Weekly Market Recap (27-01 December)


BoJ Governor Ueda
continues to be uncertain about them hitting the 2% target sustainably:

Cannot say with
conviction that inflation will hit 2% sustainably
.Japan economy is
recovering moderately.The output gap has
narrowed to near zero.Some positive signs
seen in wages and inflation
.But there is still
high uncertainty on whether this cycle can strengthen further

BoJ Governor Ueda

BoE Governor
Bailey (neutral – voter) pushed back on rate cuts expectations:

It is too soon to
discuss about cutting interest rates.
Getting inflation
down to 2% will be hard work.A lot of the recent
fall in inflation is due to unwinding of energy cost surge

BoE’s Governor Bailey

ECB President Lagarde
(neutral – voter) acknowledged the stagnation in the Eurozone economy but
remains wary of prematurely declaring victory against inflation:

Euro area activity
has stagnated in recent quarters and is likely to remain weak for the rest
of the year
.Advises that it is
premature to start declaring victory in the current economic scenario.There are
indications of potential job growth slowdown towards the end of the year,Emphasizes the need
to stay focused on the mandate of price stability, considering various
forces affecting inflation.Notes that wage
pressures remain strong
.Looking beyond 2024,
the ECB’s Governing Council is committed to exploring ways to further
decarbonize corporate portfolios.Expects the
weakening of inflationary pressures to continue.States that the
medium-term outlook for inflation is still surrounded by considerable
uncertainty.Says the PEPP will
be discussed in the not-so-distant future
.We will re-examine a
proposal to keep reinvesting until the end of 2024.

ECB’s President Lagarde


The Australian Retail
Sales for October missed expectations:

Retail Sales M/M
-0.2% vs. 0.1% expected and 0.9% prior.Retail Sales Y/Y
1.2% vs. 2.0% prior.

Australia Retail Sales YoY

RBA Governor Bullock
highlighted that the strength in the labour market is keeping inflation high
for longer than expected:

High employment is
helping people to pay expensive mortgages
.Says Australia
inflation path is similar to overseas.Says again she
expects inflation to decline to just under 3% in 2025.Notes uncertainty on
inflation’s path.Monetary policy is restrictive.Rate hikes are
dampening demand but demand being propped up by immigration, this has
contributed to second round effects of cost rises.Sticky services inflation.

RBA’s Bullock

BoE’s Ramsden (neutral –
voter) reiterated that the central bank will keep interest rates high for an
extended period of time to ensure that inflation goes back to the 2% target:

Monetary policy is
likely to need to be restrictive for an extended period of time to get
inflation back to 2% target
.UK inflation is more
homegrown.The path of rates
will be data dependent.We are not making
any commitments on where rates will be

BoE’s Ramsden

ECB’s Nagel (hawk –
voter) pushed back against rate cuts expectations:

Rate hikes are not
necessarily over.Would have to hike
again if inflation outlook worsened.Premature to discuss
about rate cuts, would prefer to err on the side of caution.
Inflation outlook is
encouraging but core inflation dynamics continue to be strong

ECB’s Nagel

BoE’s Haskel (hawk –
voter) pushed back against rate cuts expectations citing labour market
tightness as a reason for persistently high inflation:

Labour market
tightness continues to impart inflation pressures.
This will need higher
rates for longer to get inflation sustainably to target
.Current outlook does
not suggest scope for moderation in rates any time soon.This is why I have
been voting for higher rates at recent meetings.At current rate of
change, it would take at least a year to fall back to average pre-pandemic
tightness.Rates will have to
be held higher and longer than many seem to be expecting.

BoE’s Haskel

The US Consumer
Confidence beat expectations, although the labour market details continue to
show weakness:

Consumer Confidence
102.0 vs. 101.0 expected and 99.1 prior (revised from 102.6).Present situation
index 138.2 vs. 138.6 prior (revised from 143.1).
Expectations index 77.8 vs. 75.6 prior.1 year inflation
expectations 5.7% vs. 5.9% prior. Jobs hard-to-get
15.4 vs. 13.1 prior.

