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In focus today

Today will be light on the data front, with the German ZEW indicator for November only. It will be interesting to see if the improvement in expectations recorded in October continued in November.

Economic and market news

What happened overnight

In Sweden, the Public Employment Service (PES) released their latest unemployment statistics at 06:30 CET which showed an increase in the unemployment rate to 6.9%. According to PES's figures, the unemployment rate has been increasing for the past year, but the pace of said increase is less dramatic than what is implied by the often officially quoted figures from LFS. Still, the PES press release note that the labour market is clearly weak.
What happened yesterday

In Denmark, inflation increased to 1.6% y/y in October from 1.3% y/y in September, with higher electricity prices in particular driving the uptick. While inflation increased slightly, underlying price pressure remains modest, with the substantial wage growth not acting as an inflationary force in Denmark.

In Norway, October core inflation dropped to 2.7% y/y (cons: 2.7%), while the monthly figure fell to 0.2% m/m (cons: 0.3%). Details reveal a broad-based fall with lower price pressure in all main components apart from clothing/shoes - albeit much of it is base effects. Heading into this print it was widely expected that inflation once again would undershoot Norges Bank's projections at 2.9% y/y (September monetary policy report). That said, at this point, markets have widely understood Norges Bank's revealed preferences for waiting until March 2025 before delivering the first rate cut - also reiterated at last week's interim meeting last week. Given their preferences, the bar for a December cut has seemed high for some time, and we would likely have to see the real economy, particularly capacity utilisation, turn over sharply before a cut could come back into play. Hence, yesterday's print changed nothing in that regard.

In China, the credit data came in yesterday, showing a moderate improvement in October, but data remains soft in general. At the same time, money supply growth also rebounded (M1 from -7.4% y/y to -6.1% y/y, M2 from 6.8% y/y to 7.5% y/y), though coming from weak levels. With the stimulus taking hold, we project credit growth to pick up in the coming quarters. The big uncertainty now, however, is when and how much the impact will be of Trump's expected tariffs hikes on Chinese products - and the tit-for-tat trade war that may follow.

In Japan, the Lower House convened on Monday to select a new prime minister. As expected, the LDP retained power, re-electing PM Ishiba despite his scandal-hit coalition losing its parliamentary majority in last month's election. We will keep an eye on what the DPP's (whose support is critical to Ishiba) opposition to rate hikes might mean to the government's stance on monetary policy.

In commodities space, Oil prices were down almost 3% in yesterday's session amid China's stimulus plan disappointing investors hoping for stronger Chinese demand growth, a stronger USD and expectations of increased supply due to Trunp's pro-drilling stance. Later today, OPEC publishes its Monthly Oil Market Report, which includes major issues affecting the oil market and an outlook for oil market developments for the year to come.

In crypto space, Bitcoin continued its journey north. As of this morning, the world's biggest crypto currency is hovering around USD 88,600.

Equities: Global equities were higher yesterday; however, it is worth highlighting the calmness in the markets and the massive drop we have seen in implied volatility measures such as the VIX and Move indices. Yesterday was also devoid of significant fundamental events, with no important key economic figures or monetary policy developments. Therefore, it was a day when investors had the opportunity to reflect thoroughly following the immediate reaction to the US election. The largest disturbance was the US Veterans Day holiday, which meant that there was no trading of treasuries. In terms of sector rotation, we observed precisely what we anticipated, with cyclicals performing exceptionally well, led by financials, consumer discretionary, and industrials. That being said, one should not expect Tesla's post-election frenzy to continue. We even argue that there is a risk of it backfiring if Trump initiates a tariff war against Europe and Europe begins to retaliate. Materials underperformed, which we attribute to the disappointing messages emanating from China. Style-wise, small caps performed excellently yesterday, particularly in the US.

In the US yesterday: Dow +0.7%, S&P 500 +0.1%, Nasdaq +0.1%, Russell 2000 +1.5%.

