Weekly Market Recap (04-08 December)

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BoJ Noguchi reiterated the central bank’s focus on
wage growth to reach their 2% target sustainably with no policy change in
sight:

  • It’s true the impact
    of elevated global inflation is reaching Japan’s economy with consumer
    inflation exceeding the BoJ’s 2% target since the spring of 2022.
  • But the rise (in
    inflation) is mostly due to cost-push factors amid higher import prices.
  • To achieve our 2% inflation
    target, we must see price rises backed by sustained wage increases.
  • While annual spring
    wage negotiations this year achieved wage hikes unseen in 30 years, we’ve
    only just reached a stage where the possibility of achieving our target
    has come into sight.

BoJ Noguchi

The Switzerland November CPI missed expectations with
both the measures comfortably in the SNB’s 0-2% target range:

  • CPI Y/Y 1.4% vs.
    1.7% expected and 1.7% prior.
  • CPI M/M -0.2% vs.
    -0.1% expected and 0.1% prior.
  • Core CPI Y/Y 1.4% vs.
    1.5% prior.

Switzerland CPI YoY

ECB’s de Guindos (neutral – voter) maintained his
neutral stance as the central bank keeps a “wait and see” approach:

  • Recent inflation
    data is good news.
  • It’s been a
    ‘positive surprise’.
  • But it is too early
    to declare victory
    .
  • Increase in wages
    can still have an impact on inflation.
  • Monetary policy
    stance will be data dependent.

ECB’s de Guindos

The Tokyo CPI for
November fell further:

  • CPI
    Y/Y 2.6% vs. 3.3% prior.
  • Core
    CPI Y/Y 2.3% vs. 2.4% expected and 2.7% prior.
  • Core-Core
    CPI Y/Y 2.7% vs. 2.7% prior.

Tokyo Core-Core CPI YoY

The Chinese Caixin Services
PMI for November beat expectations:

  • Caixin Services PMI
    51.5 vs. 50.8 expected and 50.4 prior.

Key
points from the report:

  • Business activity
    and new orders increase at quickest rates in three months.
  • Confidence around
    the year-ahead improves.
  • Inflationary pressures weaken.

China Caixin Services PMI

The RBA left the cash
rate unchanged at 4.35% as expected with a slightly dovish tone:

  • Whether further
    tightening of monetary policy is required to ensure that inflation returns
    to target in a reasonable timeframe will depend upon the data and the
    evolving assessment of risks.
  • Board remains
    resolute in its determination to return inflation to target.
  • The limited
    information received on the domestic economy since the November meeting
    has been broadly in line with expectations
    .
  • Outlook for
    household consumption also remains uncertain.
  • The monthly CPI
    indicator for October suggested that inflation is continuing to moderate,
    driven by the goods sector; the inflation update did not, however, provide
    much more information on services inflation.
  • Measures of
    inflation expectations remain consistent with the inflation target.
  • Conditions in the
    labour market also continued to ease gradually
    , although they remain tight.
  • Domestically, there
    are uncertainties regarding the lags in the effect of monetary policy.
  • Higher interest
    rates are working to establish a more sustainable balance between
    aggregate supply and demand in the economy.
  • Holding the cash
    rate steady at this meeting will allow time to assess the impact of the
    increases in interest rates on demand, inflation and the labour market.

RBA

The Eurozone PPI
for October came in line with expectations:

  • PPI Y/Y -9.4% vs.
    -9.5% expected and -12.4% prior.
  • PPI M/M 0.2% vs.
    0.2% expected and 0.5% prior.

Eurozone PPI YoY

ECB’s Schnabel
(hawk – voter) changed her tone to a more neutral stance after the latest
inflation report:

  • Further rate hikes
    “rather unlikely” after latest inflation data.
  • Inflation developments
    are encouraging, fall in core prices remarkable.
  • Must be careful
    about guiding policy for many months out.
  • Current level of
    restriction is sufficient, has increased confidence 2% target will be met
    in 2025.
  • But must not declare
    victory prematurely.
  • Inflation is on the
    right track, but more progress is needed.
  • No prolonged
    recession is seen.
  • Data suggests
    economy may be bottoming out.

ECB’s Schnabel

The US ISM
Services PMI for November beat expectations:

  • ISM Services PMI
    52.7 vs. 52.0 expected and 51.8 prior.
  • Employment index 50.7 vs. 50.2 prior.
  • New orders index
    55.5 vs. 55.5 prior.
  • Prices paid index
    58.3 vs. 58.6 prior.
  • New export orders
    53.6 vs. 48.8 prior.
  • Imports 53.7 vs. 60.0 prior.

US ISM Services PMI

The US Job Openings for
October missed expectations by a big margin with a negative revision to the
prior reading:

  • Job Openings 8.733M
    vs. 9.300M expected and 9.350M prior (revised from 9.553M).
  • Hires 3.7% vs. 3.7% prior.
  • Separations rate 3.6% vs. 3.6% prior.
  • Quits 2.3% vs. 2.3%
    prior.

