In this Black Friday and Thanksgiving week, the key data print is the Fed’s favoured PCE price index (Wed). This reading will be key in deciding policy direction, particularly given the futures market is pricing in a 56.2% chance of a 25bp cut at the last meeting this year, while the swaps market is pricing in only a 38.8% probability, at time of writing.
Later today we have the German IFO business climate and Chicago Fed National Activity Index prints, and central bank chatter from the BoE’s Lombardelli and Dhingra, and the ECB’s Lane (and again on Wed) and Makhlouf. The November FOMC minutes, and US home sales and US Conf. Board consumer confidence readings are due to be released on Tuesday. China’s industrial profits hit the screens on Wednesday and later the US consumer income, initial jobless claims, durable goods, and the revised 3Q’24 GDP reading will garner market attention. Eurozone economic and consumer confidence prints will be of interest on Thursday, as will Germany and Spain CPI readings. Eurozone CPI follows on Black Friday.
Last week, escalating geopolitical tensions in Europe drove oil prices higher, Brent rose 5.81% to $75.17pb. US Treasuries benefited from flight to safe assets, the 10-year benchmark fell 4bps to 4.40%. Meanwhile, the S&P Index gained 1.68%, and the US dollar, DXY Index, rose to a high this year, gaining 0.81%.
In Europe, quite a dovish statement came from the ECB’s Stournaras, who said the central bank should ease rates at each meeting until such a level where it neither restricts nor stimulates the economy, the neutral rate. Stournaras went on to emphasise the uncertainty in the economic landscape, noting that the recent wage growth spike is likely a temporary “blip” rather than a permanent trend. The Eurozone’s business activity unexpectedly contracted in November, with the HCOB composite PMI falling to a 10-month low of 48.1. This decline reflects multiple challenges: Germany’s upcoming snap elections, escalating Russia-Ukraine conflict, and concerns about Trump tariffs. Despite wage growth accelerating to 5.4%yoy in Q3’24, the weakening economic data has increased expectations for a larger than 25bps rate cut in December, pushing the euro to its lowest level against the dollar since December 2022 on Friday’s close.
In the UK, inflation unexpectedly jumped to 2.3%yoy in October, rising from 1.7%yoy in September. The increase was primarily driven by regulated domestic energy tariffs. Core inflation increased to 3.3%yoy, while services inflation rose to 5.0%yoy, underscoring the BoE’s cautious approach to rate cuts. Across the pond, Trump appointed Scott Bessent as Treasury Secretary, who advocates a “3-3-3” plan targeting 3% GDP growth, 3% budget deficit reduction, and 3mbpd increase in oil production. Markets have so far responded positively to this appointment, viewing Bessent’s focus on fiscal prudence and growth as reassuring. In terms of data, US housing starts and building permits data disappointed in October, while existing home sales surprised to the upside. The S&P Global US manufacturing PMI contracted again, in contrast to an expanding services reading.
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