Weekly Market Recap (20-24 November)

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The PBoC left its
LPR rates unchanged as expected:

  • LPR
    1-year 3.45%.
  • LPR
    5-year 4.20%.


ECB’s Wunsch (hawk
– voter) gave a clear signal that the ECB is going to hold rates steady in the
next two months, but warned that an easing in financial conditions due to rate
cuts bets could prompt further rate hikes:

  • Bets on rate cuts
    risk prompting rate hikes instead
  • Markets are
    optimistic to rule out further rate hikes.
  • But rates should
    stay unchanged in December and January

ECB’s Wunsch

ECB’s de Cos (dove
– voter) pushed back against rate cuts bets:

  • ECB is not expected
    return to forward guidance on monetary policy.
  • It is absolutely
    premature to start talking about interest rates cuts

ECB’s de Cos

The US Leading
Economic Index (LEI) posted another decline coming in at -0.8% vs. -0.7%
expected and -0.7% prior. This is the 19th consecutive monthly

US LEI Index

Fed’s Barkin
(neutral – non voter) repeated that the Fed remains data-dependent and resolute
to keep conditions tighter for longer given the uncertainty around inflation:

  • Not a big time to offering
    forward guidance.
  • Fed will respond to
  • Overall core
    inflation numbers are coming down nicely, but a lot of that is for goods.
  • Business contacts on
    the ground report they are still raising prices faster than before
  • Continue to view
    inflation as a stubborn which feeds the higher for longer approach
  • Skilled trades
    continue to see wage pressures.
  • Inflation does seem
    to be settling but the job is not done

Fed’s Barkin

BoE’s Governor Bailey
(neutral – voter) reaffirmed the BoE’s “higher for longer” stance given the
tightness in the labour market and elevated wage growth:

  • Far too early to be
    thinking about rate cuts
  • Returning inflation
    to 2% target remains our absolute priority.
  • When inflation is
    high, we take no chances
  • The tragic events in
    the Middle East have added upside risk to energy prices.
  • Labor market remains
    tight despite softening recently.
  • Wage inflation remains elevated.
  • We must be alert to
    any second-round effects of higher food and energy prices.
  • The evolution of
    food prices will matter for wage growth looking ahead.
  • The squeeze on real
    incomes from higher food and energy prices may still be influencing wage
  • Inflation data for
    October released last week were welcome news, it’s much too early to
    declare victory.
  • We must watch for
    further signs of inflation, persistence and that may require interest
    rates to rise again
  • How long a
    restrictive stance will be needed will ultimately depend on what incoming
    data tells us.
  • The MPC’s latest
    projections indicate that monetary policy is likely to be restrictive for
    quite some time yet

BoE’s Governor Bailey

ECB’s Villeroy
(neutral – voter) threw forward guidance out of the window and reaffirmed the
ECB’s “wait and see” stance:

  • Our reliance on
    forward guidance was excessive, we should be more modest with future
  • We should expect more
    bond volatility, renewed increases would be another reason not to hike
  • We have to
    discontinue our PEPP reinvestments in due time, and possibly earlier then
    the end of 2024.
  • On our inflation
    target, I am not fixated on 2% to the nearest decimal place
  • The latest
    developments in Israel and the oil market shouldn’t significantly change
    downward inflation trend.
  • We should and can
    avoid recession, a soft-landing path is more likely.
  • The question quickly
    shifted from “When will we stop hiking?” to “When will we
    start cutting?”
  • See rates plateauing
    for at least the next several meetings and the next few quarters

ECB’s Villeroy

RBA’s Governor
Bullock remains optimistic on the labour market side but warns against changes
in inflation expectations:

  • Optimistic that the
    gains made in employment can be kept.
  • Says inflation is a
    crucial challenge in the next one or two years.
  • Says inflation is
    not only about supply issues, gasoline and rent, that there is still
    ongoing and underlying demand.
  • If inflation
    expectations adjust higher in response that’s a problem
  • We haven’t had any
    productivity growth in Australia for a number of years.