US Consumer Confidence

Fed’s Waller (hawk –
voter) delivered mostly neutral remarks, but the market reacted on him saying
that they could start lowering rates if inflation continues to fall for several
more months, which is consistent with the current market pricing:

Need some
improvement in services inflation ex-housing for overall inflation to
reach 2%. Increasingly
confident policy is well-positioned to slow economy, get inflation back to
Cannot say for sure
if Fed has done enough.Data over the next
couple months will hopefully tell if the Fed has done enough.Recent loosening of
financial conditions a reminder to be careful about relying on market
tightening to do Fed’s job
.Encouraged by signs
of moderating economic growth.Inflation still too
high, too early to say if slowing will be sustained.Supply-side problems
mostly behind us. Monetary policy will need to do the work from here
.Premature to rely on
productivity growth gains to guide stance of Fed policy.Consumer spending is
slowing, manufacturing and nonmanufacturing activity has slowed.Labor market is
cooling off, but still fairly tight and will watch closely
.Will closely monitor
goods, services prices in coming weeks to see if inflation still on
downward path.If the decline in
inflation continues for several more months, three months, four months,
five months, we could start lowering the policy rate just because
inflation is lower

Fed’s Waller

Fed’s Bowman (hawk –
voter) remains one of the most hawkish members as she still sees a rate hike as
her baseline scenario:

Says she Favors
hiking if inflation progress stalls.Inflation remains
high, recent progress is uneven.Baseline outlook is
that the Fed will need to increase rates further to keep policy
sufficiently restrictive
.Fed should keep in
mind risks with prematurely declaring victory on inflation

Fed’s Bowman

Fed’s Williams (neutral –
voter) welcomed the decline in inflation:

Encouraging to see
decline in inflation pressure.Fed has signalled
strong commitment to get inflation back to 2%.Longer run inflation
expectations have been very stable.

Fed’s Williams


Fed’s Goolsbee (dove –
voter) is focused on housing inflation:

Of all pieces of
data, housing inflation is most paramount.
inflation expectations have been anchored.Have some concern
about keeping rates too high for too long
.Once you believe you
are on path to 2% inflation, amount of restrictiveness needs to be less
.Data will determine
how fast we go.

Fed’s Goolsbee

The Australian Monthly
CPI for October missed expectations:

CPI Y/Y 4.9% vs.
5.2% expected and 5.6% prior.CPI M/M -0.4% vs. 0.3% prior. CPI Trimmed Mean Y/Y
5.3% vs. 5.4% prior.
Goods inflation Y/Y
4.6% vs. 5.7% prior.Services inflation
5.0% vs. 5.3% prior.

Australia Monthly CPI YoY

BoJ’s Adachi, as other
BoJ members, continue to highlight the importance of wage inflation as a key
decision maker for any BoJ policy normalisation:

Japan yet to see
positive wage-inflation cycle become embedded enough.
Appropriate to
patiently maintain easy policy.If needed BoJ will
take additional easing steps.Steps BoJ took in
October to make YCC flexible not aimed at laying the groundwork for policy
.Japan’s inflation
expectations heightening moderately.See risk to Japan’s
inflation outlook skewed to upside
.Companies starting
to shed deflationary price-setting practices.Hard to predict now
whether wage hikes will continue next fiscal year.Given high
uncertainty over global economic outlook, there is risk Japan’s inflation,
wages face downward pressure
.If positive
wage-inflation cycle strengthens, that could further push up prices.Positive
wage-inflation cycle has not happened yet.
But if chances of it
happening increases, then we can start discussing exit strategy
.Don’t need to
necessarily wait for it to turn positive to debate exit from negative
rates.Will probably need to wait until the start of the next fiscal year in determining
wage talks outcome.
outcome will be crucial in making any big policy decisions.Does
not think BoJ are at the stage to discuss an end to negative rates.

