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• Weak PMI data from Europe and the UK raise concerns about global economic outlook and sent the EUR and GBP tumbling.
• Escalating tensions in Russia-Ukraine and the Middle East add to market uncertainty.
•  Upcoming PCE inflation data will influence Fed policy and market sentiment.

Week in Review: DXY Continues Advance, as EU and UK Growth Struggles Continue

Europe and the UK are the biggest losers this week both from a geopolitical risk and economic data perspective. Poor PMI data across the Euro Area and more importantly its major industrial hub Germany, have left the Euro reeling against G7 counterparts.

The UK is starting to face a similar change as stagnant growth, stubborn services inflation and a host of budgetary concerns have left the British Pound in a spot of bother. The data this week has seen market participants increase their rate cut expectation over the next 12 months. GBP/USD is trading at six month lows with more losses possible if markets continue pricing in more aggressive rate cuts moving forward.

Gold (XAU/USD) has been on a tear this week and is on course for its best week in twelve months. The rally largely driven by rising geopolitical risk looks set to continue and follows an investment note by Goldman Sachs, in which analysts predicted the precious metal will set a new record by the end of 2025.

US Indices recovered with a modicum of caution this week with the blockbuster release of NVIDIA earnings now out of the way. The market reaction was rather mixed to NVIDIAS (NVDA) earnings with the share enjoying some whipsaw price action since the earnings release. This concludes the earnings release from the ‘magnificent 7’ with attention now shifting to other areas as the festive season approaches.

The S&P 500 and Nasdaq 100 rose 1.4% and 1.6% respectively. Now, there is something that caught my eyes recently and it was the historical performance of US stocks in the month of November. Historically US stocks experience a strong month of November with the  last week of the month experiencing a significant rise. This usually carries on in December in what is affectionately called the ‘santa rally’. WIll history repeat itself?

Source: Isabelnet, Carson Research (click to enlarge)

Geopolitical risk is back in focus and is likely to remain so reading into the end of the year. Keep an eye on the evolving situations in both the Middle East and Russia-Ukraine. Any escalation is likely to lead to some wild price swings in the weeks ahead.

The Week Ahead: Muted Week in APAC, PMI Data Rules

Asia Pacific Markets

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

In China, a quiet week is expected with the main event on the docket being the medium-term lending rate. The People’s Bank of China (PBoC) is expected to keep the medium-term lending rate steady at 2.0% when it announces its decision on Monday. On Wednesday, attention will shift to industrial profits data, as investors look for signs of improvement after two months of steep declines compared to last year.

In Japan, labor market data will be in focus this week. The job market is still strong, so the unemployment rate is likely to stay about the same as last month. Production and retail sales are expected to do well, as issues like earthquake warnings and safety scandals are no longer affecting activity.

In Australia, markets focus will shift to the inflation data. Australia’s economy is expected to grow slightly in October. The job market remains strong, and prices for services are still rising. However, overall inflation is likely to stay within the 2-3% target range.

Europe + UK + US

In developed markets, inflation data takes center stage next week coupled with geopolitical risks as the Russia Ukraine conflict heats up.

In the Euro Area, inflation data will be released on Friday and will be a key release after the poor PMI data released this past week. Inflation is expected to rise further, mainly due to comparisons with low figures from last year.

Market participants began to see some hope for the Euro Area in recent weeks but the PMI data release and geopolitical cloud will no doubt have serious repercussions moving forward. At the October press conference, Christine Lagarde gave a gloomy economic outlook which may have been seen as pessimistic at the time. I still expect inflation to drop in the coming months which should help but if growth remains subdued the ECB may have to be more aggressive with rate cuts moving forward.

Another key release next week will be the release of the Euro Areas economic sentiment survey, which will provide more details on how businesses feel about the current economy, their pricing strategies, and hiring plans.

In the UK, there is a pause on high impact economic data releases. The PMI data from the UK sent the Pound tumbling last Friday. For now, rate cut expectations have increased from 72 bps to 77 bps of cuts through December 2025.