RBA Governor Bullock

The RBA released
the Minutes of its November Monetary Policy Meeting, which were more hawkish
than expected:

  • Considered case for
    raising rates or holding steady.
  • Board saw
    “credible case” that a rate rise was not needed at this meeting.
  • But judged case for
    hiking was the stronger one given inflation risks had increased.
  • Whether further tightening
    required would depend on data, assessment of risks.
  • Saw risk that
    inflation expectations could increase if rates were not raised.
  • Important to prevent
    even a modest further increase in inflation expectations.
  • Growing mindset
    among businesses that cost increases could be passed on to customers.
  • Noted staff
    forecasts for inflation at meeting assumed one or two more rate rises.
  • Board noted cash
    rate remained below that in many other countries.
  • Rising house prices
    could indicate policy was not especially restrictive.
  • Surge in domestic
    population growth made it harder to judge resilience of economy.
  • Inflation and
    economy were slowing, geopolitical and global outlook uncertain.
  • An escalation in
    tensions in the middle east could be a drag on global growth.


BoE’s Governor
Bailey and other BoE members reaffirmed their commitment to keep monetary
policy tight due to inflation persistence:

  • Markets are putting
    too much weight on current data releases.
  • Need to be concerned
    about potential inflation persistence
  • Need to cement
    commitment to 2% inflation target (Mann).
  • More tightness in
    monetary policy now is important (Mann).
  • Speed limit of UK
    economy is low now (Ramsden).
  • We are very clear in
    distancing ourselves from market expectations (Ramsden).
  • Fall in headline
    inflation is not a good guide on inflation trend (Haskel).
  • We are on target to
    get inflation back to 2%.
  • Latest inflation
    fall is good news, largely expected.
  • There are some signs
    that wage growth is coming off.
  • But there is weakening
    in some parts of the labour market.
  • Inefficient labour
    market is one upside risk to inflation.
  • Approach to monetary
    policy can be characterised as being watchful, responsive.
  • Would not rule out
    having to raise the bank rate further in the future


The Canadian CPI fell
further on all measures, which is a welcome news for the BoC:

  • CPI Y/Y 3.1% vs.
    3.2% expected and 3.8% prior.
  • CPI M/M 0.1% vs. 0.1%
    expected and -0.1% prior.
  • BoC Core Y/Y 2.7% vs.
    2.8% prior.
  • BoC Core M/M 0.3% vs.
    -0.1% prior.
  • CPI Median 3.6% vs. 3.6%
    expected and 3.9% prior (revised from 3.9%).
  • CPI Trimmed-Mean
    3.5% vs. 3.6% expected and 3.7% prior.
  • CPI Common 4.2% vs. 4.3%
    expected and 4.4% prior.

Canada Core Inflation Measures

ECB’s President Lagarde (neutral – voter) reaffirmed
the ECB’s “wait and see “ approach:

  • We have made those
    future decisions conditional on the incoming data meaning that we can act
    if we see rising risks of missing our inflation target
  • The energy and supply
    chain shocks which played a substantial role in last year’s inflation
    surge are now unwinding.
  • We expect headline
    inflation to rise again slightly in the coming months.
  • Our monetary policy
    is in a phase where we need to be attentive to the different forces
    affecting inflation, but always firmly focused on our mandate.
  • We will need to
    remain attentive until we have firm evidence that the conditions are in
    place for inflation to return sustainably to our goal.
  • Given the scale of
    our policy adjustment, we can now allow some time for them to unfold.
  • This is not the time
    to start declaring victory.
  • Our assessment is
    that strong wage growth mainly reflects catch-up effects related to past
    inflation, rather than a self-fulfilling dynamic.
  • We need to remain
    focused on bringing inflation back to our target and not rush to premature
    conclusions based on short-term developments.

