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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.

European majors are experiencing significant selling pressure today, with Euro leading the declines. Euro sharply depreciated as traders increased their bets on an aggressive 50 bps rate cut by ECB in December, following dismal PMI data. Market expectations for such a cut have surged to 50%, a substantial rise from around 15% just a day earlier. The region's services sector has now entered contraction, aligning with the manufacturing sector's prolonged recession. This economic downturn is further exacerbated by escalating geopolitical risks, notably the escalation of the Ukraine war, and the looming threat of tariffs from US President-elect Donald Trump. These factors intensify the urgency for ECB to accelerate its monetary easing towards a neutral rate to support the faltering economy.

Sterling is also under substantial strain, weighed down by a larger-than-expected contraction in UK retail sales and disappointing November PMI readings. S&P Global observed that business sentiment in the UK has been declining since the general elections earlier this year. The Labour government's Autumn Budget failed to boost confidence, with sentiment instead plunging sharply. This suggests that the worst may still be ahead for the UK economy, as consumer spending weakens and businesses express growing concern over economic policies.

Swiss Franc initially spiked higher against Euro and Sterling earlier in the day. However, it reversed those gains after SNB Chairman Martin Schlegel emphasized that negative interest rates remain a possibility. The SNB is currently expected to cut interest rates by 25 basis points in December. Yet, the situation is fluid; a larger cut by ECB could prompt SNB to respond similarly to prevent excessive appreciation of the Franc. The complexity of this monetary chess game is heightened by the fact that both central banks will announce their decisions on the same day, December 12.

As the week nears its conclusion, Euro is the worst performer among major currencies, followed by Sterling and Swiss Franc. However, late-week developments could still alter this ranking. On the other hand, Canadian Dollar is firmly in the lead as the strongest currency, supported additionally by robust retail sales data. Australian Dollar and Japanese Yen follow, while Dollar and New Zealand Dollar occupy middle positions.

Canada retail sales rises 0.4% mom in Sep, 0.7% mom in Oct

Canada's retail sales rose by 0.4% mom in September to CAD 66.9B, slightly above market expectations of a 0.3% mom increase. Gains were observed in six out of nine subsectors, with food and beverage retailers leading the growth.

Core retail sales, which exclude gasoline and motor vehicle-related sectors, surged by a robust 1.4% mom, highlighting strength in consumer discretionary spending.

For Q3, retail sales climbed 0.9%, with a 1.3% increase in volume terms, suggesting solid economic activity during the period.

The advance estimate for October indicates a further 0.7% mom rise, reinforcing signs of resilience in consumer demand.

Eurozone PMI signals stagflation as both manufacturing and services contract

Eurozone economic activity weakened sharply in November, with PMI Manufacturing falling to 45.2 from 46.0 and PMI Services dropping to 49.2 from 51.6, pushing Composite PMI to a 10-month low of 48.1, down from 50.0. For the first time since January, both sectors recorded output declines, reflecting broader economic struggles.

Country-level data painted a bleak picture. France saw its Composite PMI drop to 44.8, with Manufacturing PMI at 43.2 and Services PMI at 45.7—both hitting 10-month lows. Germany's Composite PMI fell to 47.3, a 9-month low, with Services PMI sliding into contraction at 49.4 despite a slight improvement in Manufacturing PMI, which edged up to 43.2.

Cyrus de la Rubia of Hamburg Commercial Bank highlighted "stagflationary" conditions, with falling activity alongside rising input and output prices driven by service sector costs and wage growth. He pointed to political instability in France and Germany and global uncertainties, including potential US tariffs, as key contributors.

UK PMI composite fall to 49.9, slips into contraction as post-budget sentiment worsens

UK economic activity weakened in November, with the Composite PMI falling from 51.8 to 49.9, its first contraction in 13 months. Manufacturing PMI declined to a 9-month low of 48.6, down from 49.9, while Services PMI hit a 13-month low at 50.0, down from 52.0.

Chris Williamson of S&P Global Market Intelligence noted that businesses are reporting falling output and employment cuts for the second consecutive month. Post-budget sentiment has deteriorated sharply, with optimism now at its lowest since late 2022. Companies have expressed significant concern over the announced increase in employers' National Insurance contributions.

The November data suggest the economy is contracting modestly, with GDP estimated to decline at a quarterly rate of -0.1%. Williamson warned of the potential for further job losses unless sentiment improves.

