WEEK AHEAD: ON WATCH FOR US AND EURO AREA INFLATION

We get important data to potentially confirm the current soft landing theme this week as it’s “inflation Thursday” with gauges of price pressures from both the US and eurozone. The Fed’s preferred inflation report is expected to remain broadly in line with what policymakers want to see to bring the core personal consumer expenditure deflator back to the FOMC’s target of 2%. The monthly print is expected to mirror the similar modest decline in the CPI measure and further encourage officials to proceed carefully, as Powell has repeated on several occasions. The Dollar Index had been oscillating around its 200-day simple moving average last week, but the breakdown could continue from mid-November with a cooler price report.

Euro area inflation is likely to ease again both in the headline and core readings. But some of the negative base effects, which have pushed the headline lower over the past few months, are now fading. That means it could remain stickier for the next few quarters and underpin some support for the euro. Resistance in the major sits around 1.0960 which is a major long-term Fib level (61.8%) of the summer decline, and last week’s high. Recent PMI data edged cautiously higher which suggested that the bottom in eurozone sentiment could now be behind us.

Market will have one eye on OPEC+’s delayed meeting which is also scheduled for Thursday. Disagreement between members leaves uncertainty over the cartel’s production policy for next year. This will increase volatility within the market across the week as we will likely hear from numerous different sources. It is unclear at this stage how much impact it will have on Saudi Arabia extending its additional voluntary output cut of 1 million barrels per day into early 2024.

Major data releases of the week:

29 November 2023, Wednesday

-Australia CPI: Economists forecast a four-tenth decline to 5.2% y/y in October. Fuel prices fell and discounting may have started earlier. The figures will be some way above the RBA’s target and keep policymakers hawkish. Sticky data could see AUD/USD push above its 200-day SMA and 50% point of the summer drop around 0.6585.

-RBNZ Meeting: Markets expect the bank to leave the OCR unchanged at 5.50%. The RBNZ’s forward profile is also likely to be little changed with no rate cuts next year. Demand is weakening while inflation is easing faster than previously thought. Any early easing bias would be a surprise. 

30 November 2023, Thursday

-China PMIs: Manufacturing is forecast to rise to 50.0 in November from 49.5 and services to 51.5 from 59.6. Stimulus will take some time to help the property sector and non-manufacturing more broadly.

-Eurozone CPI: The disinflation trend is expected to continue with the headline sliding to 2.8%, the lowest in over two years, and core to 4%. Inflation fell more than forecast in both September and October.

-US Core PCE Deflator: The Fed’s favoured inflation gauge is forecast to print at 0.2% m/m and 3.5% y/y. The monthly figure is unchanged and needed over a prolonged period to get inflation to 2%. Gold will be worth watching if we get a softer than expected print. It has risen over last six Decembers in its own “Santa” rally. Pressure is building for an upside breakout which could challenge the April and May highs if it gets past $2010.

01 December 2023, Friday

–US ISM: Expectations are for a pick up in the November print to 47.7 from 46.7. The sector has been sub-50 in contractionary territory for the past 12 months and is likely to remain under pressure.

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