The US awaits the Feds Preferred inflation gauge next week with the PCE release as market participants are expecting an uptick in inflationary pressure in the coming months. Following a hot CPI and PPI print this month, the PCE release will be even more intriguing.

The PCE measure combines data from both the CPI and PPI reports, and current data suggests a 0.3% month-on-month increase. For inflation to settle at the Fed’s 2% annual target, monthly increases need to average around 0.17%, so 0.3% is still too high for the Fed to feel fully comfortable.

However jobs data still is the key at the moment. When it comes to the Federal Reserve December meeting, the jobs data on December 6 is likely to still hold the key.

Chart of the Week

This week’s focus remains the US Dollar Index (DXY), which has taken out a key multi-month resistance level at the 107.00 handle rising to a high of around 108.00 before a pullback.

The DXY rally seems unstoppable at present with rising geopolitical risk also underpinning the greenback. The DXY is back in overbought territory on the daily chart below based on the 14 period RSI. However this is of course no guarantee that a drop will materialize but it is worth paying attention to.

Given the geopolitical dynamics at play and the optimism around a Trump return to the White House the potential for a drop in the DXY remains slim. Any pullbacks are likely to be met with buying pressure and thus capping the downside potential. A significantly lower PCE print than expected may help weaken the DXY, but whether such a move would be a sustainable remains up to debate.

Looking at immediate support and the purple block on the chart below around the 107.00 handle is key if bulls are to continue the recent rally. Below the 107.00 handle support rests at 106.130 and 105.63.

Looking at the upside and immediate resistance rests at the 108.00 handle with 109.00 and the 110.00 psychological level next in line.

US Dollar Index Daily Chart – November 21, 2024

Source: TradingView.Com (click to enlarge)

Key Levels to Consider:

Support

• 105.63
• 105.00
• 104.50

Resistance

• 107.00
• 107.97
• 109.52

Canadian Highlights

• Canadian inflation made headlines this week, with both overall and core inflation pushing higher in October.
• The Canadian consumer was also in the spotlight as retail sales surged and the Federal government announced big stimulus measures to further support spending.
• Rising inflation and stronger consumer spending have raised odds that the BoC will revert to a 25 bp cut when it meets in December.

U.S. Highlights

• A quiet week for data with the housing market showing healthy sales activity and Fed speakers recommitting to a data-dependent approach to policy.
• The focus will be on housing inflation in next week’s Personal Income and Outlays report for October.
• Productivity growth has allowed inflation to cool without sacrificing much growth. Whether that continues through the end of 2024 and into 2025 will be material for Fed policy.

Canada – Inflation Can’t ‘Shake it Off’

Taylor Swift may still be in Toronto, but it was the steady stream of economic data that dominated headlines this week. Canadian Consumer Price Index (CPI) inflation was supposed to be the star with a big upwards move in October (Chart 1), but the Federal government’s large pre-election stimulus to support consumer spending took center stage. Retail sales data for September also came in hot, showing that Canadian consumers may have entered a new ‘Era’ of elevated spending. Housing starts data also showed strength in October, likely reacting to the revival happening in the resale market. Financial markets responded by pricing a greater likelihood that the Bank of Canada (BoC) will revert to cutting by 25 bps at its December meeting.

A more gradual pace of interest rate cuts is consistent with October’s inflation data, which was a bit hotter than expected, bouncing back to target after a soft reading in September. And it wasn’t just higher gasoline prices behind the increase. The BoC’s core inflation measures also rose two tenths to 2.6% y/y on average, above the 2.5% mark the Bank had flagged in the past as behind the reason they were comfortable making a larger 50 basis point cut. This reminded markets that the BoC is not ‘Out of the Woods’ when it comes to controlling inflation.

