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Next week’s Bank of Canada interest rate decision itself is unlikely to be a surprise. The BoC is widely expected to hold the overnight rate steady at 5% for the third meeting in a row. But the statement will be watched closely for signs that a slowing economy and easing inflation pressures are shifting future interest rate cuts into focus.

The BoC will remain mindful of inflationary risks and retain the option to move interest rate higher. But we don’t see that as likely to be necessary. Canadian inflation data has looked decidedly better . Headline CPI growth at 3.1% (year-over-year) in October was just a touch above the top end of BoC’s 1%-3% inflation target range. The Bank’s current preferred “core” inflation measures have also showed improvements – the ‘old’ CPIX core measure (which excludes mortgage interest costs along with 7 other volatile price components) has slowed to 2.8% year-over-year and an annualized 2.1% over the last three months. Moving forward, sluggish economic data should reinforce that slowing price pressures will persist. That includes a sizable downside surprise in Q3 GDP growth (-1.1% q/q annualized relative to -0.5% expected by RBC and +0.8% expected by the BoC) and softening labour market conditions with the unemployment rate rising to 5.8% in November from 5% earlier in spring.

With evidence building that the economy is softening, focus has shifted from whether additional interest rate hikes will be needed to how long before the first cuts. While we’re expecting a dovish lean from the BoC relative to past interest rate decisions, and Governor Macklem himself has said that past rate hikes may have been enough to slow inflation to target, we don’t see the BoC rushing to cutting rates. Lower inflation prints over the late fall were welcome but followed a string of “sticky” core inflation readings. We expect the BoC will stay on hold through the first half of 2024 before moving to rate cuts in Q3 next year.

Week ahead data watch

November’s U.S. employment report likely revealed more softness in the labour market. We expect the unemployment rate to tick up again (+0.1%) in November to reach 4%. Employment likely grew by 185K, slightly higher than the 150K in the prior month but with return of workers from the UAW strike accounting for 30K workers of that gain. Broadly speaking, we expect labour demand will continue to slow, and for that to ease wage pressures further.

The Canadian trade surplus likely narrowed in October, given oil prices (-4.3%) were lower during that month, resulting a negative trade balance in the energy sector. September saw a large pullback in exports of metal and non-metallic mineral products, reversing part of the strength in that component in August.

Advance indicators showed the U.S. goods deficit likely widened by $3B in October, led by lower exports of consumer (-9.1%) and auto goods (-7.3%). Imports went up for capital goods (2.5%) during that month.

• RBA is expected to hold rates in December after hiking last month
• But will it signal future hikes or will it turn more cautious?
• After soft CPI, RBA’s decision on Tuesday, 3:30 GMT, poses a risk for the aussie

New governor has been beating the hawkish drum

The Australian economy has been gradually losing steam all year and GDP data due on December 6 is likely to show that growth slowed further in the third quarter. Rising borrowing costs for households and businesses, combined with the patchy recovery in China, were a major factor why former RBA Governor Philip Lowe was more comfortable to stand pat than his successor Michele Bullock.

Under Bullock’s leadership, which began in mid-September, there’s been a very notable hawkish tilt in RBA policy even though the economic data has been mixed. It’s fair to say that the recent uptick in the consumer price index as well as the acceleration in wage growth have been at the forefront of policymakers’ minds.

Is the surprise drop in CPI a game-changer?

But inflation appears to be heading lower again. Monthly CPI edged down to 4.9% y/y in October after rising by 5.6% in September. The October picture isn’t entirely positive, however, as one of the core metrics – trimmed mean CPI – fell only modestly to 5.3%. In addition, the labour market remains very tight. The jobless rate has stayed below 4.0% since April 2022, while wages are rising at the fastest pace since 2009, hitting 4.0% y/y in the third quarter.

Until there is clearer evidence that inflation is resuming a downward course or that wage pressures are cooling, it’s unlikely that there will be much change in the language coming from the Reserve Bank of Australia on Tuesday. However, if the statement makes reference to the softer-than-anticipated CPI read, that would suggest an increased caution against further hikes.

Markets not fully convinced by RBA’s hawkish shift

Investors see a less than 5% probability of a rate increase in December, which rises to around 40% by March. But that’s sharply lower than the more than 60% probability priced in before the latest CPI numbers came out.

