In this episode:
- Global Macro Landscape
- Australia and New Zealand
- United States
Global Macro Landscape
- Geopolitical and domestic political factors add complexity to the global economic landscape.
- Key data releases include global manufacturing and services PMIs, and China's PMI will be closely watched for signs of stimulus impact.
- Japan's labour cash earnings could influence the Bank of Japan's rate decisions, with markets pricing in a December hike.
Australia and New Zealand
- The RBNZ delivered a "hawkish" 50 basis point rate cut, signaling a slow path for future adjustments.
- The RBA remains hawkish, citing persistent inflation and limited need for aggressive cuts in the near term.
- Key data next week includes Australia’s Q3 GDP, inflation figures, and retail sales, critical for shaping market focus.
United States
- The U.S. dominates the market focus with a packed schedule, including ISM, ADP, and JOLTS data, alongside the nonfarm payrolls report.
- Expectations for a significant bounce in payroll figures could impact Fed decisions at the December FOMC meeting.
- Fed speakers, including Waller and Williams, will provide critical insights into the monetary policy outlook.
Transcript
Matt Jones
Welcome to "The Long & Short of the Week Ahead", a production of Eurizon SLJ Capital that takes a look at the macro-economic themes of the week ahead and has been recorded for professional investors.
My name is Matt, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.
Welcome back, Neil. It's great to have you here with us again.
Neil Staines
Thank you very much Matt. It's great to be here.
Matt Jones
Against the slightly quieter backdrop of Thanksgiving, the global macro backdrop looks increasingly complex at the moment. So how are we thinking about the global dynamic as we look into next week?
Neil Staines
Yeah, great question, Matt. Thanks. As we as we touch on in this week's blog we maintain our core macro views of continued disinflation and growth moderation with essentially logical implications for equities, bonds, and for the dollar. However, global geopolitical and domestic political backdrop is becoming increasingly complex at the moment. And so that makes things much more interesting. Next week, we'll be watching the final global manufacturing and services PMIs after the flash data bought clearer or more extrapolated concerns about Euro area growth.
In China next week we get the PMI data on Monday. And that's going to be closely watched as a a forward looking gauge of manufacturing and service sector sentiment following the initial stimulus pledges and the U. S. election. In Japan. We get labor cash earnings next week, and they're going to be closely watched.
Markets are currently pricing 15 basis points of a rate hike in Japan for December, around about a 60 percent probability of a 25 basis point hike. And those earnings numbers could well tip the balance for the Bank of Japan in December, the day after the FOMC meeting. That's the 19th of December, for the Bank of Japan. And also we're going to be very closely watching headlines, whether it's Russia, Ukraine, Middle East, Trump on tariffs or other intentions going forward for the new administration from the 20th of January. There's going to be plenty to keep our eye on from a global macro perspective, plenty of uncertainty and high complexity next week.
Matt Jones
Thank you, Neil. Now, the RBNZ cut 50 basis points this week, but the RBA continued to sound relatively hawkish. What's happening down under next week?
Neil Staines
Yeah, absolutely. Thanks, Matt. Very interesting down under at the moment. The RBNZ cut 50 basis points to 4. 25 percent this week, as you mentioned. However, incredibly, it was something of a hawkish cut.
Despite warning of global policy and geopolitical uncertainties, the projected rate path for future cuts was much more gradual from the RBNZ, essentially implying just a quarterly pace of modest cuts through Q3 2025. In Australia, on the other hand, the situation has been a little different. The flow of money from Asia into Australia has distorted some areas of demand, notably in housing.
And inflation has been stubbornly high despite weak household activity. Now, Governor Bullock this week said that core CPI is too high to consider rate cuts in the near term. And after not hiking anywhere near as much as other DM central banks and notably the RBNZ, they do not need necessarily to cut as much or as soon.
That said, we would expect some rate cuts from the RBA next year. Next week, we get the Melbourne Institute inflation figures, we get household spending and retail sales data, and we also get Q3 GDP for Australia. And therefore, Australia will be a big focus in developed markets next week.
Matt Jones
I suspect, however, that the U. S. will remain the dominant market focus next week. So what are we looking out for from the U.S.?
Neil Staines
Yeah, it's going to be a huge week for the U.S. next week. We have a number of Fed speakers, notably Feds Waller and Williams on Monday afternoon, who will be closely monitored by markets.
But it's likely to be the data that is key. On Monday, we get ISM manufacturing. On Tuesday, we get Jolt's job opening data. Wednesday, we get ADP, private employment, factory orders, ISM services, and the beige book from the Fed. On Thursday, we get weekly claims, and on Friday, that all-important nonfarm payroll print.
Now, expectations for payrolls is for a significant bounce in the headline. That's from a very low print 12, 000 in the October number. Markets are expecting this to bounce to around 200, 000 in November as the storm and strike distortions return to the data set. Currently markets are pricing around 16 and a half basis points or 66 percent probability of a 25 basis point cut in December.
Thus, this week's data will significantly affect market expectations of Fed reaction functions at the December 18th FOMC meeting. Adding to that the geopolitical uncertainties and the evolution of the Trump personnel and policy framework make this a huge week for the U.S., the Fed, and global markets.
Matt Jones
Fantastic. Thank you for joining us once again and outlining your thoughts on the week ahead. I look forward to catching up with you again next week.
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