Markets in Asia are lower this morning. China H-shares, along with Taiwan, are experiencing declines. The two major drivers here are the post-US election effects and the disappointing Chinese stimulus measures. In Taiwan, TSM, accounting for more than one-third of the main index, is leading the index lower after reportedly being ordered by the US to stop shipping chips used for AI to Chinese customers. Futures in Europe and the US are also lower this morning, with the Euro Stoxx 50 down by almost 1%.

FI: Yesterday, European government bond yields declined and extended the rally from Friday. 10Y German government bond yields have declined almost 20bp from the peak last week and are back below levels before the US election. The US bond market was closed yesterday, but we have seen a modest rise in US yields this morning in Asian Trade after a solid decline last week, where 10Y US Treasuries fell some 13bp on Thursday and Friday. Furthermore, after a long period with curve steepening the curves are flattening once again.

FX: Limited activity after the European close due to US holiday (Veteran's Day), but EUR/USD held on to the move below 1.07 from earlier in the session. The EUR was one of yesterday's biggest losers, not only vs USD but also against Scandies. The Brent oil price fell close to 3% but NOK/SEK barely moved, currently trading just above 0.98.

Daily Pivots: (S1) 0.9367; (P) 0.9383; (R1) 0.9405; More....

EUR/CHF continues to trade inside converging triangle and intraday bias remains neutral. On the downside, break of 0.9331 will target 0.9305 support first. Firm break there will bring retest of 0.9209 low. On the upside, break of 0.9444 will bring stronger rally to 0.9506 resistance next.

In the bigger picture, fall from 0.9928 is seen as part of the long term down trend. Repeated rejection by 55 D EMA (now at 0.9419) keeps outlook bearish for breaking through 0.9209 low at a later stage. Nevertheless, sustained trading above 55 D EMA will confirm medium term bottoming at 0.9209 and bring stronger rebound back towards 0.9928 key resistance.

Daily Pivots: (S1) 1.3903; (P) 1.3927; (R1) 1.3949; More...

Sideway trading continues in USD/CAD below 1.3958. Intraday bias stays neutral, but further rise is is expected as long as 1.3822 support holds. On the upside, decisive break of 1.3976 key resistance will confirm larger up trend resumption. On the downside break of 1.3822 support will bring deeper pullback towards 55 D EMA (now at 1.3755).

In the bigger picture, sideway consolidation pattern from 1.3976 (2022 high) might still extend further. While another decline cannot be ruled out, strong support should emerge above 1.2947 resistance turned support to bring rebound. Rise from 1.2005 (2021 low) is still in favor to resume at a later stage. Decisive break of 1.3976 will target 61.8% projection of 1.2401 to 1.3976 from 1.3418 at 1.4391.

Daily Pivots: (S1) 0.6559; (P) 0.6579; (R1) 0.6594; More...

Intraday bias in AUD/USD stays neutral at this point. Further rise is mildly in favor as long as 0.6551 short term bottom holds. Above 0.6687 will target 61.8% retracement of 0.6941 to 0.6511 at 0.6777. On the downside, break of 0.6511 will resume the fall from 0.6941 instead.

In the bigger picture, rise from 0.6269 (2023 low) should have completed with three waves up to 0.6941. Corrective pattern from 0.6169 (2022 low) is now extending with another falling leg. Deeper decline would be seen back to 0.6269 as sideway trading extends.

Daily Pivots: (S1) 152.93; (P) 153.44; (R1) 154.25; More...

Intraday bias in USD/JPY remains neutral as sideway trading continues below 154.70. Further rise is expected as long as 151.27 support holds. Above 154.70 will resume the rally from 139.57 towards 161.94 high. However, considering bearish divergence condition in 4H MACD, break of 151.27 will indicate short term topping, and turn bias back to the downside for 55 D EMA (now at 149.89).

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.