When looking at Bullock’s comments more closely, however, another rate hike cannot be ruled out, even after the bigger-than-expected drop in CPI. Although higher rates have started to bite for consumers and it’s too soon for Australian exporters to turn optimistic again on China, the slowdown in the economy hasn’t been as bad as initially feared and there’s also the strong housing market to consider.

Yet, most investors seem to be betting on inflation falling further by the time the RBA next meets in February 2024 and unless CPI were to turn higher again, fresh hawkish remarks by Bullock will likely do little in boosting rate hike odds.

Aussie propped up by soft US dollar

For the Australian dollar, however, the CPI-induced losses didn’t last long as the US dollar is under even more pressure from a weakening inflation landscape. Traders think a dovish pivot by the Fed is just around the corner and that looks set to keep a lid on any gains for the greenback.

As things stand, the monetary policy divergence would still favour the aussie even if the RBA doesn’t have to raise rates again. The aussie has currently found support around the 38.2% Fibonacci retracement of the February-October downleg at just above the $0.6600 level. A renewed push upwards could see the 50% Fibonacci of 0.6713 being tested before making an attempt for the double top near $0.6900 from June and July.

But in the event that investors turn bearish on the aussie, the $0.6500 level will be a crucial support to watch before attention turns to the 50-day moving average at $0.6426.

• Investors looking to US NFPs for confirmation of their Fed rate cut bets
• RBA could still signal that higher rates are possible
• But BoC may confirm that interest rates have peaked in Canada
• Japan’s Tokyo CPIs and employment numbers to impact BoJ speculation

Will the US jobs report change the dollar’s fate?

The US dollar has been suffering lately on increasing bets that the Fed will cut rates massively next year. The latest strong hit came from Fed Governor Waller earlier this week, who said that if the decline in inflation continues for several more months, they could start lowering the policy rate. This was the first time a Fed official, and particularly a hawkish one, discussed the possibility of a cut and that’s why market participants added to their rate cut bets, with a 25bps cut now being fully priced in for May and the total number of basis points of rate cuts expected for next year increased from 90 to around 115.

As they try to incorporate every new information into their forecasts, next week, investors are likely to turn their attention back to economic data as Fed officials enter the usual pre-meeting blackout period, and thus, there will be no more speeches. On Tuesday, the ISM non-manufacturing PMI for November and the JOLTS job openings for October are coming out, while on Wednesday, the ADP report for November may be scrutinized ahead of the highlight of the week, the official employment report for November.

The report is expected to show that the unemployment rate held steady at 3.9% and that nonfarm payrolls increased by 175k in November from 150k in October. Currently, there is no forecast for average hourly earnings. A 3.9% jobless rate and a slight acceleration in the nonfarm payrolls are unlikely to shake much market expectations with regards to several rate reductions by the Fed next year. For that to happen, these numbers may need to be accompanied by a reacceleration in wages.

This could spark some fear that inflation could pick up steam in the months to come, thereby prompting the Fed to keep interest rates high for a longer period than currently anticipated. On the other hand, a further slowdown in wages could solidify investors’ belief and push the dollar lower. After all, lately, market moves suggest that investors are selling the dollar more aggressively when data or headlines corroborate their view, than buying it when there are indications supporting the opposing ‘higher for longer’ case.

Aussie awaits RBA decision, Australia’s GDP and Chinese data

At its November meeting, the RBA raised interest rates, citing more persistent inflationary pressures. Nonetheless, in the accompanying statement, there was an element of uncertainty about whether another rate hike may be needed. This resulted in a drop in the Aussie, as heading into the meeting there was confidence that another quarter-point hike may be in the works for the turn of the year.

That said, with the new Governor, Michele Bullock sounding hawkish thereafter, and the minutes of that meeting revealing concerns about high inflation, investors kept some rate hike bets on the table. Even after the monthly y/y CPI rate for October dropped by more than expected on Wednesday, investors continue to assign a decent 40% probability for another hike by March.

Perhaps that’s because the closely watched trimmed mean CPI only ticked down to 5.3% y/y from 5.4%, which is still well above the upper bound of the RBA’s 2-3% objective and/or because the monthly CPI data does not show all the components included in the quarterly CPI. In other words, the quarterly reading is a more reliable inflation metric. The q/q CPI rate for Q4 will be available on January 31. What’s more, the Wage Price Index for Q3 rose to 4.0% from 3.6%, which implies upside risks to inflation in the months to come.

