Second Q3 GDP reading from the US and final Q3 GDP reading from the UK will highlight the holiday shortened week ahead of us as we wind down the year.
USD
NFP data for the month of October saw economy lose 105k jobs vs adding 55k as was expected. Jobs market managed to recover in November as economy added 64k jobs vs 50k as expected. The unemployment rate jumped to 4.6% from 4.4% while participation rate ticked up to 62.5%. U6 unemployment rate, a broad measure of unemployment that includes the officially unemployed plug discouraged workers and those working part-time for economic reasons, surged to 8.7% from 8%. Wage growth slowed down as average hourly earnings rose 0.1% m/m and 3.5% y/y compared to 0.3% m/m and 3.6% y/y previously. All of the jobs added were in private sector while government lost 5k jobs. Manufacturing dropped 5k jobs as well while gains were seen in healthcare and construction. Data is distorted by the government shutdown so it should be taken with a dose of skepticism.
October retail sales showed no growth vs 0.1% m/m as expected. Growth was seen in ex autos and control group which came in at 0.4% m/m and 0.8% m/m respectively. Furniture & home furnishings showed biggest gain followed by sporting goods and online sales. Motor vehicle & parts dealers showed biggest decline followed by building materials. Discretionary and online spending led the gains signalling that US consumer is holding strong with caveat that food services & drinking places declined 0.4% m/m.
November inflation report provided a pleasant surprise with headline number dropping to 2.7% y/y from 3% y/y seen in September while markets were expecting a tick up to 3.1% y/y. Core reading dropped to 2.6% y/y from 3% y/y in September and markets were expecting it to stay unchanged. Due to government shutdown details of report are scarce and distorted and are not providing us with a full picture of the economy. Housing inflation coming down is the major reason why overall inflation figures came down.
The yield on a 10y Treasury started the week at 4.18%, rose to 4.20% and finished the week at around 4.15%. The yield on 2y Treasury started the week at 3.53%, rose to 3.54% and finished the week at around 3.49%. Spread between 2y and 10y Treasuries started the week at 66bp and finished the week at 67bp. FedWatchTool sees the probability of a 25bp rate cut at January meeting at around 27% while probability of no change is at around 73%. Silver broke above $66 reaching new all time high and now being up by more than 114% YTD.
This week we will have second reading of Q3 GDP.
Important news for USD:
Tuesday:
GDP
EUR
Preliminary December PMI data showed manufacturing sliding down to 49.2 from 49.6 in November while expectations were for a 49.9 print. German reading was down on the month as well while France surprised with return to expansion (50.1). Services eased to 52.6 from 53.6 the previous month showing bigger decline than 53.3 as expected. Both German and French readings saw declines and report notes that companies continue to hire more people, although at a cautious rate. One concern is that input prices rose at a highest rate in past nine months. Increase can be partially attributed to wage increases. Composite printed 51.9 vs 52.8 in November and with it staying in expansion we can see a positive growth in Q4 GDP. Final CPI print for November showed headline number at 2.1% y/y unchanged from October and down from 2.2% y/y as preliminary reported. Core CPI was unchanged for the third consecutive month at 2.4% y/y.
ECB has left key interest rates unchanged, deposit rate at 2%, as widely expected. Inflation forecast for 2026 has been revised up to 1.9% from 1.7% in September. Headline inflation is seen at 1.8% in 2027 and 2% in 2028. Main reason for higher inflation in 2026 is that services inflation is expected to come down more slowly. GDP growth were also revised up and are now expected to come in at 1.2% in 2026 and 1.4% for both 2027 and 2028. The bank remains data-dependent, it is not pre-committing to any rate path and will make decisions on meeting-by-meeting basis.
ECB president Lagarde stated at press conference that ECB is leaving their options open in regards to future rate moves. Domestic demand was highlighted as the main driver of growth in the years to come. Trade tensions have eased by the environment remains uncertain. She clarified that decision was unanimous and that policy is in a good space.
GBP
November payrolls change saw economy lose additional 38k jobs after dropping 22k jobs in October. October ILO unemployment rate ticked up to 5.1% as was expected while wages beat expectations with average weakly earnings at 4.7% 3m/y and ex bonus at 4.6% 3m/y, but still grew at a slower pace compared to September print. Private sector wage growth showed 3.9% y/y which is the slowest growth since 2020. Weakening of labor market continues as the unemployment rate reaches level not seen since March of 2021 and the employment rate declined by further 0.3pp to 74.9%.
PMI data for December showed both sectors improving compared to November. Manufacturing rose to 51.2 from 50.2 while both services and composite printed 52.1, up from 51.3 and 51.2 respectively. The report, however, highlights issues within economy, namely lacklustre growth, widespread job loses and renewed inflation pressures. It also highlights that these results correspond to 0.2% GDP growth in December and 0.1% growth in Q4.