BoJ’s Adachi

The RBNZ left the OCR
unchanged at 5.5% as expected:

Interest rates are restricting
spending in the economy and consumer price inflation is declining, as is
necessary to meet the committee’s remit.Interest rates will
need to remain at a restricted level for a sustained period of time.
However, inflation
remains too high, and the committee remains wary of ongoing inflationary
Demand growth has
eased, but by less than anticipated
over the first half of 2023 in part due to
strong population growth.The committee is confident
that the current level of the OCR is restricting demand.
The OCR will need to
stay restrictive, so demand growth remains subdued, and inflation returns
to the 1 to 3 percent target range.If inflationary
pressures were to be stronger than anticipated, the OCR would likely need
to increase further.


Sees official cash
rate at 5.63% in March 2024 (prior 5.58%).Sees official cash
rate at 5.66% in December 2024 (prior 5.5%).Sees official cash
rate at 5.56% in March 2025 (prior 5.36%).Sees official cash
rate at 3.55% in December 2026.Sees NZD TWI at
around 70.7% in December 2024 (prior 71.0%).Sees annual CPI 2.5%
by December 2024 (prior 2.4%).

the minutes of the meeting:

Committee agreed
that interest rates will need to remain at a restrictive level for longer.Members agreed they remain
confident that monetary policy is restricting demand.Ongoing excess
demand and inflationary pressures were of concern, given high core
inflation.Members discussed
the possibility of the need for increases to the OCR.Members agreed that
with interest rates already restrictive, it was appropriate to wait for
further data and information.Members agreed that
monetary policy was supportive of sustainable house prices.Pressure in the
labour market is easing, although employment remains above its maximum
sustainable level.Members also noted
that most major central banks have indicated that they intend to retain
current restrictive policy rates for longer, and are willing to tighten
further, if required.While growth in
parts of the economy is slowing, there has been less of a decline in
aggregate demand growth than expected earlier in the year.Committee noted that
the estimate of the long-run nominal neutral OCR has increased by 25 basis
points to 2.50%.


Moving on to the Governor
Orr Press Conference:

Meeting with new PM
was highly constructive.We’ve been adamant
on holding rates through next year
.Projection shows
upward bias to rates, but it is not a done deal.Risk to inflation is
still more to upside.We did discuss
raising rates at this meeting.
Had a robust
discussion about rates.Nervous that
inflation has been outside the band for so long
.Concerned that
longer-term inflation expectations are creeping up.
Global rates do
matter to us, very tuned into that outlook.Will make decision
on debt-to-income restrictions early next year.Seeing credit growth
slowing rapidly, our message on rates is being heeded.We are saying rates
need to be this high for some time to come, banks should listen.We are not bound by
policy meeting dates, can act on shocks if needed.
Comfortable on
waiting until the February meeting right now.
Domestic inflation
is causing the challenge, big part of that is dwelling costs.

RBNZ Governor Orr

ECB’s de Guindos (neutral
– voter) just explained why they raised interest rates:

Our objective is to
bring inflation back to 2% target
.Rate hikes are both
for borrowers and savers.That is part of our
monetary policy transmission.If savings become
more attractive, consumers will spend less, reducing demand.This is what we aim
for to push down inflation.