US Job Openings

The Australian Q3 GDP
missed expectations:

  • GDP Q/Q 0.2% vs.
    0.4% expected and 0.4% prior.
  • GDP Y/Y 2.1% vs.
    1.8% expected and 2.1% prior.

Australia Q3 GDP

BoJ’s Himino just echoed
the other members’ comments with the usual focus on wage growth:

  • BoJ will patiently
    maintain easy policy until sustained, stable achievement of price target
    is in sight.
  • Japan’s financial
    system is likely resilient enough to weather stress from transition to
    higher interest rates.
  • If we do not get the
    timing exit procedures wrong, the impact of a positive wage-inflation
    cycle will likely benefit wide range of households, companies.
  • Must make
    appropriate decision on exit timing, procedure by scrutinising wage,
    inflation developments.
  • BoJ must achieve
    situation where inflation slows ahead, but not too much.
  • Japan is seeing
    steadily changes in price, wage behaviour.
  • Solid progress is
    observed in the transformation of firms’ wage- and price-setting
    behaviour.
  • Price rises
    beginning to affect wages.
  • Pass-through from
    wages to inflation is also returning somewhat.
  • Without virtuous
    cycle between wages and prices, Japan will most likely revert to the
    deflationary state in the past.
  • When Japan returns
    to an economy with positive interest rate, that could improve households’
    balance as a whole.
  • If inflation
    expectations have heightened, that would mean impact of rise in real
    interest rate could be smaller than that of nominal rate.

BoJ Himino

The Eurozone
Retail Sales for October missed expectations:

  • Retail
    Sales M/M 0.1% vs. 0.2% expected and -0.1% prior (revised from -0.3%).
  • Retail
    Sales Y/Y -1.2% vs. -1.1% expected and -2.9% prior.

Eurozone Retail Sales YoY

BoE’s Bailey
(neutral – voter) reaffirmed the central bank’s “wait and see” approach:

  • Outlook for
    inflation is uncertain.
  • Rates likely to need
    to remain around current levels.
  • We remain vigilant
    to financial stability risks that might arise.

BoE’s Governor Bailey

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

  • Further
    rate hike is unlikely to be needed but market bets for Q1 rate cut are science
    fiction.

ECB’s Kazimir

The US ADP missed
expectations:

  • ADP 103K vs. 130K
    expected and 106K prior (revised from 113K).

Details:

  • Small (less than 50
    employees) 6K vs. 19K prior.
  • Medium firms (500 –
    499) 68K vs. 78K prior.
  • Large (greater than
    499 employees) 33K vs. 18K prior.

Changes in pay:

  • Job stayers 5.6% vs.
    5.7% prior – slowest since September 2021.
  • Job changers 8.3% vs. 8.4% prior.

US ADP

The BoC left
interest rates unchanged at 5.00% as expected:

  • Statement repeats
    that BoC “is prepared to raise the policy rate further if
    needed”.
  • Data “suggest
    the economy is no longer in excess demand”.
  • BoC saw
    “further signs that monetary policy is moderating spending and relieving
    price pressures”.
  • The slowdown in the
    economy is reducing inflationary pressures in a broadening range of goods
    and services prices.
  • Governing Council
    wants to see further and sustained easing in core inflation.
  • The global economy continues
    to slow, and inflation has eased further.
  • US growth has been
    stronger than expected but is likely to weaken in the months ahead.
  • Growth in the euro
    area has weakened.
  • Oil prices are about
    $10-per-barrel lower than was assumed in the October MPR.
  • The US dollar has
    weakened against most currencies, including Canada’s.
  • Higher interest
    rates are clearly restraining spending: consumption growth in the last two
    quarters was close to zero.
  • The labour market
    continues to ease: job creation has been slower than labour force growth.

BoC

ECB’s Villeroy
(neutral – voter) reaffirmed that the central bank is done with rate hikes and
the next step is rate cuts in 2024:

  • Disinflation is
    happening more quickly than we thought.
  • This is why, barring
    any shocks, there will not be any new rise in rates. The question of a
    rate cut could arise in 2024, but not right now.

ECB’s Villeroy

BoJ Governor Ueda didn’t
say anything explicitly about an exit from the current easy policy BUT you can
clearly read between the lines that they are considering rate hikes:

  • Japan’s economy to
    continue recovering moderately, supported mainly by accommodative
    financial conditions and effects of economic stimulus measures.
  • Uncertainty over
    Japan’s economy extremely high.
  • Closely watching the
    impact of financial, forex markets on the Japanese economy, prices.
  • Will patiently
    continue monetary easing under YCC to support economic activity, cycle of
    wage growth.
  • We have not yet
    reached a situation in which we can achieve price target sustainably and
    stably and with sufficient certainty.
  • Challenging situation remains.
  • It’ll become even
    more challenging towards the end of this year and into early 2024.
  • BoJ has not made
    decision on which interest rate to target once we end negative interest
    rate policy.
  • Options include
    raising rate applied to financial institutions’ reserves at BoJ, or revert
    to policy targeting overnight call rate.
  • Don’t have any
    specific idea in mind on how much we will raise rates once we end negative
    rate policy.
  • Whether to keep
    interest rate at zero or move it up to 0.1%, and at what pace short-term
    rates will be hiked after ending negative rate policy, will depend on
    economic and financial developments at the time.
  • Achieving 2% trend
    inflation can be defined as a state where economy, void of new shocks, can
    see inflation sustained around 2% and wage growth somewhat above that
    level.
  • Would be difficult
    to choose which monetary policy tools to mobilise when exit from stimulus
    draws near.
  • BoJ to work closely
    with govt while monitoring currency, financial market moves.
  • Service spending
    increasing moderately as a trend.
  • What’s important
    from here is for wages to keep rising and underpin consumption.