With all that in mind, the RBA is more likely to stand pat on Tuesday, but it is unlikely to clearly signal that this hiking cycle is over. Officials are likely to maintain the view that interest rates could further rise if needed, which could allow the aussie to extend its recovery against the US dollar.

That said, the aussie may not be driven only by the RBA decision next week, as on Wednesday, Australia’s GDP for Q3 is scheduled to be released. The forecast is for a slowdown to 0.3% q/q from 0.4%, which could reignite some speculation that the RBA is done raising rates, even if just the previous day policymakers signal readiness to do more. On Thursday, Australia’s and China’s trade numbers will be released, while on Saturday, China publishes its CPI and PPI data. Given the close trade ties between Australia and China, more signs that the world’s second-largest economy is bottoming out could allow the aussie to continue marching north.

Will the BoC signal the end of this tightening crusade?

There is another central bank decision on next week’s agenda: The Bank of Canada on Wednesday. When they last met, policymakers of this Bank held interest rates steady, citing moderating spending and relieving price pressures. However, they remained prepared to raise the policy rate further if needed.

Since then, data have been coming out on the soft side with the unemployment rate rising to 5.7% from 5.5% in October, the employment change revealing that the economy added less jobs than forecast during the month, and inflation cooling more than expected. This combined with Thursday’s GDP data for Q3 pointing to a contracting economy has led investors to price in around 105bps worth of rate cuts by the end of 2024.

Although officials are unlikely to confirm the market’s view of so many bps worth of cuts, they could signal that they are done raising interest rates, which could hurt the loonie.  Just last week, BoC Governor Macklem said that interest rates may be at their peak, given that excess demand has vanished, and weak growth is expected to persist for months.

Japanese data could fuel speculation about a BoJ policy exit soon

It will be an interesting week for yen traders as well, as during the Asian session Tuesday, Japan’s Tokyo CPI figures are due to be released, while on Thursday, the final estimate of Q3 GDP and the employment report are coming out. The final estimate of GDP is forecast to confirm that the economy shrank 0.5% in Q3, but if the Tokyo CPIs, which are closely correlated with the National numbers, point to further acceleration in inflation, and the jobs data reveal another pick up in wages, then speculation that the BoJ could exit ultra-loose monetary policy conditions soon is likely to intensify, thereby adding more fuel to the yen’s engines.

This week, inflation came in below expectations in the euro area and the US. In the euro area, headline inflation fell much more than expected to 2.4% y/y (consensus: 2.7% y/y) in November from 2.9% in October. The decline was broad-based as core inflation ticked down to 3.6% from 4.2%. Remarkably, the monthly change in core inflation was -0.15% m/m seasonally adjusted. This was a major surprise as the previously sticky service prices also fell in the month. Markets reacted quickly and priced in an extra full 25bp cut in the ECB deposit rate next year thus seeing it at 2.75% in December 2024. We think it is still too early to declare victory over inflation as wage growth is strong and expect just three 25bp cuts next year starting in June, which will bring the policy rate to 3.25%.

In the US, PCE inflation was slightly lower than expected in October at 3.0% y/y (consensus 3.1%, prior: 3.4%). Underlying inflation continued to ease as the Fed's preferred measure, core services PCE inflation, slowed down in both m/m (+0.21%) and y/y (+4.6%) terms. This signals that the Fed continues to make progress on cooling underlying inflation.

The Chinese PMIs sent mixed signals for activity in November. The official PMIs from NBS were weaker than expected while the private version from Caixin pointed to improvements in manufacturing. We lean more towards the Caixin index painting the right picture and expect further improvements in the manufacturing sector over the coming months. Regarding the service sector, it is a concern that the NBS continues to weaken if it reflects low private consumption. To support domestic demand, both the Chinese central bank and government agencies unveiled measures to support financing for the private sector this week and we expect more to come.

OPEC+ decided to keep status quo on production in a signal that we should not expect deeper cuts in production. Going forward, we expect the oil market to be in the hands of global growth and the dollar and look for Brent to average USD80-85/bbl.

The Reserve Bank of New Zealand (RBNZ) kept the policy rate unchanged at 5.50% as expected this week. The RBNZ communicated a hawkish stance by signalling a longer hold and slower rate cuts than previously. The RBZN now sees the first rate cut in Q2 2025.

