With Inflation Falling, Workers Continue Making Real Income Gains

Economic

Summary:

Recently ONS figures indicate that wage growth continues to ease, recording 4.8 per cent (excluding bonuses) in the third quarter of 2024, its lowest level since June 2022.

Growth in average weekly earnings continues to ease, recording 4.8 per cent for regular pay in Q3 2024. Total pay growth (including bonuses) recorded 4.3 per cent, which is affected by base effects from the one-off public sector bonus payments last year.

For Q4 of this year, we forecast a slight uptick in both total and regular pay growth to 5.0 per cent due to base effects.

With inflation falling, annual growth in real regular pay remains strong at 2.2 per cent in September, meaning workers will see a continued recovery in their standard of living.

Unemployment rose to 4.3 per cent, and employment slightly increased to 74.8 per cent. However, it is worth nothing that LFS data remain volatile, and therefore should be treated with caution.

We forecast unemployment to remain slightly above the 4 per cent mark through the coming months but remains below its natural rate.

As vacancies continue to fall, the vacancy-to-unemployment ratio is now close to pre-pandemic levels, leading to a reduction in wage pressures.

Growth in services sector wages has notably fallen in recent months, recording 4.1 per cent in Q3, compared to an average of 5.6 per cent in the first half of this year. This is positive news for inflation and might provide the Bank of England with increased confidence regarding interest rate cuts. With Inflation Falling, Workers Continue Making Real Income Gains_1

With Inflation Falling, Workers Continue Making Real Income Gains_1

“Recently ONS figures indicate that wage growth continues to ease, recording 4.8 per cent (excluding bonuses) in the third quarter of 2024, its lowest level since June 2022. With vacancies falling and unemployment rising, we forecast wage pressures to ease in the coming months, although the announced rise in National Living Wage would exert some upward pressure in April. Given today's figures, we expect the Bank of England to continue gradually cutting rates in 2025.”

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Economic

[Quick Facts]

1. Fed's Powell says there is no hurry to cut interest rates.

2. Kugler says Fed must focus on both inflation and jobs goals.

3. U.S. weekly initial jobless claims drop to 217,000.

4. ECB's Guindos says inflation data is heading in the right direction.

5. ECB officials saw risk management as key for October rate cut.

6. U.S. PPI increased by 0.2% month-on-month in October.

[News Details]

Fed's Powell says there is no hurry to cut interest rates

The Federal Reserve is gradually shifting its policy toward a more neutral stance, Fed Chairman Jerome Powell said at a Federal Reserve event in Dallas on November 14. The path to achieving this goal is not predetermined, and the path of policy rates will depend on incoming data and economic outlook. Moving too quickly to reduce policy restrictions could hinder inflation progress, while moving too slowly could excessively weaken economic activity and employment.

The labor market remains strong, but it has gradually cooled from the overheating state of a few years ago, and it no longer represents a major source of inflationary pressure. Inflation is closer to the 2% long-term target, but it has not yet been achieved. In a labor market that is broadly balanced and with inflation expectations well-anchored, inflation will continue to decline toward the 2% target, although there may be some bumps along the way.

There are no signals from the U.S. economy suggesting the Fed needs to cut interest rates quickly. The current strength of the economy gives the Fed the ability to make cautious decisions. If the data allows, it might be wise to slow down the pace of rate cuts.

Kugler says Fed must focus on both inflation and jobs goals

Fed Governor Adriana Kugler said on Thursday that policymakers must focus on both inflation and jobs goals. Currently, the labor market is cooling, and progress in inflation moving back toward the 2% target has slowed.

The combination of a continued but slowing trend in disinflation and cooling labor markets means that we need to continue paying attention to both sides of our mandate, Kugler said. If any risks arise that stall progress or reaccelerate inflation, it would be appropriate to pause our policy rate cuts. But if the labor market suddenly weakens, it would be appropriate to continue to gradually lower policy rates.

When asked if a higher threshold for further rate cuts has been set, Kugler said that both types of risks must be considered.

U.S. weekly initial jobless claims drop to 217,000

The U.S. Department of Labor reported on Thursday that initial jobless claims for the week ending November 9 dropped by 4,000 to 217,000, lower than the market expectation of 223,000. The number of continuing claims was 1.873 million, in line with expectations.

This decline suggests that the U.S. job market remains stable. The slowdown in October jobs growth was just an anomaly. The surge in jobless claims in early October was caused by the effects of hurricanes "Helene" and "Milton" and a Boeing workers' strike. However, layoffs remain at historically low levels, supporting the economy.

Although many employment-related indicators suggest a clear softening of the job market this year, this has not yet affected unemployment insurance data.

ECB's Guindos says inflation data is heading in the right direction

European Central Bank (ECB) Vice President Luis de Guindos said on Thursday that the Eurozone's October CPI data has undoubtedly encouraged ECB policymakers, but economic growth remains weak. We expect inflation in the services sector to slow down in the coming months, Guindos said. Our inflation outlook is that it will approach price stability in a clear and stable way, i.e., achieving the 2% target.