ECB’s de Guindos

Fed’s Barkin (neutral –
non voter) pushed back on rate cuts expectations as he sees inflation being
more stubborn than expected:

Revised consumer
spending data is more consistent with what I am hearing on the ground.I’m hearing
consumers slowing down, but not falling off the table.
Sceptical that price
setters at this point have gone back to where they were pre-Covid.5.2% GDP tells
companies that they can still try to raise prices.The goods inflation
has clearly come down. It’s basically back to pre-Covid levels.While I think that
entry rates have clearly come down, but housing inflation is still going
up.A lot of services
prices are still going up driven by wages
.I am still in the
“looking to be convinced category” that inflation is coming down
.Not willing to take
another rate hike off the table.
Want the option of
doing more on rates if inflation flairs again.Markets have a
different forecast than me on inflation.I believe inflation
will be stubborn then we’d like
.Talking about rate
cuts is premature
.We do hope the
messages we send go into the financial conditions in the markets.Try not to get
overly focused on the financial conditions in the markets.Market bets on 4
rate cuts next year might be based on expectations for soft landing. I hope they are right.My forecast is that
inflation will come down but stubbornly.We will in the end
have some kind of slowdown.
To lower rates you’d
need to be confident inflation is headed back to 2%.

Fed’s Barkin

Fed’s Mester (hawk – non
voter) toned down her hawkish stance as she’s comfortable with the current
policy setting:

Monetary policy is
in a good place.
Sees “clear progress”
in getting inflation to 2%.It will take time to
get to 2% but Fed will do it.Fed has time to vet
incoming data.
Monetary policy must
be nimble in current circumstances.Monetary policy well
positioned to be flexible.

Fed’s Mester

The Fed’s Beige Book showed
slowing economic activity with the index now at levels consistent with a recession:

On balance, economic
activity slowed since the previous report.
Retail sales,
including autos, remained mixed; sales of discretionary items and durable
goods, like furniture and appliances, declined, on average, as consumers
showed more price sensitivity.Four Districts
reported modest growth, two indicated conditions were flat to slightly
down, and six noted slight declines in activity.Demand for
transportation services was sluggish.Manufacturing
activity was mixed, and manufacturers’ outlooks weakened.Consumer credit
remained fairly healthy, but some banks noted a slight uptick in
consumer delinquencies.
The economic outlook
for the next six to twelve months diminished over the reporting period.
Price increases
largely moderated across Districts, though prices remained elevated.Most Districts
expect moderate price increases to continue into next year.Demand for labour
continued to ease, as most Districts reported flat to modest increases in
overall employment.
Several Districts
continued to describe labour markets as tight with skilled workers in
short supply.

Beige Book

The 2nd
estimate for the US Q3 GDP was revised upwards, but personal consumption and
Core PCE were revised downwards:

US Q3 GDP 2nd Estimate
5.2% vs. 5.0% expected and 4.9% for the advance reading.Q2 final reading was 2.1%.Personal consumption
3.6% vs. 4.0% advance reading.
Core PCE prices 2.3%
vs. 2.4% expected.
PCE prices 2.8% vs. 2.9% advance.GDP deflator 3.5% vs. 3.5% expected.GDP final sales 3.7%
vs. 3.5% advance.Corporate profits
after tax 4.1% vs. 0.5% in Q2.

US Q3 GDP 2nd Estimate


The Japanese Industrial
Production for October beat expectations:

Production M/M 1.0% vs. 0.8% expected and 0.5% prior.Industrial
Production Y/Y 0.9% vs. -4.4% prior.

Japan Industrial Production YoY

The Chinese PMIs for
November missed expectations:

Manufacturing PMI 49.4
vs. 49.7 expected and 49.5 prior.Services PMI 50.2 vs 51.1
expected and 50.6 prior.

China Manufacturing PMI

BoJ’s Nakamura reiterated
the central bank’s dovish stance as they remain uncertain on inflation hitting
the 2% target sustainably:

Will need some more
time before we can modify easy monetary policy.
Now is a time to be
cautious in our policy response
.Current inflation is
mostly driven by cost-push factors.We haven’t reached a
stage where we can say with conviction that sustained, stable achievement
of 2% inflation accompanied by wage growth is in sight
.We are seeing signs
Japan will see wage growth exceeding rate of inflation.Must patiently
maintain current monetary easing for time being

BoJ Nakamura

The Eurozone CPI for
November missed expectations across the board:

CPI Y/Y 2.4% vs.
2.7% expected and 2.9% prior.CPI M/M -0.5% vs. 0.1% prior.Core CPI Y/Y 3.6%
vs. 3.9% expected and 4.2% prior.
Core CPI M/M -0.6% vs. 0.2% prior.

