at 150.18, but strong support is expected there to bring rebound. On the upside, above 153.23 minor resistance will turn intraday bias back to the upside for retesting 156.74. However, decisive break of 150.18 will argue that whole rise from 139.57 could have completed, and bring deeper fall to 61.8% retracement at 146.12 next.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

US durable goods orders rose 0.2% mom to USD 286.6B in October, below expectation of 0.4% mom. Ex-transport orders rose 0.1% mom to USD 189.5B, below expectation of 0.2% mom. Ex-defense orders rose 0.4% mom to USD 266.6B. Transportation equipment orders rose 0.5% mom to USD 97.1B.

Full US durable goods orders release here.

US initial jobless claims fell -2k to 213k in the week ending November 23, below expectation of 220k. Four-week moving average of initial claims fell -1k to 217k.

Continuing claims rose 9k to 1907k in the week ending November 16, highest since November 13, 2021. Four-week moving average of continuing claims rose 13.5k to 1890k, highest since November 27, 2021.

Full US jobless claims release here.

USDJPY extends fresh bearish acceleration into second day and fell 1.1% during Asian / European trading on Wednesday.

Increased demand for yen at the end of month as well as end fiscal year was the main driver of the pair, along with dollar bulls pausing for correction.

Fresh weakness broke below pivots at 152.69 (Fibo 23.6% of 139.57/156.74), 151.97 (200DMA) and dented a higher low of larger uptrend at 151.33 (Nov 5), adding to growing negative signals, which will require confirmation on close below these levels.

Daily studies softened as 14-d momentum slid into negative territory and 10/20/30DMA’s turned to bearish setup, contributing to possible scenario of attack at next pivotal supports at 150.15/00 (Fibo 38.2% / psychological.

Alternatively, failure to clearly break 151.33 trigger would ease current strong downside pressure and probably keep the price in prolonged consolidation range, though with bearish bias expected while the action stays below 153.00 zone.

Res: 151.98; 152.69; 153.00; 153.80.
Sup: 151.22; 151.00; 150.18; 150.00.