Stronger consumer demand may be the source of rising inflation. After a long period of cautious spending, consumers are feeling ‘22’ again. It looks like the effect of lower rates is finally starting to raise sentiment. Retail sales data released Friday confirmed this, with a near 1% monthly jump in September and the advanced estimate for October showing more of the same. And this isn’t even including the rampant spending seen in Toronto over the last two weeks, where a flood of Swifties descended on the city to scoop up $100 shirts and T-Swift themed cocktails at local bars. The Federal government’s huge pre-election stimulus is likely to extend this spending spree through the first half of 2025, as the HST break and a round of $250 cheques will pull spending forward and boost overall GDP growth.

A stronger Canadian consumer also means that housing is back in ‘Style’. Lower rates have sparked the housing market, with resale activity and prices showing renewed strength ever since the BoC cut by 50 bps in October. This has parleyed into improved builder confidence, as housing starts data showed an impressive 8% monthly increase in October. This implies that residential investment should start being a positive contributor to Canadian GDP growth following three years of this sector dragging down growth.

If there was one T-Swift song that would characterize what the BoC should do, it’s: ‘You Need to Calm Down’ - with the pace of rate cuts that is. Everyone remembers the central bank electing to cut by an oversized 50 bps back in October. At the time, we made our own headlines by saying how this wasn’t needed and that it risked sparking the real estate market. This was the right advice, as the bank is looking increasingly likely to revert to its prior pace of 25 bps cuts. This may make it the ‘Anti-hero’ for those hoping for a Swifter pace of cuts, but it is likely the best course of action given the state of the economy.

U.S. – Looking Ahead After a Quiet Week

A brief rally in Treasuries fizzled out this week and, at the time of writing, Treasury yields are roughly back to where they were at Monday’s open. Ultimately, a pair of housing reports coming in roughly in line with expectations and two Fed speakers emphasizing data dependence, leave us looking to next week’s Personal Income and Outlays report as the next sign-post to gauge where the Fed’s rate cutting campaign is headed.

Two Fed Board Members took the stage this week – Governor’s Bowman and Cook. Though they offered slightly different interpretations of the state of the economy both recommitted to a data-dependent approach to rate setting. Governor Cook presented her view of the outlook, with an emphasis that the disinflation process is well on its way “even if the path is occasionally bumpy”. Governor Bowman was more pessimistic noting that, “progress on inflation seems to have stalled”. Markets now expect the Fed’s preferred inflation gauge (the personal consumption expenditure index excluding food and energy) to show another strong advanced in October of 0.3% month-on-month (m/m, 3.7% annualized) – well ahead of the Fed’s 2.0% target. Whether it’s a bump or another sign of stalling will come down to the details of the report.

The good news is that the growth in most goods and services prices has moderated significantly (Chart 1). Goods price trends have been a key part of the recent cooling with prices in both durables and nondurables in deflation over the past several months. There is some worry this benefit could be coming to an end as there was a notable uptick in durable goods prices last month (+0.3% m/m). With retail sales demand still healthy, another price gain can’t be ruled out. Adding to the concern is the prospect that tariffs are around the corner. For policymakers, the end of the downdraft from durable goods prices would come at an inopportune time as it has provided a meaningful deflationary offset to a still-hot housing sector.

This puts more focus on what kind of print we can expect in the coming months from the housing market. Sales activity clocked in a healthy gain last month amid lower mortgage rates in late summer. However, this is likely to be a temporary burst as affordability is still stretched, and the recent backup in borrowing costs should dent demand (Chart 2). With inventory levels near balanced territory, this should help temper further price gains.

To date, U.S. consumers have benefited from a productivity boom that has allowed inflation to cool without sacrificing much growth. The key concern now is whether this pace of productivity growth can extend into next year. This means looking at the details in the data for signs that demand growth is yet again outpacing supply. Markets currently judge the odds of a Fed cut in December at a coin toss. An upside surprise next week could make it a long-shot.

