- Dollar weakness has resumed
- This will be a very important data week for the US and the highlight will be November jobs data Friday; we will also get some important manufacturing readings for November; the Fed releases its Beige Book report for the December FOMC meeting Wednesday; Canada also has a busy week
- Brexit talks will hopefully wind up this week; the row regarding the EU’s rule of law clause continues; eurozone preliminary November CPI and final manufacturing PMIs will be reported Tuesday
- Japan reports some key data this week; RBA meets Tuesday and is expected to keep policy unchanged
Dollar weakness has resumed. DXY has given up all of its short-covering gains and traded at a new low for this move near 91.79 Friday. It is on track to break below the September 1 low near 91.746. Weakness should persist and so we are left looking at the February 2018 low near 88.253. With regards to the euro, its September 1 high near $1.2010 is the next big target and a break above sets up a test of the February 2018 high near $1.2555. Sterling continues to march to the tune of its own Brexit drummer but a successful deal should see cable break above the September high near $1.3480 and perhaps make some good headway towards the April 2018 high near $1.4375. USD/JPY feels heavy and we look for a break back below 104 that sets up a test of the November low near 103.20 and then the March low near 101.20.
This will be a very important data week for the US and the highlight will be November jobs data Friday. Consensus sees 500k jobs added vs. 638k in October, with the unemployment rate seen falling a tick to 6.8%. Ahead of that, ADP releases its private sector jobs estimate, with consensus at 420k. Weekly jobless claims support our view that the labor market is deteriorating again. With emergency benefits expiring at year-end, this means the US outlook will remain weak as 2021 gets under way. This supports our long-standing call for continued dollar weakness.
We will also get some import manufacturing readings for November. Chicago PMI will be reported Monday and is expected to ease to 59.0 from 61.1 in October. Dallas Fed manufacturing activity index will also be reported Monday and is expected at 15.8 vs. 19.8 in October. ISM manufacturing PMI will be reported Tuesday and is expected to ease to 58.0 from 59.3 in October. Auto sales will also be reported Tuesday and are expected at an annualized rate of 16.1 mln vs. 16.21 mln in October. ISM services will be reported Thursday and is expected at 56.0 vs. 56.6 in October.
The Fed releases its Beige Book report for the December FOMC meeting Wednesday. Since the last FOMC meeting November 4-5, the US outlook has clearly darkened. Most Fed regions are likely to be seeing deteriorating conditions as rising virus numbers weigh on activity and force more shutdowns. Expect a very sobering tone in this report and from Fed officials this week. Fed Chair Powell appears before the Senate Tuesday and the House Wednesday. Barkin speaks Monday, Brainard, Daly, and Evans speak Tuesday, Williams speaks Wednesday, and Bowman speaks Friday. On Saturday, the media embargo goes into effect and there will be no speakers then until Powell’s post-decision press conference December 16.
Other minor data round out the week. October pending home sales (1.0% m/m expected) will be reported Monday, followed by construction spending (0.8% m/m expected) Tuesday. November Challenger job cuts will be reported Thursday, followed by October trade and factory orders (0.8% m/m expected) Friday.
Canada also has a busy week. Here too, the highlight will be jobs data Friday. Consensus sees 20k jobs added vs. 83.6k in October, with the unemployment rate seen steady at 8.9%. If so, this would be the smallest gain since the recovery began in May. Like the US, the Canadian labor market appears to be stalling a bit as the virus numbers rise. Ahead of that, Q3 current account data and October building permits will be reported Monday, followed by Q3 GDP and November Markit manufacturing PMI Tuesday. GDP is expected to surge 47.7% SAAR vs. -38.7% in Q2. October trade will also be reported Friday.
Brexit talks will hopefully wind up this week. Face to face talks will be held in London and UK officials say this is the “last week.” Tuesday is the ostensible deadline, but this is just the latest in a long string of deadlines. If enough progress is seen, talks could easily be extended. UK Foreign Secretary Raab said “there’s a deal to be done” if the EU compromises on fishing, which he said remained the major obstacle. EC President von der Leyen sent one of her top officials to London to assist Barnier, raising hopes for a deal. Sterling is trading just above $1.33 on Brexit optimism but if a skinny deal is struck as we expect, it could easily break above the September high near $1.3480.
The row regarding the EU’s rule of law clause continues. Both Poland and Hungary continue threaten to veto it. While we expect an eventual face-saving compromise that leads to unanimous approval, EU officials have been told that next Monday December 7 is the deadline to set the long-term budget. If a deal has not been struck, the EU will operate under monthly emergency budgets as of January 1 that will force partial shutdowns and suspension of some program payments. The start of the recovery fund would also be delayed.
Eurozone preliminary November CPI and final manufacturing PMIs will be reported Tuesday. Headline inflation is expected at -0.2% y/y vs. -0.3% in October. October retail sales and final services and composite PMIs will be reported Thursday. Sales are expected to rise 0.7% m/m vs. -2.0% in September. Ahead of those readings, Germany will provide some clues. German CPI will be reported Monday and headline inflation is expected at -0.4% y/y vs. -0.5% in October (EU Harmonized). German retail sales will be reported Wednesday and are expected to rise 1.2% m/m vs. a revised -1.9% ( was -2.2%) in September. German October factory orders will be reported Friday and are expected to rise 1.5% m/m vs. 0.5% in September.
Japan reports some key data this week. October IP, retail sales, housing starts, and construction orders will be reported Monday. Of note, IP is expected to rise 2.2% m/m vs. 3.9% in September, while retail sales are expected to rise 0.5% m/m vs. -0.1% in September. October labor market data and November vehicle sales will be reported Tuesday. Unemployment is expected to rise a tick to 3.1%, while the job-to-applicant ratio is seen steady at 1.03. The yen resumed strengthening last week after USD/JPY was unable to break above 105. The pair remains heavy and a break below 104 is likely to lead to a quick test of this month’s low near 103.20.
Reserve Bank of Australia meets Tuesday and is expected to keep policy unchanged. The bank eased at its last meeting November 2 and so it’s too soon to expect any further measures now. Indeed, the bank is likely on hold as it awaits new information and some key data will follow that decision. Q3 GDP will be reported Wednesday and is expected to grow 2.4% q/q vs. -7.0% in Q2. October trade will be reported Thursday, with both exports and imports expected to grow 4% m/m. October retail sales will be reported Friday and are expected to rise 0.5% m/m vs. -1.1% in September.