BoJ Governor Ueda

The Switzerland
Unemployment Rate for November ticked higher to 2.1% vs. 2.0% prior, while the
Seasonally adjusted unemployment rate remained unchanged at 2.1% vs. 2.2%
expected.

Switzerland Unemployment Rate

The US Challenger
Job Cuts for November increased to 45.51K vs. 36.84K prior. Compared to the
same month last year, job cuts are down by roughly 41% but then again there was
an exceptional number of tech layoffs in November of 2022. The 45.51K layoffs
last month brings the year-to-date total to 686,860 and that’s roughly a 115%
increase to the year-to-date total for last year through to November.

US Challenger Job Cuts

The US Jobless
Claims beat expectations across the board:

  • Initial Claims 220K
    vs. 222K expected and 219K prior (revised from 218K).
  • Continuing Claims
    1861K vs. 1910K expected and 1925K prior (revised from 1927K).

US Jobless Claims

BoC’s Gravelle
acknowledged the progress on inflation:

  • Gravelle noted that
    housing imbalances have serious consequences for shelter price inflation,
    contributing 1.8 percentage points to the total October inflation rate of
    3.1%.
  • Emphasized the need
    for Canada to have more homes and a housing supply that is more responsive
    to increases in demand.
  • Pointed out that a
    jump in demographic demand, coupled with existing structural supply
    issues, could explain why rent inflation continues to climb.
  • Stressed the
    importance of all levels of government working together on housing
    policies to boost supply.
  • Urged the reduction
    of barriers to adding capacity and ensuring market flexibility to meet
    future changes in housing demand.
  • Warned that without
    more house building, inflationary pressures in the shelter sector could
    continue to build.
  • Highlighted that
    rent inflation reached a 40-year high in October, with housing supply not
    keeping pace with recent increases in immigration.
  • Reported that
    housing activity grew 8.3% in Q3 but remains far below the level needed to
    meet growing housing needs.
  • Commented that
    recent increases in immigration have boosted near-term consumption but
    haven’t significantly affected inflation.
  • Noted that the
    economy is now roughly in balance, with a focus on monitoring inflation
    expectations, wage growth, and corporate pricing behaviour.
  • Stressed the
    importance of indicators in assessing whether inflation is on a sustained
    path to the 2% target.
  • Said that the market
    has been relatively right on their previous two or three decisions, so it
    seems like it’s taking in the data in the same way they are.

BoC’s Gravelle

The Japanese Average Cash Earnings increased in
October on a year-over-year basis marking the 22nd consecutive month
of rising wages:

  • Average Cash
    Earnings Y/Y 1.5% vs. 0.6% prior (revised from 1.2%).
  • Real wages Y/Y -2.3%.

Japan Average Cash Earnings YoY

The US NFP report beat expectations across the board
by a big margin:

  • NFP 199K vs. 180K
    expected and 150K prior.
  • Two-month net
    revision -35K vs -101K prior.
  • Unemployment rate 3.7%
    vs. 3.9% expected and 3.9% prior.
  • Participation rate 62.8% vs. 62.7% prior.
  • U6 underemployment
    rate 7.0% vs. 7.2% prior.
  • Average hourly
    earnings M/M 0.4% vs. 0.3% expected and 0.2% prior.
  • Average hourly
    earnings Y/Y 4.0% vs. 4.1% expected and 4.0% prior (revised from 4.1%).
  • Average weekly hours
    34.4 vs. 34.3 expected and 34.3 prior.
  • Change in private
    payrolls 150K vs. 153K expected.
  • Change in
    manufacturing payrolls 28K vs. 30K expected.
  • Household survey 747K
    vs. -348K prior.
  • Birth-death
    adjustment 4K vs. 412K prior.

US Unemployment Rate

The highlights for next week will be:

  • Tuesday: Japan PPI, UK Labour Market report, NFIB Small
    Business Optimism Index, US CPI.
  • Wednesday: UK GDP, Eurozone Industrial Production, US PPI, FOMC
    Policy Decision, New Zealand GDP.
  • Thursday: Australia Labour Market report, SNB Policy Decision,
    BoE Policy Decision, ECB Policy Decision, US Retail Sales, US Jobless Claims,
    New Zealand Manufacturing PMI.
  • Friday: Australia/Japan/Eurozone/UK/US Flash PMIs, China
    Industrial Production and Retail Sales, Eurozone Wage data, US Industrial
    Production, PBoC MLF.

That’s all folks. Have a nice weekend!

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