Daily Pivots: (S1) 0.8770; (P) 0.8790; (R1) 0.8790; More…

Intraday bias in USD/CHF remains on the upside for the moment. Current rally from 0.8374 is in progress for 61.8% retracement of 0.9223 to 0.8374 at 0.8899. Sustained trading above there will pave the way towards 0.9223 high. On the downside, below 0.8773 support will turn intraday bias neutral again and bring consolidations first, before staging another rally.

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) 1.0614; (P) 1.0671; (R1) 1.0713; More...

Intraday bias in EUR/USD stays on the downside at this point. Sustained trading below 61.8% projection of 1.1213 to 1.0760 from 1.0936 at 1.0656 will extend the fall from 1.1213 to 100% projection at 1.0483. On the upside, above 1.0727 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.0760 support turned resistance holds.

In the bigger picture, price actions from 1.1274 (2023 high) are seen as a consolidation pattern to up trend from 0.9534 (2022 low), with fall from 1.1213 as the third leg. Downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404, to bring up trend resumption at a later stage.

Daily Pivots: (S1) 1.2841; (P) 1.2884; (R1) 1.2911; More...

GBP/USD's breach of 1.2833 temporary low suggests that fall from 1.3433 is resuming. Intraday bias is back on the downside for 61.8% retracement of 1.2298 to 1.3433 at 1.2732. Sustained break there will pave the way towards 1.2298 key support. On the upside, above 1.3008 resistance will turn intraday bias neutral again first.

In the bigger picture, considering mildly bearish divergence condition in D MACD, a medium term top is likely in place at 1.3433 already. Price actions from there are seen as correction to whole up trend from 1.0351 (2022 low). Deeper decline would be seen 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.

Dollar strength and European weakness is currently the main theme in the markets this week so far. The greenback shrugs off strong risk-on sentiment, as reflected in another day of record closes in major US indexes, with strong momentum against Euro and Swiss Franc.

A lineup of Fed officials today will provide commentary that could shed light on the central bank’s stance as markets look for cues about its policy easing pace moving forward. However, the most anticipated event remains tomorrow’s US CPI release. While another 25bps cut is widely expected in December to round up the year, the outlook for rate reduction in 2025 remains highly uncertain.

Meanwhile, Sterling is also on the verge of breaking to new low against the greenback. Focuses is now on UK job data today, with attention particular on wages growth. Euro will also look into ZEW economic sentiment, which might reveal some reactions to US elections.

Commodity-linked currencies are among the stronger performers this week, after Dollar, supported by the prevailing risk-on environment. Meanwhile, Yen is mixed in the middle.

Technically, a focus for rest of the week is whether Euro's decline will persist and if Yen can extend its near term rebound. EUR/JPY is now pressing 55 D EMA (now at 106.33). Sustained trading below there would argue that the corrective rise from 154.40 has completed with three waves up to 166.67. In this case, near term outlook will be turned bearish for 155.14/154.40 support zone.

In Asia, at the time of writing, Nikkei is down -0.98%. Hong Kong HSI is down -2.81%. China Shanghai SSE is down -0.93%. Singapore Strait Times is down -0.95%. Japan 10-year JGB yield is up 0.0022 at 1.004. Overnight, DOW rose 0.69%. S&P 500 rose 0.10%. NASDAQ Rose 0.06%. 10-year yield rose 0.002 to 4.308.

Australian Westpac consumer sentiment jumps 5.3%, but US election casts shadow on outlook

Australian consumer sentiment saw a solid rebound in November, with Westpac Consumer Sentiment Index climbing by 5.3% mom to reach 94.6. This marks a 14.4% rise from its mid-year low, leaving it just 5.4 points shy of the neutral 100 mark.

The improvement was led by increased optimism about the short-term economic outlook. The "economic outlook, next 12 months" sub-index jumped 8.7% to 100.9, the first optimistic reading (above 100) since post-COVID recovery. Confidence around personal finances also strengthened, with the "family finances, next 12 months" sub-index up 4.4% to 104.1. Meanwhile, Unemployment Expectations Index dropped by -7.2% to 120.5, indicating the highest level of labor market confidence since April 2023.