ECB’s Lagarde

The Fed released the Minutes of its November FOMC
Monetary Policy Meeting, which didn’t contain anything new:

All Participants:

  • Agreed that monetary
    policy should remain restrictive until inflation sustainably moves towards
    the Committee’s objective.
  • Judged maintaining
    the federal funds rate at 5¼ to 5½ percent as appropriate.
  • Agreed on the
    necessity of reducing the Federal Reserve’s securities holdings.
  • Agreed that every
    policy decision should be based on incoming information and its
    implications for the economic outlook and risk balance.

Most Participants:

  • Continued to see
    upside risks to inflation, including potential prolonged imbalances in
    aggregate demand and supply.

Many Participants:

  • Commented on the
    significant tightening of financial conditions due to higher long-term
  • Observed the
    contribution of term premiums to the rise in longer-term Treasury yields.
  • Noted downside risks
    to economic activity, including larger-than-expected effects of tightening
    financial and credit conditions.

Several Participants:

  • Noted potential
    cyber risks and the importance of readiness for such threats.
  • Commented on the
    recent decline in the use of the ON RRP facility.
  • Emphasized the
    importance of banks being prepared to use Federal Reserve liquidity

Some Participants:

  • Noted benefits for
    businesses from improved hiring ability, supply chains, and reduced input
  • Reported
    difficulties for businesses in passing on cost increases to customers.
  • Expressed concern
    over the sustainability of increased labor supply.
  • Highlighted
    challenges for small businesses due to tighter financial and credit

A Few Participants:

  • Noted nominal wages
    still rising at rates above those consistent with the 2% inflation
  • Expressed concern
    over the recent pace of increases in labor supply.
  • Discussed the
    importance of monitoring Treasury market functioning and hedge fund
  • Observed that the
    process of balance sheet runoff could continue even after reducing the
    federal funds rate target range.

Federal Reserve

RBA’s Governor Bullock delivered some hawkish comments
as she sees demand still outstripping supply which could prompt a “more
substantial” monetary tightening:

  • Inflation challenge
    is increasingly driven by homegrown demand.
  • ‘More substantial’
    monetary policy tightening is right response to demand-driven inflation.
  • Supply-chain
    inflation is easing and has a bit further to run.
  • Service costs rising
    strongly as demand outstrips supply.
  • RBA liaison with
    firms indicates domestic cost pressures are proving persistent.
  • Will take time to
    get inflation back to 2-3% target.
  • Board seeking to cool
    demand while keeping employment growing.

RBA’s Bullock

The OPEC+ meeting was postponed from the 26th
to the 30th of November. Saudi officials have expressed
dissatisfaction with the oil production levels of other member countries. The
kingdom, which has voluntarily reduced its oil output by an additional 1
million barrels per day since July, is currently engaged in challenging negotiations
with other OPEC+ members about their production rates.

The length of the potential delay for the meeting is
still unclear, as no final decision has been made yet. This information comes
from delegates involved in the talks, who have requested anonymity due to the
private nature of the discussions. Crude Oil sold off on the news but erased the losses in the following days.


The US Durable Goods Orders missed expectations across
the board with negative revisions to the prior figures:

  • Durable goods -5.4%
    vs. -3.1% expected and 4.0% prior (revised from 4.7%).
  • Ex transportation
    0.0% vs. 0.1% expected and 0.2% prior (revised from 0.5%).
  • Ex defense -6.7% vs.
    5.0% prior (revised from 5.8%).
  • Non-defense capital
    goods ex air -0.1% vs. 0.1% expected and -0.2% (revised from 0.6%).

US Durable Goods Orders

The US Jobless Claims beat expectations across the
board with Continuing Claims falling for the first time in two months. This
data set covered the NFP survey week:

  • Initial Claims 209K
    vs. 226K expected and 233K prior (revised from 231K).
  • Continuing Claims
    1840K vs. 1875K expected and 1865K prior (revised from 1862K).