United States: Back-up in Mortgage Rates a Setback for Housing

• The residential sector was in focus this week. The late summer dip in mortgage rates led to an upside surprise in existing home sales. Recent hurricanes weighed on housing starts in October. An upturn in the NAHB HMI shows builders are not put off by the rebound in financing costs and generally are encouraged by the election results.
• Next week: Durable Goods (Wed.), Personal Income & Spending (Wed.)

International: European Sentiment Slumps While Global Inflation Pressures Linger

• Sentiment surveys worsened in both the Eurozone and United Kingdom in November, supporting the view that the 2025 growth prospects for Europe could be more challenging in the wake of the U.S. presidential election. Against that backdrop we expect continued monetary easing from foreign central banks next year, though this week's price and wage data from the U.K., Canada and the Eurozone suggest a steady rather than accelerated pace of rate cuts.
• Next week: RBNZ Policy Rate (Wed.), Eurozone CPI (Fri.), Canada GDP (Fri.)

Interest Rate Watch: How Much Will the Fed Cut Rates?

• Strong economic data, recent comments by Fed officials and the potential of higher inflation in 2025 due to tariff increases have led market participants to dial back their expectations of Fed rate cuts in coming months.

Topic of the Week: Aye, There's the (Turkey) Rub

• Price growth at grocery stores has eased considerably since spiking at over 13% in the summer of 2022. Thanksgiving of that year, many families faced inflation for Turkey Day staples well into double digits with the price for the star of the meal—the turkey—up 16.9% from a year prior. Still, even amid dramatic declines in the rate of price growth, it is difficult to imagine swaths of Americans declaring “This year, I’m grateful for food disinflation” around their tables next Thursday.

Full report here.

We look for gross domestic product growth in Canada to have picked up slightly to 0.2% in September on Friday after holding steady in August. That should leave the Q3 reading in line with our projection for a 1% annualized increase—slightly below the Bank of Canada’s 1.5% forecast and less than half the 2.1% rise in Q2.

Consumer spending likely increased in Q3 given a 5% (annualized rate) rise in retail sales, but a pullback in equipment imports is flagging a drop in business investment after a surprisingly large Q2 increase. A small pick-up in home resales in August and September likely drove residential investment higher in Q3, the first increase in four quarters.

The 0.2% increase we expect in September GDP is lower than Statistics Canada’s 0.3% advance estimate, with the rise partly due to the rail transportation bounce-back after disruptions in August. Wholesale and retail sale volumes rose in September, but manufacturing output likely contracted again, while hours worked fell 0.4% in September.

More importantly, the increase in Q3 GDP won’t prevent another contraction in real per-person activity, extending that downward trend for a sixth consecutive quarter. The soft growth backdrop and broadly easing inflation pressures are the main reasons our own base-case projections look for another 50 basis point rate cut from the Bank of Canada in December.

September’s GDP report will also include annual benchmark revisions with early estimates already suggesting that the level of GDP in 2023 was 1.3% higher than previously estimated. However, that is unlikely to change the broader trajectory for per-capita output, which has been persistently lower and consistent with a rising unemployment rate and slowing inflation pressures.

Week ahead data watch

We expect U.S. personal spending to grow by 0.3% in October, down from the 0.5% in the prior month. Retail sales came in at 0.4% during that month, also grew at a slower pace than in September.

U.S. Personal income likely rose 0.3% in October. Disruptions from hurricanes and a large strike in the manufacturing sector paused job growth in October (+12k), but wages rose.
Job openings in the Canadian September SEPH data will be watched closely for signs of further softening in the labour market. Job openings have been declining, and we continue to expect wage growth to slow.

• RBNZ is expected to cut rates by 50 bps at its last policy meeting of 2024
• But will PCE inflation data give the green light for a Fed cut?
• Eurozone flash CPI also critical for ECB’s December decision

RBNZ set for third rate cut 

The Reserve Bank of New Zealand will kick-start the end of year policy meetings of the major central banks when it announces its decision on Wednesday. Having stood out as being ultra-hawkish during the global tightening cycle, the RBNZ performed a major policy reversal over the summer by embarking on a loosening campaign even before the Fed had started its own.