The evolution of monetary policy will depend on inflation. The economic recovery hasn't been as strong as we expected. Although household income has recovered, it has not translated into consumption growth.

ECB officials saw risk management as key for October rate cut

On November 14, the ECB released the minutes of its October meeting, showing that last month's rate cut was seen as an insurance measure against unexpectedly low inflation. However, policymakers seem divided on the risk of inflation remaining too low. Given weak economic activity and falling price pressures, further easing policies were expected, although the timing and scope of these measures remained uncertain.

Policymakers unanimously agreed that by the end of 2025, inflation would reach 2% ahead of previous forecasts, but they had different views on the situation thereafter. Some believed it was impossible for inflation to be below the target, while others argued that there was an increasing risk of inflation falling below the target.

If the slowdown in economic activity and the unexpected decline in inflation turn out to be temporary, the October rate cut decision may simply have brought forward the expected rate cut in December. Therefore, the rate cut was seen as having little risk, especially considering that interest rates would remain in restrictive territory and continue to support the disinflation process.

U.S. PPI increased by 0.2% month-on-month in October

The U.S. Department of Labor reported on November 14 that the seasonally adjusted PPI increased by 0.2% month-on-month and by 2.4% year-on-year in October, in line with market expectations. This was a 0.1 percentage point increase from September's growth.

Core PPI increased by 0.3% month-on-month and 3.1% year-on-year. Service prices rose by 0.3% month-on-month, while goods prices increased by 0.1%. However, food and energy prices decreased by 0.2% and 0.3%, respectively.

Although U.S. PPI remains above the Fed's 2% long-term inflation target, the trend indicates that price increases are slowing. Inflation is mainly driven by isolated factors, and it is unlikely to have a significant impact on the Fed's actions in its last monetary policy meeting of the year. According to CME Group data, market bets on a 25 basis point rate cut in December have slightly decreased to 75.4%, but there is still a large chance of a rate cut.

[Today's Focus]

UTC+8 15:00 U.K. GDP YoY Prelim (Q3)

UTC+8 15:15 New York Fed President Williams Speaks

UTC+8 21:30 U.S. Retail Sales MoM (Oct)

UTC+8 22:15 U.S. Industrial Production MoM (Oct)

UTC+8 23:00 ECB Chief Economist Lane Speaks

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IC Markets

Economic

Forex

US Stocks Dip as Powell Pulls Back Rate Cut Hopes – Nasdaq Down 0.6%

US stocks fell in trading yesterday as Jerome Powell indicated that he saw no need for the Fed to rush interest rate cuts. All three major indices declined on the day, with the Dow losing 0.47%, the S&P 500 down by 0.61%, and the Nasdaq dropping 0.64%. US Treasury yields had another mixed day as they continued to trade at multi-month highs; the 2-year yield pushed higher, adding 5.9 basis points to reach 4.343%, while the 10-year yield fell by 1.2 basis points to 4.439%. The dollar continued its upward drive, gaining another 0.38% on the DXY, trading up to 106.90. Oil prices also rose, with both Brent and WTI adding 0.4% on the day, closing at $72.56 and $68.70 per barrel, respectively. Gold saw another drop, hitting a two-month low and closing down by 0.64% at $2,563.89.

Buy Dollars, Wear Diamonds

The old adage has resurfaced over recent weeks, gaining momentum since the US election and last week’s Fed cut. The dollar index reached annual highs in overnight trading and is close to breaking 2023 highs as the Asian markets open this morning. This move was further driven by Fed Chair Jerome Powell’s comments, indicating he does not see a need to cut rates quickly. Whether this stance stems from stronger-than-expected data, anticipation of inflationary policies from the new administration, or a combination of both, remains unclear. However, many market participants find it reasonable. The current question in FX circles is where fair value for the dollar lies, with many analysts assessing various scenarios around that question over the next few weeks. For now, the trend remains positive, and those long on the dollar may find themselves heading to the jewellery shops this weekend!

Another Busy Friday to Close the Week for Traders

Today promises to be another active day for traders, wrapping up a volatile week with macroeconomic data releases scheduled across all three trading sessions. China will be in focus mid-session with key Industrial Production and Retail Sales data expected, and investors will be hoping for positive figures to break recent trends. The UK will also be in the spotlight early in the European session with the release of the latest GDP data, with expectations set for a 0.2% increase in both monthly and quarterly figures. Additionally, the US will release tier 1 data today, with Retail Sales numbers and the Empire State Manufacturing Index set for publication, although traders expect recent sentiment to remain dominant.

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Pepperstone

Economic

Traders had initially expected that the authorities would roll out extensive stimulus measures to counter potential economic headwinds at the early November National People’s Congress Standing Committee meeting. However, the outcome failed to meet expectations, with traders disappointed at the lack of demand-side initiatives.

