Thought For A Day
Archives of “Analysis” category
rssNext week’s economic events and releases highlighted by US jobs on Friday
- anada GDP 8:30 AM ET. Estimate 0.2% versus 0.1% last month
- US consumer confidence 10 AM ET. Estimate 100.0 versus 102.5 last month
Wednesday, November 30:
- US ADP nonfarm employment change estimate, 8:15 AM ET. Estimate 195K versus 239K last month
- US preliminary GDP for Q3. 8:30 AM ET. Estimate 2.7% versus 2.6% flash
- US JOLTs job openings. 10 AM ET. Estimate 10.33M versus 10.72M last month
- Fed chair Powell speaks at the Brookings institute. 1:30 PM ET
Thursday, December 1
- Swiss the CPI month-to-month, 2:30 AM ET. Estimate 0.2% versus 0.1% last
- OPEC meeting all day
- US core PC price index, 8:30 AM ET estimate 0.3% versus 015% last
- US ISM manufacturing PMI. Estimate 49.8 versus 50.2 last
Friday, December 2
- RBA Gov. low speaks, 9:40 PM ET Thursday
- RBNZ Gov. or speaks, 11:30 PM ET Thursday
- US nonfarm payroll, 8:30 AM ET. Estimate 200K versus 261K last month
- US unemployment rate, 8:30 AM ET. Estimate 3.7% versus 3.7% last month
- US hourly earnings, 8:30 AM ET. Estimate 0.3% versus 0.4% last month
- Canada employment change, 8:30 AM ET. Last month 108.3 K
- Canada unemployment rate, 8:30 AM ET. Last month 5.2%
Thought For A Day
JPMorgan target EUR/USD as low as 0.90 in the first half of 2023 (Fed, ECB to pause)
JPMorgan Research adopts a structural bearish bias on EUJR/USD in 2023 targeting the pair at 0.95 in Q1 and Q2 as well.
- “Our economists’ expect the Fed and the ECB to pause in 1Q23 at 5% and 2.5% for the rest of 2023, leaving the policy rate differential just 50bp shy from its 15-year low. The outlook envisions a mild recession in the US at the end of 2023, which should hamper recovery in the Eurozone (EU is expected to grow by 0.2% vs. US of 0.4% next year),” JPM note.
- “The baseline for 2023 looks for EUR/USD to average 0.95 in 1H, with a test towards 0.90 possible (assumes no de-escalation in geopolitics). A Fed pause is not a sufficient condition for a rebound in the EUR/USD. Trading strategy is tactical, with risks being an ongoing improvement in regional growth momentum or a potential ceasefire,” JPM adds.
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EUR bears have had a hard time under parity.
Thought For A Day
BOE to raise bank rate by 50 bps in December – Reuters poll
- 43 of 56 economists say the BOE will raise the bank rate by 50 bps in December
- 13 of 56 economists say the BOE will raise the bank rate by 75 bps in December
- The terminal rate forecast by the poll is at 4.25% – similar to the November poll
- 15 economists say risk to terminal rate forecast would be “later and higher than expected”
- 7 economists say risk to terminal rate forecast would be “earlier and lower than expected”
- Median response of 90% when asked about probability of a recession in the next year
Given surging inflation pressures, the BOE will continue to feel badgered into tightening monetary policy further for the time being. There was already some pushback by Bailey & co. in the November policy meeting, hinting that the terminal rate would be at “a lower peak than 5.20% priced into markets”.
In other words, they are already angling towards a slower pace of tightening and with a prolonged recession on the cards, they might just be the first major central bank to pause rate hikes.
Fed minutes in focus before the holiday season
The November FOMC meeting statement caused a bit of a stir when the Fed introduced this new passage to markets:
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Fed chair Powell’s press conference helped to calm the nerves of dollar bulls as he signaled a higher terminal top for rates.
As such, the meeting minutes release today will be of particular interest to see how is the debate going with regards to all of the above.
What is the opinion of other Fed policymakers on Powell’s communique? Are there policymakers that feel that the central bank should be taking it slower when it comes to the pace of tightening? Is there going to be a firm pushback in the language on the supposed Fed pivot?
That’s quite a lot for markets to consider, especially now with the dollar at a checkpoint and broader market sentiment also looking rather indecisive since the end of last week.
And all of this will come right before the Thanksgiving holiday, which will come tomorrow. That will make for thinner liquidity conditions all the way through to the weekend.
From ‘Trading In The Zone’ – Douglas
Thought For A Day
Central Banks BlackRock – central banks are causing recessions rather than coming to the rescue
- We are in a new world shaped by supply. Major spending shifts and production constraints are driving inflation.
- Constraints are rooted in the pandemic and have been exacerbated by the energy shock and China’s lockdowns.
- We are in a new macro regime where central banks are causing recessions rather than coming to the rescue. That is clear in the rate path of major central banks set to overtighten policy as they battle inflation. We think they will eventually pause but not cut rates when confronted with the damage of sharp rate hikes – that could be the reality of recession or the appearance of financial cracks, as seen in the UK.
- The Federal Reserve … signaled it would have to take rates higher than it originally planned, even if at a slower pace.
- The Bank of England has acknowledged some recession is necessary to get inflation down, yet like other central banks, it is failing to acknowledge the scale of the recession needed to get it all the way down to target.
- The ECB continues to normalize monetary policy, but a change in tone suggests it could be poised to slow the pace of hikes. We think the ECB is still raising rates into a recession triggered by the energy shock and its hikes.
- Investment implication: We are tactically underweight DM equities after having further trimmed risk.