Eurozone Core CPI YoY

The Eurozone Unemployment
Rate remained unchanged at 6.5% vs. 6.5% prior.

Eurozone Unemployment Rate

ECB’s Panetta (dove –
voter) reaffirmed the central bank’s “wait and see” approach:

Current interest rates level consistent to bring inflation down to
be able to ease monetary conditions if persistently weak output accelerates the
decline in inflation.Monetary
tightening has not yet had full impact and will continue to dampen demand in
the future.Risks to Eurozone economy are tilted to the downside.The
economy remains weak in Q4 2023.

ECB’s Panetta

The Canadian Q3 GDP
missed expectations coming in with a negative print:

Q3 GDP Q/Q -0.3% vs.
0.2% expected.Annualized Q/Q GDP
-1.1% vs. 0.2% expected.Q2 annualized Q/Q
GDP revised to 1.4% from -0.2%.September GDP 0.1% vs. 0.0% expected.August GDP was 0.0%.Preliminary October GDP 0.2%.Q2 GDP revised to 0.3%
from 0.0%.GDP implicit price
Q/Q 1.8% vs. 0.4% prior (revised from 0.7%).Q3 final domestic
demand 0.3% vs. 0.3% prior.

Canada Q3 GDP

The US PCE came in line
with expectations:

PCE Y/Y 3.0 vs. 3.0%
expected and 3.4% prior.PCE M/M 0.0% vs.
0.1% expected and 0.4% prior.Core PCE Y/Y 3.5%
vs. 3.5% expected and 3.7% prior.
Core PCE M/M 0.2%
vs. 0.2% expected and 0.3% prior.


The US Initial Claims
beat expectations once again while the Continuing Claims missed by a big

Initial Claims 218K
vs. 220 expected and 211K prior (revised from 209K).Continuing Claims
1927K vs. 1872K expected and 1841 prior (revised from 1840K).

US Jobless Claims

Fed’s Daly (neutral – non
voter) pushed back against rate cuts expectations as she continues to support
the “high for longer” stance:

It’s still too early
to know if Fed is done hiking rates.
Should take our time
now and remain vigilant.Need to better
understand what’s happening with the economy and inflation.Latest data is encouraging.I’m not thinking
about rate cuts at all right now.
Economy needs to
cool down a little more.Further rate hikes
are not our base case.
Hearing more and
more it is harder for companies to pass along price hikes.
People’s fear of
recession has faded into the background.

Fed’s Daly

Fed’s Williams (neutral –
voter) delivered mostly neutral comments. The interesting part is this line “Key
for policy is persistence of easing in financial conditions”. It looks like the
higher the stock market (or bond market) goes, the less incentive he’s going to
have to cut:

If inflation
pressures persist, we could hike again.We are at or near
the peak of interest rate target.
Sees inflation
falling to 2.25% in 2024.
Inflation will close
in on 2% in 2025.Financial conditions have tightened.Sees GDP at 1.25%
next year.Sees unemployment at
4.25% next year.
Sees upside and
downside risks for inflation.Says he’s not losing
sleep over market views of Fed funds path.
Key for policy is persistence of easing in
financial conditions.
Notes a significant
decline in inflation.Financial conditions
are volatile, and markets are sensitive.

Fed’s Williams

BoE’s Greene (hawk –
voter) continues to maintain her hawkish stance:

Policy may have to
be restrictive for an extended period of time.I believe r* may
have risen
.The labour market
has shown signs of inflation persistence.Data on activity
remains mixed though, so I continue to worry more about the risk of
inflation persistence.