Next week, focus will be on US data releases with both the November jobs report, ISM services, and the University of Michigan survey scheduled. We expect a further cooling in non-farm payrolls on Friday to +140k and see average hourly earnings growth stable at 0.2%. Markets will keep a close eye on the Michigan survey on Friday after two consecutive months of rising short-term inflation expectations. We also have several central bank meetings next week in Poland, Canada, and Australia. We expect unchanged policy rates from all three.

China and EU will have the first face-to-face summit in years which may attract some attention on Thursday and Friday. From China, we receive the November trade data on Thursday that will give clues as to whether global manufacturing recession is easing. On Tuesday, we closely follow the Caixin service PMIs after the weak NBS service PMIs.

On Tuesday, we publish new macroeconomic projections for the Nordic countries as well as the euro area, US, China, and UK in our Nordic Outlook publication.

• Gold flatlines near former resistance
• Short-term bias leans to the downside
• Key support levels hold intact

Gold shifted to the sidelines following the advance towards its May 2023 resistance of 2,051 on Wednesday.

The 20-period simple moving average (SMA), which has been cooling downside pressures recently, seems to be cracking at 2,038, but the support trendline drawn from November’s lows could still come to the rescue at 2,027 despite the negative trajectory in the RSI and the MACD. Then, the resistance-turned-support region of 2,006 might prevent an outlook deterioration ahead of the 200-period SMA at 1,983.

Alternatively, should the bulls set another strong footing around the 20-period SMA, they may push for a close above the 2,050 ceiling. A successful penetration higher could initially stall near the resistance line from September 2023 at 2,065 before heading for the 2023 record high of 2,079. If buying interest persists, the uptrend could gain new legs in the uncharted territory, likely bringing the 261.8% Fibonacci extension of the latest downleg at 2,126 under the limelight.

In summary, gold is preserving an upward trajectory in the short-term timeframe. While the falling technical indicators are reflecting some discomfort among traders, only a pullback below 2,006 would officially violate the positive structure. 

Markets:

Today’s waiting game ahead of the November US manufacturing ISM and Powell’s final public appearance ahead of the blackout period before the December 13 FOMC meeting freed up time to take a look at some of the key asset classes’ November performance. It’s stating the obvious that bonds after three years of mainly gloom turned out big winners. US Treasuries clearly outperformed German Bunds which in their turn performed better than UK Gilts. US Treasury yields lost 40 bps (2-yr) to 60 bps (10-yr & 30-yr) on a monthly basis. Investors embraced softer payrolls growth, the ongoing disinflationary process and Fed comments as evidence of the goldilocks safe landing scenario. At the end of October, they still pondered the possibility of a final rate hike early next year (50% probability at the January meeting) with an end of 2024 policy rate expected around 4.5%-4.75%. One month later, we’re talking about a fully discounted first rate cut at the May meeting with a prognosed EoY policy rate of 4%-4.25%. German Bunds followed US Treasuries with monthly changes varying between -20 bps (2-yr) and -40 bps (30-yr). A first 25 bps ECB rate cut is now discounted by the April 2024 meeting from the June meeting one month ago. Investors see the ECB policy rate now clearly below 3% by the end of next year compared to a level of 3.25% at the end of October. UK gilt yields lost 17.5 bps (2-yr) to 34 bps (10-yr) with Bank of England members being the most vocal in pushing back against market pricing of a rapid central bank pivot. Overall, we don’t believe that the big central bankers will have the scope for policy rate cuts before H2 2024 with the Fed in pole position to be a frontrunner in the cycle. Monthly yield differentials and the positive risk climate in help explaining sterling’s outperformance against the euro and the dollar. EUR/GBP ended the month at 0.8625 from 0.8707. Cable (GBP/USD) rallied from 1.2153 to 1.2624. EUR/USD went from 1.0575 to 1.0888 with a small stay above 1.10 (first time since mid-August) in between. The trade-weighted dollar (DXY) faced losses of 3%. The S&P 500 rallied by almost 9% with the Nasdaq adding 10.70%. Both tested the 2023 top. The EuroStoxx50 added nearly 8% over the reference period.