November inflation report saw inflation plunge to 3.2% y/y from 3.6% y/y in October while markets were expecting just a tick down to 3.5% y/y. Big drop in food prices (4.2% from 4.9% the previous month) was the main culprit. Core inflation also printed 3.2% y/y with market expecting it to stay unchanged at 3.4% y/y. Services inflation ticked down to 4.5% from 4.6% in October, moving in the right direction but staying very elevated. BoE is closely monitoring services inflation and with it staying so high it will be hard for them to go on a meaningful rate cutting cycle.
BoE has cut Bank Rate by 25bp as was already fully priced in by the market. The vote was a very close 5-4 with governor Bailey, Lombardelli, Taylor, Dhingra and Breeden voting for a rate cut. MPC members see neutral rate to be in 2-4% range and now that rate is within that range every further rate cut decision will become a closer call. GDP projection was revised down for Q4 and is now expected to come in flat vs 0.3% growth seen in November. Inflation is expected to continue easing in 2026 at a faster pace, helped by Autumn budge, but then grow a bit in 2027/28. The risk from greater inflation persistence has become somewhat less pronounced and the extent of further easing in monetary policy will depend on the evolution of the outlook for inflation. Bank Rate has been reduced by 150 basis points since August 2024. The bank delivered a more hawkish rate cut despite weakening growth, declining CPI and rising unemployment rate. BoE governor Bailey said he was “very encouraged” by the progress on inflation declining toward the target nd added that CPI is expected to drop near 2% in April or May of 2026.
This week we will have final Q3 GDP reading.
Important news for GBP:
Monday:
GDP
AUD
Industrial production ticked down in November to 4.8% y/y from 4.9% y/y in October while markets were expecting an increase to 5% y/y. Rail, ships, and aerospace, as well as the auto manufacturing sectors contributed the most to the reading. Retail sales for the same period dropped to 1.3% y/y from 2.9% y/y the previous month making it sixth consecutive months of slower growth and slowest growth since November of 2022. The biggest drop was in household appliances followed by a drop in petrol sales as citizens are transiting to electric vehicles. New five-year plan will put improving domestic demand as a main goal but it is yet to be seen how will that be achieved. The stimulus we got so far did not provide any measurable success.
NZD
RBNZ governor Breman stated that current Official Cash Rate of 2.25% will likely stay if economy continues to develop as projected. She reiterated that there is still a small probability of a further rate cut in near term. NZIER published report that can be summed up to: short-term weakness for NZD but potential for growth in medium-term. Finance Minister Willis stated that due to weak growth forecasts see no budget surplus over next five years. Q3 GDP saw economy grow by 1.1% q/q and 1.3% y/y after downwardly revised drops of 1% q/q and 1.1% y/y in previous quarter. Household consumption barely managed to grow with 0.1% so the growth came from gross fixed capital formation and net exports with exports increasing by 3.3%. Kiwi jumped on the news but quickly gave it all back as markets are more focused on inflation and labor data.
CAD
November inflation report saw headline CPI stay at 2.2% y/y while markets were projecting an increase to 2.3% y/y. All three core measures printed 2.8% y/y with median and trim coming down while common ticking up. BoC will be very pleased with the reading as it shows that inflation pressures are still contained despite the rate cutting cycle.
JPY
December preliminary PMI data showed manufacturing getting closer to expansion with 49.7 vs 48.7 in November. New orders declined at a slower pace indicating stabilization in domestic demand while new export orders continued to decline as foreign demand remains weak. Services PMI eased to 52.5 from 53.2 the previous month and stays firmly in expansion as both new orders and new export orders saw modest improvements. Employment and business confidence improved in both sectors while input costs continued to rise, reaching new eighth-month highs for both sectors. Companies have passed those costs onto consumers thus spurring inflation pressures. Composite printed 51.5 vs 52 in November.
Core machinery orders, a good proxy for CAPEX six to nine period into the future, rose by 7% m/m and 12.5% y/y in October indicating very strong momentum at the start of Q4. November trade balance data showed return to trade surplus for the first time since June as exports jumped 6.1% y/y from 3.6% y/y in October and beat expectations of 5% y/y thus adding more positives to fourth quarter. Nationwide inflation data for the month of November saw headline number at 2.9% y/y while both core measures printed 3% y/y indicating that inflation pressures are not easing.
BoJ has raised its short-term rate by 25bp, as was widely expected, lifting it thus to almost 30-year high of 0.75%. The decision to raise rates was unanimous. Members noted that inflation remains above target for an extended period adding that inflation is supported not only by imported cost pressures but also by domestic price dynamics. They acknowledged that real rates stays deeply negative as monetary policy remains accommodative.
BoJ governor Ueda stated that economy is recovering moderately and reiterated that they are prepared to hike further if economy continues to develop as projected. He added that loose monetary policy is necessary to support the economy and that real rates will remain negative. Underlying inflation is in positive territory. Yield on 10y JGB rose to new high of 2.025%.
CHF
SNB total sight deposits for the week ending December 12 came in at CHF463.5bn vs CHF461.9bn the previous week. This is the highest reading in two months indicating that trajectory should be up from now, but overall, the number is still within well-established range.
TradersWay team wishes you happy holidays and happy New Year. Good luck with your trading in the year to come and we will continue with weekly outlooks in 2026.
