An important week ahead for incoming US data: ISM manufacturing, PCE inflation and jobs data to be key for the dollar

This week will offer an interesting test for markets, including the US dollar, which trades at pivotal levels, as we have a look at the next important data macro data points out of the US, especially the PCE inflation data and the Friday November jobs report. Core PCE is forecast to rise 0.3% MoM in October from 0.5% previously. In addition, we’ll have a look at the ISM manufacturing survey for the month on Thursday, which is also expected to slip into contraction after the decline in S&P flash PMIs last week resulted in further easing of Fed tightening expectations. The question for the run-up into the December 14 FOMC meeting and in the month or so beyond is how long the market can continue to celebrate the Fed easing off the accelerator, when the reason it is doing so is that economic slowing and an eventual recession threaten. Normally, a recession is associated with poor market performance as profits fall and credit risks mount.

Bullard and Powell speak – pushback against easing financial conditions?

While the economic data continues to slow, and markets continue to cheer on that, it will key for Fed members to bring the focus back to easing of financial conditions and consider what that means for inflation. Chicago Fed national financial conditions index eased further in the week of November 18, bringing financial conditions to their easiest levels since May. Most of the Fed members that have spoken since that soft CPI release for October have pushed back against pivot expectations, but it hasn’t been enough. Further pushback is still needed if the Fed is serious about bringing inflation under control, and only the most hawkish members of the committee Bullard and Powell may be able to deliver that. Both will be on the wires this week. Bullard speaks on Monday while Powell discusses the economic outlook and labor market on Wednesday. Other Fed members like Williams, Bowman, Cook, Logan and Evans will also be on the wires.

China PMIs likely to show demand weakness, Asia PMIs also due

China’s NBS manufacturing PMI is expected to decline to 49.0 in November, further into the contractionary territory, from 49.2 October, according to the survey of economists conducted by Bloomberg. The imposition of movement restrictions in many large cities has incurred disruption to economic activities. High-frequency data such as steel rebar output, cement plants’ capacity utilization rates, and container throughputs have weakened in November versus October. Likewise, the Caixin manufacturing PMI is expected to drop to 49.0 (Bloomberg survey) in November from 49.2 in October. Economists surveyed by Bloomberg expect the NBS Non-manufacturing to slow to 48.0. in November from 48.7 in October, on the enlargement of pandemic containment measures.

PMIs for other Asian countries are also due to be reported this week, and the divergence between the tech-dependent North Asian countries like Taiwan and South Korea vs. more domestic-oriented South Asian countries like India and Indonesia will likely continue, with the latter outperforming.

EUR may be watching the flash Eurozone CPI release

Eurozone inflation touched double digits for October, and the flash release for November is due this week. The headline rate of the harmonized index of consumer prices (HICP) is expected to ease slightly to 10.4% YoY from 10.7% YoY last month. The core rate that excludes food and energy prices is forecast to however remain unchanged at 5% YoY. This print will be key for markets as the magnitude of the ECB’s next rate hike at the December meeting is still uncertain, and about 60bps is priced in for now. But even with a slight cooling in inflation, which will most likely be driven by lower energy costs, there is a possibility that inflation will likely remain high in the coming months as winter months progress and cost of living gets worse.

Australia’s economy continues to weaken. Retail slides. CPI data is the next catalyst

Australia has continued to receive mostly weaker than expected economic data, that support the RBA’s dovish tone. Today Australian retail trade data unexpected fell, showing sales dropped 0.2% from the prior month. This reflects that consumers are feeling the strain of inflation and rising interest rates. As a house, Saxo thinks further weakness in spending is likely ahead in 4Q and into 2023, with the full impact of rate hikes passing through households, and increasing amount of Australian in financial duress. This view is somewhat supported by the RBA’s thinking. The data the RBA will be watching next is ; Australian inflation data for October, released Wednesday 30 November. Inflation is likely to have fallen over the month, however consensus expects inflation to have increase year on year, up 7.6% year on year. If the market thinking comes to fruition, this would show Australian inflation rose from the prior reading (whereby CPI rose 7.3% yoy). Regardless, if inflation does rise, we think the RBA will likely save face, and keep hiking rates by 0.25%, with its next hike due December 6.

Twitter to launch its ‘Verified’ service

After Musk acquired Twitter last month for $44 billion, he plans to "tentatively" roll out its verified service on December 2, with multiple colours for different types of users. Blue checks will be allotted to people, while verified company accounts will get gold checks and grey marks will be given to governments. Musk said all verified accounts will be manually authenticated, before the check activates, which will be cumbersome. Twitter recently halted the launch of its $8 verified service, as it failed to cease impersonation issues the company has been having.

Key earnings to watch this week

Peter Garnry highlights earnings results to watch in his note. Pinduoduo on Monday is the key earnings focus in China with analysts expecting Q3 revenue growth of 44% y/y and the EBITDA margin staying at healthy levels around 21.2%. The main menu next week is on Wednesday with earnings from US technology companies Salesforce and Snowflake. Analysts expect Salesforce FY23 Q3 (ending 31 October) revenue growth to decline to 14% y/y down from 27% y/y a year ago and analysts expect Snowflake to report FY23 Q3 (ending 31 October) revenue growth of 61% y/y down from 110% y/y a year ago. Expectations for both companies highlight the slowdown in technology enterprise spending that we have seen from other technology companies including Intel, HP etc.

Key economic releases & central bank meetings this week

Monday, Nov 28

Eurozone M3 (Oct)
UK CBI Retail Sales (Nov)
U.S. Fed Bullard at MarketWatch Live Event

Tuesday, Nov 29

U.S.  Conference Board Consumer Confidence (Nov)
U.S. St. Louis Fed President Bullard speech
Japan Unemployment Rate (Oct)
Japan Retail Sales (Oct)

Wednesday, Nov 30

U.S. ADP Private Employment (Nov)
U.S. JOLTS Job Openings (Oct)
U.S.  Fed Chair Powell speech
Eurozone HICP (Nov, flash)
Germany Unemployment Rate (Nov)
Japan Industrial Production (Oct)
Japan Housing Starts (Oct)
China NBS Manufacturing PMI (Nov)
China NBS Non-manufacturing PMI (Nov)
India Real GDP (Q3)
Thailand Bank of Thailand policy meeting

Thursday, Dec 1

U.S. PCE (Oct)
U.S. ISM Manufacturing (Nov)
U.S. Initial Jobless Claims (weekly)
Eurozone Unemployment Rate (Oct)
Japan Capital Spending (Q3)
Japan Consumer Confidence (Nov)
China Caixin China PMI Manufacturing (Nov)

Friday, Dec 2

U.S. Nonfarm Payrolls (Nov)
U.S. Unemployment Rate (Nov)
Eurozone PPI (Oct)

Key earnings releases this week

Monday: Pinduoduo, Capitaland, H World Group

Tuesday: Li Auto, DiDi Global, Bank of Nova Scotia, Intuit, Workday, Crowdstrike, HP Enterprise, NetApp, Shaw Communication

Wednesday: Royal Bank of Canada, National Bank of Canada, Salesforce, Synopsys, Snowflake, Splunk, Hormel Foods, KE Holdings

Thursday: Canadian Imperial Bank of Commerce, Bank of Montreal, Toronto-Dominion Bank, Marvell Technology, Veeva Systems, Ulta Beauty, Zscaler, Dollar General, Kroger