On the inflation front, selling price growth slowed to its lowest post-pandemic rate, but elevated wage pressures in services remain a challenge, likely tempering the case for aggressive rate cuts by BoE.

UK retail sales drop sharply by -0.7% mom in Oct, but broader trends show resilience

UK retail sales volumes plunged by -0.7% mom in October, significantly underperforming expectations of a -0.3% mom decline. Also, volumes remained -1.5% below their pre-pandemic level in February 2020.

On a broader basis, retail activity was more encouraging. Sales volumes increased by 0.8% in the three months to October compared to the preceding three months. When measured against the same period last year, sales volumes grew by 2.5%. This represents the strongest annualized growth since March 2022, despite a downward revision of September's annual figure from 2.6% to 2.1%.

Japan's CPI eases to 2.3% in Oct, core-core rises to 2.3%

Japan’s inflation data for October revealed persistent and broadening price pressures. Core CPI (excluding food) eased slightly to 2.3% yoy, down from 2.4% yoy but exceeding expectations of 2.2% yoy. This marked the 31st consecutive month core CPI has stayed at or above BoJ's 2% target.

Core-core CPI (excluding food and energy) rose from 2.1% yoy to 2.3% yoy, underscoring renewed strength in underlying inflation. Headline CPI moderated from 2.5% to 2.3%, partly due to slowing energy price gains, which decelerated sharply to 2.3% yoy from 6.0% yoy in September. However, food prices surged 3.8% yoy, accelerating from 3.1% yoy, while services prices edged up to 1.5% yoy from 1.3% yoy.

The combination of steady inflation momentum, recovering consumer spending, and Ten's renewed weakening bolsters the argument for a BoJ rate hike at its upcoming policy meeting in December.

Japan's PMI manufacturing falls to 49.0, services rises to 50.2

Japan’s PMI Manufacturing index edged down to 49.0 from 49.2 in November, signaling a deepened contraction in the sector. In contrast, PMI Services rose slightly to 50.2 from 49.7, indicating a renewed, albeit modest, expansion. PMI Composite improved marginally but remained below the neutral mark at 49.8, up from 49.6.

Usama Bhatti, Economist at S&P Global Market Intelligence, noted that demand conditions were "stagnant," while employment grew at the fastest rate in four months. Price pressures persisted across sectors, driven by rising raw material costs and Yen’s weakness. Firms responded with sharper increases in prices charged for goods and services, aiming to pass on these higher cost burdens to customers.

Australia's PMI composite falls to 49.4, second contraction in three months

Australia’s PMI Manufacturing improved sharply from 47.3 to 49.3 in November, marking a six-month high but remaining in contraction territory. Conversely, PMI Services index dropped from 51.0 to 49.6, hitting a 10-month low and signaling contraction. PMI Composite fell from 50.2 to 49.4, its lowest level in 10 months, indicating a slight overall contraction in private sector output for the second time in three months.

Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, highlighted the significance of the services sector’s slowdown. “The November S&P Global Flash Australia PMI posted the lowest reading since January, bringing the fourth-quarter average thus far below that of the prior quarter,” Pan said.

The report also noted that easing capacity pressures and subdued activity contributed to slower employment growth, which fell further below the long-term average. In addition, selling price inflation eased as businesses showed caution in raising charges. This combination of softer employment growth and reduced price pressures supports expectations of lower interest rates.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0439; (P) 1.0497; (R1) 1.0532; More...

EUR/USD's decline accelerated to as low as 1.0330 so far and there is no sign of bottoming yet. Sustained trading below 1.0404 key fiboncci level will carry larger bearish implications. Next target will be 161.8% projection of 1.1213 to 1.0760 from 1.0936 at 1.0203. Nevertheless, strong rebound from current level, followed by break of 1.0609 resistance, will confirm short term bottoming.

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

Canada's retail sales rose by 0.4% mom in September to CAD 66.9B, slightly above market expectations of a 0.3% mom increase. Gains were observed in six out of nine subsectors, with food and beverage retailers leading the growth.

Core retail sales, which exclude gasoline and motor vehicle-related sectors, surged by a robust 1.4% mom, highlighting strength in consumer discretionary spending.

For Q3, retail sales climbed 0.9%, with a 1.3% increase in volume terms, suggesting solid economic activity during the period.

The advance estimate for October indicates a further 0.7% mom rise, reinforcing signs of resilience in consumer demand.

Full Canada's retail sales release here.