Westpac noted three important observations in November's sentiment trends. First, confidence reached 99.7 in the early survey period, prior to RBA’s rate decision, reflecting marked optimism. Secondly, consumer sentiment remained unaffected by RBA's decision to hold rates steady. Lastly, sentiment dropped sharply after US election result, averaging 91.1 in the survey’s latter half. This indicates an unusually wide range of ±5% for November's final read, suggesting a degree of uncertainty not typically seen.

Australian NAB business confidence surges to 5, easing cost pressures but persistent retail inflation

Australia's NABs Business Confidence Index jumped from -2 to 5, marking a notable improvement after a prolonged period of below-average sentiment. Business conditions remained stable at 7, while trading conditions saw a slight increase from 12 to 13. Profitability held steady at 5, and employment conditions edged lower from 5 to 3.

Gareth Spence, NAB’s Head of Australian Economics, highlighted the jump in confidence as an encouraging development, noting that it is “just one month” but shows "tentative improvement" in forward orders, suggesting possible momentum.

Input cost pressures continued to ease, with labor cost growth decelerating from 1.9% to 1.4% on a quarterly basis from 1.9%, and purchase cost growth slowing from 1.3% to 0.9%. Retail price growth, however, saw a rebound, rising from 0.6% to 1.1%.

Spence noted, "The survey, like other price indicators, continues to suggest an ongoing gradual easing in inflation pressure, but also that there is still some way to go in in the inflation moderation when we look at the consumer facing components”.

Bitcoin extends powerful rally amid "Trump Pump" optimism, ready for 100k milestone

Bitcoin's robust rally continues at the start of this week, buoyed by the so-called "Trump Pump" effect. Cryptocurrency investors are optimistic about US President-elect Donald Trump's promises to create a more supportive and friendly regulatory environment for crypto businesses.

The crypto market has long struggled with a lack of regulatory clarity, and these anticipated policy changes are fueling strong positive sentiment. Expectation of a more defined regulatory framework is encouraging both institutional and retail investors to increase their exposure to Bitcoin, driving further price appreciation.

Such optimism is expected to persist through the rest of 2024, with Bitcoin setting its sights on the significant 100k mark.

Technically, Bitcoin is in clear upside acceleration as seen in D MACD. The immediate focus is on 161.8% projection of 58846 to 73608 from 66763 at 90647. Break could push Bitcoin a bit further higher to 200% projection at 96287.

The real test lies in medium term level at 100% projection of 24898 to 73812 from 52703 at 101617, which is slightly above 100k psychological level. Strong resistance could be seen there to bring consolidations on first attempt.

Looking ahead

UK employment and Germany ZEW economic sentiment are the main feature in European session. Later in the day, US will release NFIB small business index, and Canada will puiblish building permits.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2841; (P) 1.2884; (R1) 1.2911; More...

GBP/USD's breach of 1.2833 temporary low suggests that fall from 1.3433 is resuming. Intraday bias is back on the downside for 61.8% retracement of 1.2298 to 1.3433 at 1.2732. Sustained break there will pave the way towards 1.2298 key support. On the upside, above 1.3008 resistance will turn intraday bias neutral again first.

In the bigger picture, considering mildly bearish divergence condition in D MACD, a medium term top is likely in place at 1.3433 already. Price actions from there are seen as correction to whole up trend from 1.0351 (2022 low). Deeper decline would be seen 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.

• We expect the RBNZ will cut the OCR by a further 50bps to 4.25% at its November Monetary Policy Statement meeting.
• The RBNZ will likely indicate increased confidence that pricing and wage setting behaviour will quickly normalise now that annual CPI inflation is close to 2%.
• The RBNZ’s projections will likely suggest further OCR cuts in 2025 and a 3.5% OCR by year-end (around 35bps lower than they forecast back in August). The RBNZ’s terminal rate will likely still be in the 3-3.5% zone after 2025.
• Near-term CPI projections should be revised down modestly, reflecting the better starting point.
• We are not expecting major changes to the Bank’s economic growth projections, although recent improvements in commodity prices and a slightly more front-loaded easing cycle might lift near-term growth at the margin.
• The RBNZ will likely acknowledge the elevated geopolitical risks associated with political change in the US, which could impact the NZD and tradable inflation going forward. Few conclusions will be drawn given the significant uncertainties.

