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by Charalambos Pissouros

Weekly Outlook: Nov 25 – Nov 29: US Core PCE, Eurozone CPIs and Canada GDP

This week will be shorter for the US markets as on Thursday, they will be closed in celebration of the Thanksgiving Day, while on Friday, they will close early. However, we get several US data on Wednesday, including the yoy core PCE rate, personal income and spending, and the second estimate of the Q3 GDP. On Friday, Eurozone’s preliminary CPIs for November are coming out, as well as Canada’s GDP for Q3.

Monday is a relatively quiet day, with the only release worth mentioning being the German Ifo survey for November. The current assessment index is expected to have ticked up to 97.9 from 97.8, while the expectations one is anticipated to have risen to 92.5 from 91.5. This would drive the business climate print up to 95.0 from 94.6.

On Tuesday, the US new home sales for October are coming out and they are expected to have increased 1.2% mom after falling 0.7% in September.

On Wednesday, during the early Asian morning, New Zealand’s trade balance for October will be released, but there is no forecast this time around.

Later in the day, from the US, we get the second estimate of the US GDP for Q3, which is expected to confirm its preliminary estimate, namely that US economic growth slowed to +1.9% qoq SAAR from +2.0% qoq in Q2. That said, even if we get a small deviation from the forecast, we don’t expect this release to attract much attention as we already have models suggesting how the economy has been performing during the current quarter. Both the Atlanta Fed and New York Nowcast models estimate a strong slowdown to 0.4% qoq SAAR. However, given that we still have a lot of information to get with regards to November and December, this percentage may be subject to decent revisions.

Investors may pay more attention to the personal income and spending data for October, which are accompanied by the yoy rate of the core PCE index, which is the Fed’s favorite inflation gauge. Personal income is expected to have risen +0.3% mom, the same pace as in September, while spending is expected to have accelerated somewhat to +0.3% mom from +0.2%. That said, given that the monthly earnings rate for the month declined to +0.2% from+0.4%, we see the risks surrounding the income forecast as tilted to the downside. With regards to spending, the forecast for improvement is supported by the month’s retail sales, which rebounded.

US CPIs vs PCE inflation

As for the yoy core PCE rate, it is expected to have remained unchanged at +1.7% yoy, below the Fed’s objective of 2%. At its latest meeting, the FOMC decided to cut rates by another 25bps, but signaled that it is planning to take the sidelines, unless things fall out of orbit. That said, at the press conference, Fed Chair Powell said that a significant inflation rise is needed before they start considering hiking again, and a core PCE rate below 2% is likely to confirm that it will take long before policymakers turn their eyes to the hike button. It could even prompt market participants to bring forth the timing of when they expect the next cut to be delivered. After all, they have remained unconvinced that the Fed has stopped with reducing rates. According to the Fed funds futures, they are pricing in another quarter point cut to be delivered in July next year.

Fed funds futures market vs FOMC interest rate expectations

Pending home sales and durable goods orders for October are also coming out. Pending home sales are forecast to have slowed to +0.9% mom from +1.5%, while durable goods orders are expected to have declined 0.7% mom after tumbling 1.2% in September. The core rate is expected to have rebounded to +0.2% mom from -0.4%.

On Thursday, during the Asian morning, we get New Zealand’s business confidence index for November, but no forecast is currently available.

From Germany, we get the preliminary CPIs for November. Both the CPI and HICP yoy rates are expected to have risen to 1.3% and 1.4%, from 1.1% and 0.9% respectively. Something like that could raise speculation that Eurozone’s headline CPI, due out the following day, may accelerate as well.

In the US, markets will be closed in celebration of the Thanksgiving Day.

On Friday, Asian time, we get Japan’s end-of-month data dump. The unemployment rate is expected to have remained unchanged at 2.4%, while the jobs/applications ratio is forecast to have ticked down to 1.56 from 1.57. No forecast is available for the headline Tokyo CPI, while the core rate is expected to have ticked up to +0.6% yoy from +0.5%. The preliminary industrial production for October is also coming out and the forecast points to a 2.1% mom slide, after a 1.7% increase in September.

During the European morning, we get Sweden’s GDP for Q3, the qoq of which is expected to have ticked up to +0.2% from +0.1%. This would drive the yoy rate up to +1.8% from +1.0%. At its latest meeting, the Riksbank kept its repo rate unchanged at -0.25%, but said that the rate will most probably be raised to zero in December. Thus, a slight improvement in the domestic economy may seal the deal for such a move.

From the Eurozone, we have the preliminary CPIs for November. The headline rate is expected to have increased somewhat, to +0.9% yoy from +0.7%, while no forecast is available for the core rate. The HICP excluding energy and food yoy rate is anticipated to have ticked up to +1.3% from 1.2%. On Friday, we got another round of soft PMIs from the bloc, and although inflation is expected to have accelerated somewhat, it would still be well below the ECB’s objective of “below, but close to 2%”. Under normal circumstances, this would have prompted investors to increase bets with regards to further easing by the ECB. However, we believe that this time, they may prefer to wait for the upcoming gathering, the first one headed by Christine Lagarde, before they adjust (or not) their expectations around the future path of the Bank.

Later in the day, Canada’s GDP for Q3 is coming out, with the annualized qoq rate expected to have declined to +1.3% from +3.7%. The message we got from the latest BoC meeting, as well as by Poloz's conference then was that officials have started flirting with the idea of easing. However, last week, the Governor said that monetary conditions are “about right”, prompting investors to push back their bets with regards to a rate cut by the BoC. According to Canada’s OIS (Overnight Index Swaps), they are assigning a 6% chance for such an action to be delivered in December, but the percentage for January is at around 36%. Thus, a slowdown in Canada’s economic activity is likely to push that percentage higher.

Canada GDP qoq annualized rate

In the US, given that it is the next day after Thanksgiving, markets will close early.

Finally, on Saturday, we get China’s manufacturing and non-manufacturing PMIs for November. The manufacturing PMI is expected to have risen to 49.5 from 49.3, while no forecast is available for the non-manufacturing one.


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