BoE’s Greene

The OPEC+ producers
failed to agree on a group cut and proceeded with voluntary output cuts of
about 2.2 million BPD with Saudi Arabia extending its 1 million BPD voluntary
output cut into Q1 2024 and then phasing them out. Russia increased its
voluntary cut from 300K to 500K until the end of Q1 2024. Finally, Brazil was
invited to join OPEC+ effective from January 1st.



The Japanese Unemployment
Rate ticked lower to 2.5% vs. 2.6% prior.

Japan Unemployment Rate

The Chinese Caixin
Manufacturing PMI beat expectations:

Manufacturing PMI 50.7
vs. 49.8 expected and 49.5 prior.

points in the report:

Production returns
to growth amid sustained rise in total new work.Softer reduction in employment.Business confidence
ticks up to four-month high.

China Caixin Manufacturing PMI

The Switzerland Q3 GDP
beat expectations:

Q3 GDP Q/Q 0.3% vs. 0.1%
expected and -0.1% prior (revised from 0.0%).

Switzerland Q3 GDP

The Switzerland
Manufacturing PMI slightly beat expectations:

Manufacturing PMI 42.1
vs. 42.0 expected and 40.6 prior.

Switzerland Manufacturing PMI

The Canadian Labour Market
report beat expectations, but the unemployment rate keeps on increasing:

Employment Change
24.9K vs. 15.0K expected and 15.0K prior.Unemployment rate
5.8% vs. 5.8% expected and 5.7% prior.Full-time employment
59.6K vs. -3.3K prior.Part-time employment
-34.7K vs. 20.8k prior.Participation rate
65.6% vs. 65.6% prior.Average hourly wages
permanent employees Y/Y 5.0% vs. 5.0% prior.

Canada Unemployment Rate

The Canadian
Manufacturing PMI fell further into contraction:

Manufacturing PMI 47.7 vs. 48.6 prior.

Canada Manufacturing PMI

The US ISM Manufacturing
PMI missed expectations with all the sub-indexes in contraction:

Manufacturing PMI 46.7
vs. 47.6 expected and 46.7 prior.Prices paid 49.9 vs. 45.1 prior.Employment 45.8 vs. 46.8 prior.New orders 48.3 vs. 45.5 prior.Inventories 44.8 vs. 43.3 prior.Production 48.5 vs. 50.4 prior.

US ISM Manufacturing PMI

Fed Chair Powell (neutral
– voter) delivered mostly neutral comments as the FOMC continues to prefer a “wait
and see” approach:

FOMC is moving
forward carefully as risks around rates becoming more balanced
.It’s premature to
say that monetary policy is restrictive enough.Fed will raise rates
if needed to lower inflation.Fed is making rate
decisions meeting by meeting.Uncertainty over
economic outlook is unusually elevated.Fed funds range well
into restrictive territory.
Fed has made
considerable progress in lowering inflation.Welcomes recent
softening in inflation data.Need to see more
progress on lowering inflation to 2%.
Wage growth still
high but moderating to more sustainable levels.Unemployment up but
still historically low.As the demand and
supply related effects of the pandemic continue to unwind, uncertainty
about the outlook for the economy is unusually elevated.

Fed Chair Powell

The highlights for next
week will be:

Monday: Switzerland CPI.Tuesday: Tokyo CPI, China Caixin
Services PMI, RBA Policy Decision, Eurozone PPI, Canada Services PMI, US ISM
Services PMI, US Job Openings.Wednesday: Australia GDP, Eurozone
Retail Sales, US ADP, BoC Policy Decision.Thursday: China Trade data,
Switzerland Unemployment Rate, US Challenger Job Cuts, US Jobless Claims.Friday: Japan Wage data, US
NFP, University of Michigan Consumer Sentiment.

That’s all folks. Have a
nice weekend!

This article was written by Giuseppe Dellamotta at www.forexlive.com.