News & Views:

Q3 growth in the Czech Republic surprised again on the downside. After marginal growth of 0.1% Q/Q in Q1 and Q2, activity contracted by a bigger than expected 0.5% Q/Q in the July-September quarter. Activity was 0.7% below the level in the same period last year. Household consumption declined by 0.3% Q/Q, but financial consumption expenditure overall (+0.7 Q/Q) was supported by strong demand from the public sector (1.2%). Gross capital formation declined by 1.8% Q/Q. Both fixed investment (-0.3%) and especially changes in inventories contributed negatively as was the case for external demand. Also today, the Czech manufacturing PMI at 42.0 (from 41.7) indicates an ongoing contraction in the sector in Q4. This keeps the Czech economy on the brink of a potential recession in the second half of this year. Poor activity data and sluggish (foreign & domestic demand) might support the case for the Czech National Bank to start (CNB) its easing cycle already at the December 21 meeting. Even so, a rate cut, if any, will probably be limited (25 bps) as the CNB wants to be sure that price setting at the start of the new year won’t support an upward price spiral.

The November Canada labour market report was mixed to slightly stronger than expected. The economy added 24.9k jobs (net), slightly more than the 14k expected. Growth was due to a substantial rise in full time jobs (+ 59.6k). Part time employment declined. Employment increased in manufacturing (+28k) and construction (+16k), but declined in the services sector (-13.4k). Still the unemployment rate rose slightly from 5.7% to 5.8% on a further increase of the labour force. Total hours worked declined 0.7% M/M but were still 1.3% higher on a Y/Y-basis. The hourly wage growth rate for permanent employees was unchanged at 5%. Even as the BoC still has a tightening bias due to persistent core inflation, today’s report will allow it to keep a wait-and-see approach at next week’s policy meeting. The loonie gains marginally after the release of the report (USD/CAD 1.3525), extending its recent gradual rebound against the dollar.

US ISM Manufacturing PMI was unchanged at 46.7 in November, missed expectation of 47.7. Looking at some details, new orders rose from 45.5 to 48.3. Production fell from 50.4 to 48.5. Employment fell from 46.8 to 45.8. Prices rose from 45.1 to 49.9.

ISM said: "The past relationship between the Manufacturing PMI and the overall economy indicates that the November reading (46.7 percent) corresponds to a change of minus-0.7 percent in real gross domestic product (GDP) on an annualized basis."

Full ISM Manufacturing release here.

The Canadian labour market added 24.9k positions in November, with full-time employment up 59.6k and part-time employment down 34.7k.

The unemployment rate rose 0.1 percentage point to 5.8% and the participation rate was unchanged at 65.6%.

Employment by sector showed gains in manufacturing (+28k) and construction (+16k), while losses were seen in wholesale/retail trade (-27k) and finance, insurance, real estate, rental and leasing (-18k).

Lastly, total hours worked fell 0.7% month-on-month and wages were up 4.8% year-on-year (flat versus October).

Key Implications

Today's job gain was quite healthy with full-time jobs in the cyclically sensitive private sector driving the increase. But still, the 25k increase in the net number of Canadians finding jobs again failed to keep up with the 78k increase in population and the 36k boost to the labour force. The number of unemployed Canadian workers continues to grow (197k increase over 2023), forcing the unemployment rate higher again. As we have been talking about for some time, there are factors in the Canadian economy that will provide a buffer for the job market (see construction hiring), which is keeping the soft-landing scenario on track.

Today's report alongside yesterday's negative GDP print will be enough for the Bank of Canada (BoC) to hold its policy rate steady when it meets next week. While we aren't expecting the BoC to signal victory, the Bank will be able to project greater confidence that the process is working. This rhetoric will likely continue over the coming months, before it switches gears and starts to signal the beginning of rate cuts in the spring.

Daily Pivots: (S1) 1.3532; (P) 1.3579; (R1) 1.3606; More...

Intraday bias in USD/CAD remains on the downside at this point. Current fall from 1.3897 is in progress, and should target 1.3378 support next. On the upside, though, above 1.3625 minor resistance will turn intraday bias neutral again first.

In the bigger picture, corrective pattern from 1.3976 (2022 high) should have completed with three waves down to 1.3091. Decisive break of 1.3976 high will confirm resumption of up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3091 at 1.4064. This will remain the favored case as long as 1.3378 support holds.

