The Week Ahead – Early December Data
Although one would like the next three weeks leading into Christmas to be a slow and steady decline in the relaxation of holidays – global data makes it is anything but that!
Realistically December 4th to 15th could be described the busiest 11-day period of 2017: Year-end central bank meetings (specifically the Fed), employment, terms of trade, as well as the start of Q4 data from construction, retails sales, fixed asset investment, industrial production and PMIs.
Therefore, drilling down to trade moving specifics – the follow releases are likely to be the biggest movers.
RBA – last meeting of 2017 and last meeting for the next 8 weeks: first off: no movement in the cash rate – in the statement watch for these three points:
- Wages: The release of the Q3 wage index the Bank has clearly been placing a heavy ‘emphasis’ on the importance of wages increase in 2018 – to a point of it being almost an economic imperative.
If the statement puts wage growth front and center as reasoning for Australian economic environment being not conducive for rate movements going forward – wages will be a cornerstone of economic confidence and rate forecasts and a clear drive of the AUD – its decline off the back of the wage price data has been eye-opening.
- Inflation – core inflation is not forecasted to cross into the target band for the coming two years if you strip out housing; core inflation looks even more precarious to the downside. If this is to be countered – it needs to come from consumption inflation – which is where wages come in. RBA will likely highlight this.
- Growth – The bright point. Net-exports, government spending and now private spending are expanding and are on track to see GDP reach 3% year-on-year to finish 2017. GDP may give the bank a focus point for leaving rates on hold and a possible reason to increase rates in the medium-term future.
The AUD may whipsaw on Tuesday – As stated last week the AUDUSD is now at a new inflection point and clearly needs new catalysts to push below 75.3c – the RBA might be this event however it is more likely to be the Fed next week.
Tuesday also sees Australian retail data for October – likely to be soggy, the market releases from the discretionary sector told the market this in November. China is also due to release its SME Caixin PMI data – reactions from the market for both should be mild compared to the RBA.
Bank of Canada: The BoC has surprised global markets twice this year: once when it raised the cash rates ahead of forecasts. Second: when it was more aggressive with its forecasting on oil – oil is at a 2.5 year high…possible third surprise?
Australian trade balance for October – terms of trade have been solid in 2017. October, however, was the first month in six where China backed off in the bulk commodity space. May have a flow-through effect on Growth stocks on the ASX.
Chinese Trade Balance:
November activity at Chinese ports was certainly making up for the October slowdown – suggesting Friday’s release could be a positive read. Secondly; Europe has been showing strong signs of growth – being China’s second largest export market, forecasts for a solid snapback in November are justified – exports are forecasted to grow by 8%. The Australian-centric view of this is demand for Chinese goods means demand for Australian bulk commodities – look to the ASX and the AUD for possible quasi-trading.
Non-farm Payrolls (NFP):
Last US employment read for 2017 it is also the penultimate read of the Yellen era. Realistically one should focus on the new Powell-era and the comments he made last week. The takeout is his use of the term ‘full employment’ – More and more economists are now pointing to average hourly earnings as the core data coming from the NFPs.
US employment is booming – wage growth is dismal. Powell appears to be looking for reasons to move the Fed from ‘gradual rate rises’ into 2018 to glacial. A mere whiff of this possibility would see USD bids evaporating and would probably see the bids appearing US equities.