With the annual rate of CPI falling within its 1-3% target band, inflation expectations settling around 2.0% and GDP growth remaining sluggish, policymakers have little reason to be cautious and a back-to-back 50-basis point cut is fully priced in. There is even speculation that the RBNZ might opt for a triple reduction of 75 basis points, which can be justified by the fact that, after November, policymakers won’t meet again until February.

Should the RBNZ surprise with a hefty cut, it will be difficult for the New Zealand dollar to regain its footing against the US dollar, and it could tumble to fresh 2024 lows.

Storm of US data before Thanksgiving break

The US economic agenda will get back into full gear next week as a flurry of releases are on the way before traders abandon their desks for the Thanksgiving holiday. Politics briefly eclipsed monetary policy after Donald Trump’s shock election win. But the focus is primarily back on the Fed now amid growing doubts about how many times the US central bank will be able to cut rates even before the incoming administration’s inflationary policies have seen the light of day.

Expectations of a 25-bps reduction in December currently stand at between 60% and 55% as Fed officials have turned more hawkish after a string of upbeat indicators on the economy, but more importantly, after the decline in underlying inflation stalled again.

Fed Char Powell has joined the FOMC’s hawkish camp, flagging the possibility of a pause. Hence, the likelihood of a cut will depend on how strong or weak the next inflation and jobs reports are before the December meeting.

The PCE inflation report, out on Wednesday, is up first on the schedule. Powell recently said he sees core PCE edging up from 2.7% to 2.8% in October, which would mark a setback for the Fed. The projection for headline PCE is a pickup from 2.1% to 2.3%.

Both the headline measures of PCE and CPI inflation have maintained a clearer downward path than the core readings, and if the incoming numbers do not throw this trend into question, the Fed might still have some manoeuvrability to trim rates in December.

Fed minutes also in the spotlight

Should the PCE price indices fail to shed any light on the Fed’s next move, investors will look to the minutes of the Fed’s November policy meeting due the same day for fresh policy insight. There will also be plenty of other data to sift through on Wednesday. Personal income and consumption will be quite important, followed by durable goods orders for October and the second estimate of Q3 GDP growth.

A day earlier, new home sales and the Conference Board’s consumer confidence gauge are likely to attract some attention too. US markets will be shut on Thursday for Thanksgiving Day and the stock market will close early on Friday, which means there will only be light trading. Nevertheless, those choosing not to make a weekend of it will have the Chicago PMI to keep them entertained.

The US dollar has been extending its post-election rally over the past week. But its gains are now looking overstretched. Any disappointing data therefore risks triggering a sharp correction.

Eurozone CPI eyed for ECB clues

Despite rising pessimism about the European growth outlook, ECB policymakers have been pushing back on investor expectations of a 50-bps rate cut in December. The recent jump in negotiated wages – a key metric for the ECB – and services inflation continuing to hover around 4% underline policymakers’ concerns about cutting too fast.

Markets have assigned about a 25% probability for a 50-bps move in December, which may be overstating the true odds if the latest ECB rhetoric is to be believed. This implies there’s quite a mountain to climb to push the chances for a 50-bps cut substantially higher.

Nevertheless, Friday’s flash CPI figures will be watched closely. In October, headline CPI accelerated from 1.7% to 2.0%. A further increase to 2.4% is forecast for November, which could dash hopes for a larger cut even more, potentially helping the euro to stop the recent bleeding against the greenback.

Ahead of the CPI numbers, Monday’s Ifo business survey out of Germany will be on investors’ radar amid worries about how the political uncertainty in the country is affecting business confidence.

Will CPI data worsen the aussie’s pain?