RBNZ decision and associated communication – our baseline scenario.

Our baseline scenario sees the RBNZ cutting the OCR by 50bp to 4.25% at its November policy meeting. We also expect that the RBNZ will revise down their OCR forecast profile to be consistent with the OCR reaching around 3.5% by the end of 2025 (compared with 3.85% in the August MPS).

At the end of this note we summarise key data and developments over the past few months. Based on the latest information to hand, we think the RBNZ will:

• express comfort that lower headline inflation (now at 2.2%y/y) gives confidence that price setting behaviour and inflation expectations will be consistent with inflation around 2% on an ongoing basis;
• explain that this confidence has allowed for more front-loading of the easing cycle, resulting in the OCR being cut by 50bps in October and again this month;
• note that recent activity and employment trends remain broadly in line with expectations;
• continue to point to elevated non-tradables inflation, so that restrictive conditions and a negative output gap remain appropriate for a while to squeeze out the last of those inflation pressures;
• acknowledge the riskier geopolitical environment, but draw no strong conclusions at this point aside from noting that NZ’s floating exchange rate will help buffer adverse external shocks that eventuate; and
• provide guidance that if the economic outlook evolves as anticipated, the pace of easing will slow in 2025 as the OCR draws closer to the neutral zone.

Alternative scenarios.

Around that baseline scenario, to which we attach a 50% probability, we see four other potential outcomes at next week’s policy meeting:

• Hawkish scenario (15% probability): 25bp cut. The RBNZ might opt for a smaller cut, noting that the starting point for the economy has not been quite as weak as depicted in the August MPS and that downside risks appear less prominent. As part of that scenario the RBNZ could revise up their neutral OCR to 3-3.25%, reflecting higher long-term interest rates in NZ and abroad. Risks around the exchange rate and the sustainability of weak tradable inflation could be highlighted, as could the more elevated pricing intentions trends in the ANZ’s business survey. Stronger NZ commodity export prices – especially dairy prices – could also be seen as supporting the medium-term outlook.
• Moderately hawkish scenario (20% probability): 50bp cut but only slightly reduced end-2025 OCR forecast. The RBNZ would signal ongoing cuts at the MPS meetings in the first half of 2025 but to an end 2025 level of around 3.75%, perhaps due to concerns that ongoing disinflation in tradables might be less sustainable given downside risks to the exchange rate. Signs of a rebound in activity in the housing market and business surveys might also cause the RBNZ to project a more cautious approach in 2025 as the neutral zone for the OCR approaches.
• Moderately dovish scenario (10% probability): 50bp cut and end 2025 forecast OCR revised down to market pricing levels of around 3.25%. The RBNZ could largely endorse market pricing, with a move towards a 3% terminal OCR projected to be largely completed by the end of 2025. The RBNZ would need to be willing to signal high confidence that wage and price setting behaviours have normalised, and that upside inflation risks seem modest.
• Dovish scenario (5% probability): 75bp cut. The RBNZ would be signalling high confidence that inflation will remain no higher than 2% and perhaps concern that the recovery in economic activity might be more sluggish than hoped. Thereafter, 50bp cuts would seem most likely at the February 2025 MPS and April MPR meetings as the OCR is pushed to 3% by mid- 2025. We don’t think the RBNZ would signal a move in the OCR below 3% in 2025 but the risks that this might ultimately be required could be noted. This could especially be the case if the RBNZ sees predominantly downside risks coming from recent geopolitical trends (e.g., China deflation, or an unjustified rise in global long-term interest rates).

Key developments since the August Monetary Policy Statement.