Canadian Dollar is firming slightly up in early US session, bolstered by stronger-than-expected Canadian job growth data. Despite the weakness in oil prices following disappointment over OPEC's production cut decisions, Loonie is displaying resilience. However, in the weekly performance chart, while Canadian Dollar is outshining Australian Dollar, it still lags behind the New Zealand Dollar (Kiwi).

In contrast, Euro is on track to be the week's weakest performer, with fresh selling pressure emerging. There is a potential for extending the selloff in the near term, particularly as EUR/GBP and EUR/AUD break through key near-term support levels. A critical point of focus in the currency markets is whether EUR/USD will manage to defend 1.0851 support level.

Turning to Dollar, it remains the second worst performer of the week. The market is anticipating Fed Chair Jerome Powell's final speech before Fed's blackout period. But it is unlikely that he will deliver any significant new information. From this point forward, the Dollar's trajectory is expected to be heavily data-dependent, leading up to FOMC rate decision on December 23. Key data releases that will likely influence Dollar's movement include today's ISM manufacturing data, next week's ISM services and non-farm payroll reports, and CPI data in the following week.

In Europe, at the time of writing, FTSE is up 0.64%. DAX is up 0.71%. CAC is up 0.25%. Germany 10-year yield is down -0.0115 at 2.437. Earlier in Asia, Nikkei fell -0.17%. Hong Kong HSI fell -1.25%. China Shanghai SSE rose 0.06%. Singapore Strait Times rose 0.56%. Japan 10-year JGB yield rose 0.0256 to 0.700.

Canada's employment rises 24.9k in Nov, unemployment rate ticks up to 5.8%

Canada's employment grew 24.9k in November, better than expectation of 14.2k.

Unemployment rate rose from 5.7% to 5.8%, matched expectations, and continuing an upward trend observed since April.

Total hours worked fell -0.7% mom and were up 1.3% on a year-over-year basis.

On a year-over-year basis, average hourly wages rose 4.8%, similar to the increase recorded in October.

UK PMI manufacturing finalized at 47.2, recovery remains elusive

UK PMI Manufacturing was finalized at 47.2 in November, up notably from October's 44.8. This marks the third consecutive month of rising PMI figures and the highest level since May.

Despite these gains, it is important to note that the PMI has remained below the neutral 50 mark for 16 consecutive months, indicating a prolonged period of contraction in the manufacturing sector.

Rob Dobson, Director at S&P Global Market Intelligence, commented, "Although the downturn in production eased sharply in November, the latest PMI report brings little festive cheer when the finer details are considered."

Dobson pointed out that despite improvement in production, the sector faces ongoing challenges. These include sharp declines in new order inflows and exports, along with clients destocking, which collectively suggest that a robust and sustained revival in meaningful growth is not yet on the horizon.

Dobson also noted, "Manufacturers are preparing for tough times ahead, with their continued caution leading to cutbacks in staffing, inventories, and purchasing."

Eurozone PMI manufacturing finalized at 44.2, continuing contraction, but slower

Eurozone's PMI Manufacturing was finalized at 44.2 in November, up from October's 43.1, reaching a six-month high. The report highlights reduction in the rate of decline for new orders, stocks, and purchasing activity, yet underscores a concerning trend of increasing employment cuts.

Breaking down the performance across Eurozone member states, Greece emerged as the only country in expansion, with PMI of 50.9. Ireland remained stable at 50.0. In contrast, other major economies like Spain (46.3), the Netherlands (44.9), Italy (44.4), France (42.9), Germany (42.6), and Austria (42.2) all registered figures indicative of ongoing contraction in their manufacturing sectors.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said, "November has not been the prettiest." He noted the continuous decline in output and the trend of workforce reductions extending for six months. While acknowledging slight improvements in various sub-indices, de la Rubia pointed out that these are insufficient to signal a robust upward trend, describing them as "timid" and lacking the necessary dynamism.

De la Rubia also highlighted the divergent conditions within the top four Eurozone economies, with Germany uniquely showing a softening in output decline. In contrast, the situation appears to be worsening in other major economies.

He emphasized, "A crucial barometer for the recovery's onset will likely be a more synchronized upward movement in the economies PMI indexes, leading to a self-reinforcing reciprocal push among countries."