US Jobless Claims

BoC’s Governor Macklem reaffirmed their “wait and see”

  • Canada interest
    rates may now be restrictive enough
  • Excess demand that
    made it too easy to raise prices is now gone.
  • Reiterates that if
    high inflation persists, the Bank of Canada is prepared to raise its
    policy rate further.
  • The Canadian economy
    is approaching balance, we expect it to remain weak for the next few
    quarters, which means more downward pressure on inflation.
  • Inflation in Canada
    is still too high and progress cutting it is slower than we had hoped.
  • Expectations for
    near-term inflation have been slow to come down and this is a concern.
  • Long-term inflation expectations
    have remained well-anchored.
  • The latest CPI
    number was certainly encouraging.
  • Good news for
    Canadian citizens.
  • Right now, is not
    time to be thinking about cutting rates
  • We do not have to
    wait until inflation is back to 2% before we cut interest rates, but we do
    need to wait until it’s clear that we are on that path to hitting 2%.
  • When it comes to
    monetary policy, we will be taking it one meeting at a time.
  • If inflation keeps
    coming down, if we see underlying inflationary pressures ease, we probably
    won’t have to raise rates further.

BoC’s Macklem

ECB’s Nagel (hawk – voter) reaffirmed that the central
bank has reached its terminal rate and from now they will just keep rates
steady as long as necessary to get to the 2% target:

  • Believes the ECB
    is close to a level considered as the terminal rate.
  • Uncertain if the
    ECB will implement further rate increases.
  • He anticipates
    that the ECB rates will remain stable for some time
  • There is no
    concern that the ECB is moving toward a hard landing.
  • Acknowledges the
    existence of some risk factors that could potentially trigger inflation.
  • We will get to our
    2% inflation target in the end.
  • It is too early to
    talk about rate cuts.
  • Rates must stay high to bring inflation
    back to target.
  • Still cannot be sure if we have reached a
    peak in rates.
  • The goal is in sight in terms of inflation,
    but not yet reached.
  • Inflation could still tick up in the coming
  • Does not see a hard landing for Eurozone

ECB’s Nagel

Thursday was the PMIs day
with the US on holiday for Thanksgiving Day:

  • Australia Manufacturing
    PMI 47.7 vs. 48.2 prior.
  • Australia Services PMI 46.3 vs. 47.9 prior.
  • Eurozone
    Manufacturing PMI 43.8 vs. 43.4 expected and 43.1 prior.
  • Eurozone Services
    PMI 48.2 vs. 48.1 expected and 47.8 prior.
  • UK Manufacturing PMI
    46.7 vs. 45.0 expected and 44.8 prior.
  • UK Services PMI 50.5
    vs. 49.5 expected and 49.5 prior.


The ECB released the
Accounts of its October Monetary Policy Meeting:

  • All members agreed to maintain interest rates at current levels.
  • Members
    argued in favour of keeping the door open for a possible further rate hike.
  • The
    view was held that all three elements of the reaction function were moving in
    the right direction.
  • ECB
    should be ready for further rate hikes if necessary.
  • It
    could be expected that, based on the current outlook, inflation return to 2%
    target by 2025.
  • Members
    agreed to continue applying flexibility in reinvesting redemptions falling due
    via PEPP.
  • Discussion of an early termination of PEPP reinvestments currently seen
    as premature
  • Most of the impact of past rate hikes had yet to materialise.
  • It
    was generally assumed that the “last mile” of bringing inflation back
    to target was the most difficult.


The New Zealand Retail
Sales beat expectations:

  • Retail Sales Q/Q
    0.0% vs. -0.8% expected and -1.8% prior.
  • Retail Sales Y/Y -3.4%
    vs. -3.5% prior.
  • Retail Sales
    excluding Autos Q/Q 1.0% vs. -1.5% expected and -1.6% prior.

New Zealand Retail Sales YoY

The Japanese CPI missed
expectations across the board:

  • CPI Y/Y 3.3% vs. 3.4%
    expected and 3.0% prior.
  • Core CPI Y/Y 2.9%
    vs. 3.0% expected and 2.8% prior.
  • Core-Core CPI Y/Y
    4.0% vs. 4.1% expected and 4.2% prior.

