8 min readWeekly Recap
Geopolitical and political events were a key focus last week. On Monday, President-elect Donald Trump announced 25% tariffs on imported goods from Canada and Mexico and an additional 10% tariff on China, bringing the total China tariff to 35%. It’s still unclear whether Trump will proceed with these planned tariffs or whether they are negotiation tools.
Also, in the geopolitical sphere, Israel and Hezbollah agreed on a ceasefire deal as a sign of hope in a region plagued by conflicts; however, there’s still a long road to sustainable peace in the region.
Still US stocks still managed to continue advancing, reaching fresh record levels despite low volumes owing to the Thanksgiving break.
On the data front, US core PCE rose to 2.3%, up from 2.1%, and core inflation remained at 2.7%. The market increased expectations of a Fed December rate cut, but it sees the Fed adopting a more cautious approach to rate cuts next year.
The rally in the USD paused, with the USD index falling after 8-weeks of gains. USD/JPY fell sharply as the yen benefited from safe-haven flows and rising bets of a BoJ rate hike in the Dec meeting.
Week Ahead
Trump trade tariff threats
With around six weeks to go until Trump is inaugurated, any comments by the President-elect regarding trade tariffs will likely influence the market. At the start of the week, Trump threatened BRIC nations with 100% trade tariffs on any country that threatened the USD’s dominance. These threats from Trump could fuel safe-haven flows, pulling risk assets lower while supporting safe havens such as the USD or Gold.
Chinese PMIs (Wednesday)
China’s PMI data will be in focus in the week after the official figures showed that the non-manufacturing PMI fell to 50.00, down from 50.2, and the manufacturing PMI rose to 50.3 from 50.1, the second straight month of gains for the manufacturing index. The Caixin manufacturing PMIs are set for release on Monday, and the services on Wednesday. Weak data could raise concerns over the outlook for the world’s second-largest economy, which continues to struggle with weak consumer confidence and property sector woes despite recent stimulus measures. Weak data could pull the Hang Seng lower.
Powell speech (Wednesday)
Federal Reserve chair Jerome Powell is due to participate in a discussion at the New York Times deal book summit on Wednesday, and investors will be watching closely for any comments regarding the health of the economy, the inflation outlook, or the future path for interest rates. Apart from Powell, several other Fed officials are scheduled to speak across the week, including governors Christopher Waller and Michelle Bowman, New York Fed president John Williams, and San Francisco Fed president Mary Daly.
Should Fed speakers sound more cautious about cutting rates, the USD could rise, putting pressure on USD crosses such as GBP/USD.
Australia GDP (Wednesday)
Australian GDP D Q3 GDP data comes as the RBA is the only major central bank that has not yet started cutting interest rates. The market believes the RBA will start its rate-cutting cycle in May next year. Recent inflation data showed that headline CPI rose to 2.3% from 2.1% last quarterly prints, which also pointed to rates for Q3 at 3.5%, suggesting it may take some time before the central bank considers lowering rates. Strong quarterly GDP data could also prompt investors to push back further on rate cut expectations. This could have a positive impact on the Aussie. Any gains could be limited given the concerns over Trump’s tariff threats toward China.
OPEC meeting (Thursday)
The OPEC+ group postponed its next policy meeting to December 5th, where it is expected to decide on extending production cuts further. Last month, OPEC lowered its forecast for global oil demand growth for 2024 and 2025 amid economic weakness and concerns surrounding top oil importer China and some other regions. The IEA expects oil supply to exceed demand in 2025 even if OPEC+ cuts remain in place, pointing to a supply surplus. Under these conditions, OPEC+ will likely be nervous about releasing additional supply into the market.
Meanwhile, oil prices fell around 3% last week over easing geopolitical risk premium as Israel and Hezbollah agreed to a ceasefire.
Eurozone retail sales (Thursday)
The rise in retail sales is expected to fall by 0.3% in October after rising by 0.5% in September. Recent data from the region have highlighted a slowing economic picture, with recent PMIs pointing to contraction. Inflation data last week showed that CPI ticked higher to 2.3%, above the ECB’s 2% target. This indicates that the central bank is weighing up slowing growth against slightly sticky inflation. As a result, the market expects a 25 basis point rate cut from the central bank at the meeting this month. ECB President Lagarde is due to speak on several occasions so they can provide more clues about the outlook for rates.
Weak retail sales and a dovish-sounding ECB President could see EUR/USD heading towards 1.0450.
US non-farm payroll (Friday)
On Friday, US non-farm payroll data will be released, providing further clues about the health of the US labour market. While the recent focus has been on the policies of the incoming Trump administration, those policies and their impact will, in large part, be a function of the strength of the US economy.
Job creation is expected to recover to 195,000 in November after falling to just 12,000 in October owing to the impact of strikes and hurricanes. Unemployment is expected to rise to 4.2% from 4.1%, and average hourly earnings fall to 3.9% from 4%. A report in line with forecasts would be Goldilocks – with solid job creation and cooling price pressures.
Stronger-than-expected data could add to evidence of a resilient U.S. economy, although it would need to be significantly stronger for the market to reassess rate cut expectations. In this case, stock indices like the Nasdaq 100 could come under pressure.
ADP data will be released on Thursday and is often considered a lead indicator for the NFP, although its recent track record has been poor. US jobless claims, job openings, and the employment components of the ISM PMI reports will be focused across the week, providing clues about what to expect from the NFP report.
Canada Unemployment (Friday)
Canada will also release its employment report for November. This comes after the Bank of Canada cut interest rates by 50 basis points in the October meeting to support the economy and keep inflation close to 2%. While the BoC expected to cut interest rates again, the stronger-than-expected CPI numbers for October saw investors rein in 50 basis point rate cuts. With this in mind, a strong jobs report on Friday could see the market further rein in expectations of a back-to-back outsized cut by the central bank and, therefore, support the loonie.
That said, even strong labor market data may not be enough for the currency to change its trajectory and begin a bullish trend, given the threats by President-elect Trump on more tariffs on Canadian goods.
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