In Australia, the latest CPI stats will also be doing the rounds. The monthly readings for October are due on Wednesday, while on Thursday, Q3 capital expenditure data will be monitored. Annual inflation fell to 2.1% in September, which is at the lower end of the RBA’s 2-3% target band. Yet, the RBA is not ready to start taking its foot off the brake, and investors don’t foresee a rate cut before May 2025 at the earliest.

If CPI edges up to 2.3% in October as expected, there might be some support for the Australian dollar versus its stronger US counterpart.

Loonie turns attention to Canadian GDP

Another currency struggling to keep its head above water is the Canadian dollar. The Bank of Canada has been more aggressive than other central banks in slashing rates, and this explains why the loonie is the third worst performing major currency this year.

A fifth consecutive rate cut is likely in December but bets for a second 50-bps cut faded after the recent hotter-than-expected CPI report. Friday’s Q3 GDP print will probably not be a game changer for the BoC, but there could still be a sizeable reaction in the loonie from any big surprises.

Tokyo inflation on tap

Adding to Friday’s data barrage are the Tokyo CPI figures for November. Inflation in Tokyo fell below the Bank of Japan’s 2.0% target in October, but this hasn’t dissuaded policymakers from wanting to raise interest rates further. The question now is more about the timing. With investors split 50-50 about the possibility of a rate increase in December, stronger-than-forecast numbers could bolster bets for a year-end hike, lifting the yen.

Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons, if they were supported by a nuclear state. The change was an obvious response to US allowing Ukraine to use long-range ATACMS-missiles for strikes within Russian territory. Ukraine swiftly performed its first missile strikes to Russia using American and British weapons starting Tuesday, and on Thursday, Russia fired a barrage of missiles including a novel intermediate-range ballistic missile against the city of Dnipro in eastern Ukraine.

While the missile was not an intercontinental ballistic missile like the Ukrainian officials initially claimed, Pentagon reported that similar missiles could be refitted to carry nuclear warheads as well. Both sides have called past week's events an escalation in the war, that has now lasted more than 1000 days. Despite the sabre-rattling on the battlefield, Reuters' sources also reported Putin would be ready to discuss ceasefire when president-elect Donald Trump enters the White House. We remain doubtful that finding common ground around the negotiation table will be as easy as Trump has suggested.

Equity markets traded with a shaky, yet generally positive sentiment in the US, and oil prices rose modestly. Weak set of flash PMIs from the euro area pushed rates lower on Friday, as the composite index plunged back into contractionary territory (48.1; Oct. 50.0). At the time of writing, markets are pricing more than 50% probability for the ECB's 50bp rate cut in December. Broad USD continued its post-election rally supported by solid outlook for the US economy, and EUR/USD is already trading around 1.04. We have been strategically bullish on the greenback for several years, and earlier this week we shifted our 12M EUR/USD forecast even lower to 1.01, read more from FX Forecast Update - Red sweep widens Atlantic FX gap, 18 November.

Next week will be a quiet one in terms of macro data. Main focus will be on November flash HICP data from euro area on Friday, with early signals from German and Spanish country data coming already on Thursday. We expect base effects from weaker reading a year ago to boost headline inflation to 2.3% in y/y terms (from 2.0%) and core inflation to 2.8% y/y (from 2.7%). On a monthly level, inflation momentum has still likely continued moderating, which should further pave the way for ECB cuts in December and beyond. Several ECB officials will be on the wires leading up to the release, including Lane on Monday as well as Villeroy and Nagel on Tuesday.

In the US, focus will be on October's PCE data, which includes the Fed's preferred gauge of inflation. Earlier CPI release suggested that price pressures remained stable on a monthly level in headline and core terms. Markets remain divided over whether the Fed will cut rates in December, and FOMC's November minutes on Tuesday could offer some additional clues on the most likely rate path going forward - we still call for a 25bp cut.

On the other side of the world, Reserve Bank of New Zealand (RBNZ) has become one of the most aggressive central when it comes to rate cuts. We expect another 50bp reduction next week, but markets are speculating with a small chance for an even larger 75bp move.