Japan Core-Core CPI YoY

The Japanese
Manufacturing PMI missed expectations while the Services PMI ticked higher:

  • Manufacturing PMI
    48.1 vs. 48.8 expected and 48.7 prior.
  • Services PMI 51.7
    vs. 51.6 prior.

Japan Manufacturing PMI

BoE’s Pill (neutral –
voter) reaffirmed that the central bank is going to hold rates high amid
elevated inflation:

  • We cannot afford to ease off tight monetary policy.
  • UK
    monetary policy was in a difficult phase amid “stubbornly high” price
  • Had
    to resist temptation to declare victory on inflation battle as October print
    remains high.
  • There’s slower growth in activity and employment.
  • Key indicators that BoE are focusing on i.e. services inflation, pay
    growth remain at “very elevated levels”.
  • The
    challenge is to ensure that there is enough persistence in restrictive monetary
    policy to bring inflation down.

BoE’s Pill

ECB’s Holzmann (hawk –
voter) pushed back against rate cuts expectations as he still sees high
inflationary pressures:

  • The chances of
    another rate hike are no smaller than that of rate cuts
  • We still have high
    inflation pressures.
  • There are differing
    expectations within the ECB in terms of what can yet happen.
  • That is influenced
    to a point by how high inflation is in each country.
  • My suggestion on
    PEPP would be to reduce reinvestments step by step starting from March.

ECB’s Holzmann

ECB’s President Lagarde
(neutral – voter) reaffirmed their “wait and see” stance:

  • We have already done
    a lot on rates, can now observe
  • The battle against
    inflation is not over.
  • We are not declaring
    victory yet.
  • We are seeing
    progress on inflation.

ECB’s President Lagarde

ECB’s de Guindos (neutral
– voter) highlighted the stagnation in the Eurozone economy:

  • Euro area economy is
    stagnating in 2nd half of 2023
  • Q4 GDP will likely
    be similar to Q3.
  • Risks tilted to the
  • Current level of rates
    held for long enough will likely tame inflation going forward.

ECB’s de Guindos

The Canadian Retail Sales
beat expectations:

  • Retail Sales
    September 0.6% vs. 0.0% expected and -0.1% prior.
  • Retail Sales ex auto
    0.2% vs. -0.2% expected and 0.2% prior (revised from 0.1%).
  • Retail Sales ex auto
    and gas -0.3% vs. -0.3% prior.
  • October advanced estimate 0.8%.
  • Retail Sales Y/Y 2.7%
    vs. 1.7% prior (revised from 1.6%).

Canada Retail Sales YoY

The S&P Global US
PMIs were basically in line with expectations with a slight miss in the
Manufacturing PMI and slight beat in the Services PMI:

  • Manufacturing PMI
    494. Vs. 49.8 expected and 50.0 prior.
  • Services PMI 50.8 vs.
    50.4 expected and 50.6 prior.
  • Composite PMI 50.7 vs.
    50.7 prior.

Key line from the report:
“As a result of subdued demand and decreasing backlogs, companies reduced
their workforce for the first time since June 2020, affecting both service
providers and goods producers.”

US Manufacturing PMI

highlights for next week will be:

  • Tuesday: Australian
    Retail Sales, US Consumer Confidence.
  • Wednesday: Australian
    Monthly CPI, RBNZ Policy Decision, US GPD Q3 2nd Estimate.
  • Thursday: Japan
    Industrial Production and Retail Sales, China PMIs, Switzerland Retail Sales,
    Eurozone CPI and Unemployment Rate, Canada GDP, US Core PCE, US Jobless Claims.
  • Friday: Japan
    Jobs data, China Caixin Manufacturing PMI, Switzerland GDP, Canadian Labour
    Market report, Canada Manufacturing PMI, US ISM Manufacturing PMI

That’s all folks. Have a
nice weekend!

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