Key economic developments since the RBNZ’s last policy statement in August are noted below. We suspect that the RBNZ will conclude that activity and pricing indicators released since the August projections provide a basis for increased confidence that inflation will track close to the midpoint of the 1-3% target range on a sustained basis.

• Inflation: September quarter inflation was a touch softer than the RBNZ forecast (+2.2%yr vs August MPS forecast +2.3%). Lower tradables and especially energy prices explain much off the move lower in headline inflation. In contrast, non-tradables inflation has been easing more gradually, albeit with some clear progress lower once government charges are excluded. Lower tradables inflation means some chance the RBNZ will project headline inflation a little below 2% for a brief period.

• Inflation expectations/pricing indicators: On balance, most gauges of cost and pricing pressures are looking increasingly consistent with the RBNZ’s medium term target (the ANZ business survey’s pricing intentions index being in the notable exception). Similarly, surveys of inflation expectations are now back at levels consistent with the RBNZ’s inflation target or at least at around the levels normally seen when inflation is running close to the target midpoint.
• Activity: The 0.2% fall in June quarter GDP was not as weak as we or the RBNZ expected. More recently, business activity indicators have improved but remain subdued and so suggest another modest decline in GDP in Q3. However, we are seeing signs that the downturn in domestic activity is flattening off. For instance, retail spending has started to push higher since August and residential consent numbers appear to have found a base following sharp declines over the past couple of years. Forward sentiment indicators in the QSBO and ANZ business survey have continued to improve in recent months as respondents have factored more neutral policy settings into their forecasts.

• Labour market: The labour market is tracking no weaker than expected. The unemployment rate didn’t rise as much as the RBNZ feared (4.8% vs 5%) but employment growth and labour costs were a touch weaker than expected – the latter consistent with the slowdown in inflation seen in private sector services prices. Recent trends in filled jobs appear consistent with the RBNZ’s August forecast that employment will fall only modestly further in the current quarter. Any RBNZ concerns of a larger shakeout in the labour market have probably been assuaged by recent data (including more positive hiring intentions surveys, albeit advertised job vacancies are yet to improve).

• Housing market/population growth: House sales are yet to show much improvement from subdued levels, while house prices have continued to track sideways at best with prospective buyers able to select from a significant level of inventory. However, mortgage applications have picked up and both anecdotal evidence and housing surveys point to a prospective increase in activity over coming months. So, on balance we would not expect much change in the RBNZ’s forecasts for the housing market. That said, it is possible that the RBNZ might slightly lower its forecasts for net migrant inflows.
• Commodity prices/exchange rate: Overall, commodity prices are on the rise. That includes dairy prices, which have been bid up at the recent global dairy trade auctions (as reflected in Fonterra’s decision this week to raise its forecast milk payout for the current season). Prices for meat, New Zealand’s other major export category, have also lifted off the back of increasingly favourable demand and supply fundamentals. As noted below, there are some downside risks to the NZ dollar, although at present the trade-weighted exchange rate index (TWI) is trading slightly firmer than the 69.5 assumption made in the August MPS.
• Geopolitical developments: War in the Middle East has intensified but to date oil prices haven’t been impacted and risk sentiment remains strong. The key development is Trump’s resounding win in the US presidential election and Republican control of the Senate and (likely) the House. Global markets have moved to price in the expected impact of Trump’s relatively unimpeded policy program. The implications are higher US growth, inflation, interest rates and the US dollar, although the exact magnitude is uncertain. For New Zealand, developments on the global stage signal potentially significant risks to export incomes over the medium-term. We may see short-term downside risks to energy and import prices should Russian oil be better able to reach global markets through eased sanctions after a brokered ceasefire in Ukraine, and if Chinese manufactured goods need to find an alternate destination due to US tariffs. However, short-term inflation benefits could be at least partially offset by a weaker NZD. On balance these developments confer more risk to the outlook which could make the RBNZ more cautious on the medium-term inflation outlook.