Full report in PDF.

Markets

November EMU PMI’s were one of the final reality checks going into the December 12 policy meeting (and beyond). Last month, there was a glimmer of hope with the overall index at 50. HCOB analyses even saw tentative signs of some light at the end of the (German) tunnel. However, the November data made crystal clear that the tunnel for the EMU economy is much longer and darker than expected. The composite PMI tumbled back in contraction territory (48.1 from 50.0), the lowest level in 10 months. The manufacturing PMI also dropped further to 45.2 from 46.0, but the major negative surprise came from services as it joined the contraction in the manufacturing (49.2 from 51.6) for the first time in 10 months. Intra-EMU divergence persisted with Germany and France seeing even bigger declines in output than in October. France even marked the fastest decline in activity in since January. The rest of the EMU still sees business activity increasing, but at the slowest pace in the current 11-month sequence of growth. The odds for a recovery also aren’t good as new orders decreased for the sixth month running. Employment declined for the fourth consecutive month, but the decline remains limited. HCOB describes the EMU environment as stagflationary as the decline in activity coincides with higher input and output prices, mainly due to higher wage costs in the services sector. In its assessment on Germany, HCOB mentions political uncertainty due to the election of Donald Trump and the announcement of snap elections in Germany. We don’t label it as a glimmer of hope yet, but German expectations for next year improved slightly on hopes that the next government would develop measures to boost the economy, maybe by reforming the debt brake. The market reaction was telling and ‘logical’. German yields are currently ceding between 9 bps (2-y) and 3 bps (30-y), after even bigger losses this morning. Money markets again seen an almost 50/50 chance between a 25 bps and 50 bps ECB rate cut in December. ECB’s Villeroy said he sees inflation reaching 2% earlier in 2025 than expected and is careful of the risk of undershooting the target. ECB’s Centeno also warned on this risk, but still defended a gradual adjustment. US yields were understandably little affected by the decline in EMU. US yields declined 1-2 bps across the curve in the run-up to the publication of the US PMI’s. EUR/USD tumbled in a flash crash post the PMI’s and briefly touched the lowest level since November 2022 (1.0335 area). A close below 1.0448 (currently 1.0425) materially weakens the technical picture with 1.0201 (62% retracement 2022-2023 move) the next target on the charts. At the time of finishing this report, the US PMI’s show ongoing strength in the economy. The composite index improved further to 55.3 from 54.1 on a strong performance of services (55.3 from 54.1). US yields are moving toward unchanged levels. Additional USD gains stay modest (DXY 107.5, EUR/USD 1.041).

News & Views

November UK PMI’s showed a sustained drop in private sector employment amid weaker business optimism and rising cost inflation. The composite PMI slipped from 51.8 to 49.9 (vs 51.7 consensus), the first sub-50 reading since October 2023. New order growth eased to its lowest for one year Details showed a deterioration in both manufacturing (48.6 from 49.9; 9-month low) and services (50 from 52; 13-month low). S&P global market intelligence, responsible for the surveys, commented that companies are giving a clear thumbs down to the policies announced in Labour’s first Budget. Especially the planned increase in employers’ National Insurance contributions hurts. The November PMI is indicative of the economy slipping into a modest decline, with GDP dropping at a 0.1% quarterly rate. The loss of confidence hints at worse to come. Still elevated rates of wage-related price and cost growth limit scope for further BoE rate cuts. It helps explain today’s “modest” fall in UK yields (5 bps across the curve). EUR/GBP initially followed EUR/USD south on weak EMU PMI’s (EUR/GBP 0.8268 intraday low) before rebounding after the UK data to opening levels near 0.8320.