Swiss GDP rises 0.3% qoq in Q3, services provides support

Swiss GDP grew 0.3% qoq in Q3, above expectation of 0.1% qoq. SECO said: "The international environment remains challenging, with value added in industry stagnating accordingly. However, the service sector was once again able to provide a support."

China's Caixin PMI manufacturing rises to 50.7, back to growth amidst challenges

China's Caixin PMI Manufacturing index climbed from 49.5 to 50.7 in November, surpassing the expected 49.3. According to Caixin's release, this improvement is attributed to sustained rise in total new work, which helped push production back into growth territory. Additionally, there was softer reduction in employment and uptick in business confidence, reaching a four-month high.

Wang Zhe, Senior Economist at Caixin Insight Group, noted, "Overall, the manufacturing sector improved in November." He cited several factors contributing to this improvement: expansion in supply and demand, stable prices, improved logistics, increased purchasing quantities, and a more optimistic outlook among manufacturers. However, he also pointed out some ongoing challenges, such as sluggish external demand, weak employment, and cautious inventory management by manufacturers.

Wang also commented on the broader macroeconomic context, stating, "The macro economy has been recovering." He observed improvements in household consumption, industrial production, and market expectations. Despite these positive signs, he cautioned that both domestic and foreign demand remain insufficient, employment pressures are high, and the economic recovery is still searching for a solid footing.

Japan's PMI manufacturing finalized at 48.3, contraction continues yet optimistic

November saw Japan's Manufacturing PMI finalized at 48.3, a slight decline from October's 48.7. This figure, reported by S&P Global, indicates a continued contraction in the manufacturing sector, with more pronounced decreases in output and new order inflows. The PMI reaching its lowest since February signals a challenging phase for the sector, primarily due to weakened demand both domestically and internationally.

Usamah Bhatti of S&P Global Market Intelligence commented on the sector's performance, noting, "The headline PMI slipped deeper into contraction territory, largely due to quicker deteriorations in output and new order inflows." He identified weak customer demand across both domestic and international markets as key factors behind this downturn.

On the inflation front, although inflationary pressures remained high, there was a noticeable easing. Input cost inflation slowed down to a three-month low, and selling price inflation reduced to its softest since July 2021. This easing in inflation suggests some relief in cost pressures for manufacturers.

Despite the current contraction, Japanese manufacturers are holding onto a sense of optimism for the future. Bhatti emphasized this positive outlook, stating, "Manufacturers remained optimistic that muted demand and production conditions would lift over the coming year." This confidence is underpinned by expectations of a boost in demand, spurred by new product launches, particularly in the semiconductor sector.

RBNZ's Hawkesby highlights inflation pressure from record migration

RBNZ Deputy Governor Christian Hawkesby provided insights into the central bank's current monetary policy and the economic outlook in an interview today. He discussed timing of rate cuts, and impact of rising immigration.

RBNZ's revised forecast does not foresee rate cuts until mid-2025. Explaining the rationale behind the delayed rate cuts, Hawkesby emphasized the need for RBNZ to ensure that inflation expectations are securely re-anchored. He also pointed out that the New Zealand economy had experienced overheating and now requires a period of cooling, marked by a negative output gap.

The interview also highlighted the impact of recent demographic shifts on the The RBNZ had initially perceived rising immigration as a mitigating factor for inflation risk, considering its potential to alleviate labor shortages and reduce wage pressure. However, Hawkesby revealed that the immigration surge has been more significant than anticipated, now contributing to increased demand in the economy.

Hawkesby remarked, "Net migration has peaked at higher levels, so that's news in itself, important news." He further explained that the "demand-side impacts" of this trend are becoming more evident. He added, "The fact you have got to house a bigger population and the impact that that has, particularly on rental inflation and things like that."

New Zealand's population witnessed a substantial increase of 2.7% in the year through September, the largest in over three decades, with net annual immigration reaching a record high of 118,835.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3532; (P) 1.3579; (R1) 1.3606; More...

Intraday bias in USD/CAD remains on the downside at this point. Current fall from 1.3897 is in progress, and should target 1.3378 support next. On the upside, though, above 1.3625 minor resistance will turn intraday bias neutral again first.

In the bigger picture, corrective pattern from 1.3976 (2022 high) should have completed with three waves down to 1.3091. Decisive break of 1.3976 high will confirm resumption of up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3091 at 1.4064. This will remain the favored case as long as 1.3378 support holds.

Economic Indicators Update