Hungarian gross wages declined by 0.3% on a monthly basis in September, but were still 12.5% higher compared with a year ago. Net earnings increased by 12.3% and real earnings were 9.2% higher than a year earlier. Wage pressure remains stronger in the public sector (+0.5% M/M & 14.1% Y/Y) compared with the private sector (-0.4% M/M & 11.9% Y/Y). The forint remains in the defensive (EUR/HUF 411) as CE FX face a perfect storm of higher USD rates, rising geopolitical tensions and weakness in key trading partner Germany.

The US economy showed signs of stronger momentum in November as PMI data highlighted robust activity in the services sector. PMI Manufacturing improved slightly to 48.8 from 48.5, remaining in contraction but showing some stabilization. Meanwhile, PMI Services surged to a 32-month high of 57.0 from 55.0, boosting the Composite PMI to 55.3, up from 54.1, the highest in 31 months.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted, "The business mood has brightened in November, with confidence about the year ahead hitting a two-and-a-half-year high." Optimism was fueled by expectations of lower interest rates and a more pro-business stance from the incoming administration, which supported increased output and stronger order book inflows.

Economic growth appears to be accelerating in Q4, with the survey indicating a pickup in overall activity. At the same time, inflationary pressures are cooling. The survey's price gauge pointed to only a marginal increase in prices across goods and services, signaling that consumer inflation is running well below Fed's 2% target.

Full US PMI flash release here.

• BTCUSD nonstop rally almost reaches 100k
• Caution needed as market looks overbought

BTCUSD (Bitcoin) is experiencing one of its best moments in its history, having rocketed by 40% to reach an all-time high of 98,670 in just a month as investors swallowed Trump’s promising crypto regulatory pledges and at the same time sought safety against a complex global geopolitical landscape.

From a technical perspective, the recent rally followed the completion of a bullish pennant formation. However, as the RSI is approaching its recent highs in the overbought zone, traders might be inclined to lock in profits. That said, there may still be some extra room for improvement as the price has yet to confirm overbought conditions around the upper Bollinger Band.

Assuming the wall around 99,000 is breached, the next resistance could develop near 105,000. Should the bulls drive above 110,000, the spotlight might turn to 114,000.

Alternatively, if upside forces evaporate immediately, the price could seek protection within the 90,000-94,000 trendline zone. If that base collapses, the price could fall aggressively toward the 20-day simple moving average (SMA) at 84,550 and then to 79,000.

In a nutshell, BTCUSD traders could be sensitive to downside pressures in the short-term following the latest massive rally. If the bulls successfully claim the 99,000 level, the next peak could occur near 105,000. 

Retail sales rose by a healthy 0.4% month-over-month (m/m) in September, in line with Statistics Canada’s advance estimate.

Sales were even stronger in real terms. When adjusted for inflation, the volume of retail sales was 0.8% higher on the month.

One weak spot was sales at motor vehicle and parts dealers, which declined by 0.7% m/m after two consecutive months of gains.

Lower gasoline prices also weighed on headline retail sales. Receipts at gas stations and fuel vendors dropped by 2.3% m/m in nominal terms but gained 3.2% m/m in real terms.

Excluding both auto sales and gas station receipts, core retail sales rose by 1.4% m/m in September, driven by food and beverage stores (+3.0% m/m) and building material and garden equipment stores (+3.0% m/m).

E-commerce sales rose by 3.3% m/m, following a 1.5% decline recorded in the previous month.

Statistics Canada’s advance estimate for October points to another solid increase of 0.7% m/m.

Key Implications

Retail sales gained momentum toward the end of the third quarter, rising 3.5% on a quarter-on-quarter (q/q) annualized basis in Q3. This strong finish sets real consumption spending on track for a 1.5-2.0% gain in the third quarter.

The Bank of Canada may have gotten what it wanted: a rebound in consumption growth. Statistics Canada's advance estimate and our internal spending data point to further acceleration in October, particularly in home-related purchases. Additionally, the recent proposed tax holidays could provide a significant boost to consumer spending during the exemption period from mid-December to mid-February. This holiday shopping season may have a bit more sparkle than expected.