Last Friday, on the day the NPC meeting concluded, the CN50 and Hang Seng Index saw notable pullbacks of 5.4% and 4.9%, respectively. The selling pressure on the Hang Seng continued to build, pushing the index below the 20,000 mark, the May high of 19,790, and the 50-day moving average. This decline suggests limited obvious technical support in play, although the 61.8% Fibonacci Retracement level of the late September rally at 19,355 may get some focus.

Trump 2.0 Sparks Limited Response from China - Why and What's Next?_1

Once again the market built expectations about the prospect of definition and substance in stimulus that could lead to demand and reflation, and while policymakers over-delivered on news of the debt swap, the market heard very little on measures that will drive animal spirits – with an impending ugly negotiation still to come, the buyers have given up and the sellers are able to move prices lower with ease.

This prompts fundamental questions: Why have policymakers, despite knowing the market’s expectations, delayed addressing core issues like domestic demand and consumption? How effective will the newly announced fiscal stimulus be in driving economic growth? And when can we expect the next turning point?

Policy Focus: Local Debt Mitigation

The Ministry of Finance’s RMB 12 trillion debt swap plan unveiled at the early November meeting aims to alleviate local government debt. The plan has three key components: allowing local governments to issue RMB 6 trillion in special bonds over three years to swap implicit debt; issuing RMB 4 trillion in local special bonds over five years for debt mitigation; and repaying RMB 2 trillion of implicit debt related to housing renovation starting in 2029.

While some market participants were disappointed by the focus on debt restructuring rather than consumer stimulus, I believe this prioritization reflects strategic judgment.

The local debt issue has been persistent, straining basic expenditures in certain regions. Without a solution, challenges such as reduced wages for public servants, over-taxation, and overdue payments to businesses would likely worsen, further limiting local government's ability to tackle broader economic and consumer issues. Addressing local debt, therefore, is an urgent and essential foundation.

Additionally, the plan’s focus on swapping high-interest, short-term debt for lower-interest, long-term debt will save at least RMB 600 billion in interest payments, easing repayment pressures and bolstering the local government's capability to sustain economic support in the long term.

Meanwhile, initial results from previous stimulus measures are evident. Although the CN50 has pulled back 20% from its October 7 peak, it remains significantly higher than before the September announcement of monetary easing policies. Coupled with the government’s promises to support the stock and property markets, meeting the 5% growth target this year appears feasible. In light of this, holding back on further stimulus now seems reasonable, as excessive stimulus could exacerbate debt burdens and hinder long-term recovery.

In my view, policymakers are not neglecting consumer stimulus but are instead taking a more nuanced approach. Rather than pushing for rapid, short-term growth, China is focusing on greater market stability and more sustainable development.

Trump’s Re-election: China Keeps Options Open

With Trump’s re-election now priced into the market, attention is shifting to his cabinet appointments, which will heavily influence his administration’s approach to China.

Following the return of trade protectionist Robert Lighthizer as U.S. Trade Representative, markets have ramped up bets on stringent tariff policies, strong dollar demand, and inflationary pressures. However, Trump’s nomination of Elon Musk to lead the Government Efficiency Department may be a positive for China, given Musk’s commercial interests in the country.

Now, all eyes are on the Treasury Secretary pick, which is expected by the end of the month. Scott Bessent, a leading candidate, is known for favoring reduced Federal Reserve influence and adopting a neutral approach toward China. Bessent may advocate for pragmatic economic cooperation while maintaining competitiveness in areas like technology and intellectual property.

The timing of potential tariffs on China may depend on whether Republicans take a House majority. If a “red wave” occurs, Trump would likely prioritize domestic legislative reforms before focusing on foreign policy. Otherwise, his ability to advance domestic initiatives could be limited, potentially prompting him to expedite trade policy changes toward China.

Given the uncertainties surrounding Trump’s cabinet and Congress, maintaining policy flexibility and keeping debt and deficit levers as negotiation tools appear to be China’s preferred approach over direct large-scale stimulus.

Key December Meetings

If the U.S. and China find common ground on tariffs, it would be a win-win outcome. If not, two December meetings — the Politburo and Central Economic Work Conference — are crucial as they will set the tone for China’s economic policies in 2025.

Several issues were not fully addressed, including a potential 3% GDP fiscal deficit adjustment, property support, and bank recapitalization. If necessary, China may increase the fiscal deficit above 3.5% of GDP, boost social welfare, expand affordable housing, and issue RMB 1-2 trillion in special bonds to shore up bank recapitalization.

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SAXO

Economic

Introduction

NVIDIA (NASDAQ: NVDA) has been one of 2024’s standout stocks, with a 193% year-to-date gain driven by its leadership in AI and data center hardware. Trading near a record high of $145.26, the stock reflects investor enthusiasm for NVIDIA’s position in AI. However, with high expectations already priced in, the upcoming earnings report on November 20 will be crucial for maintaining this momentum.

Market on Edge: Nvidia Stock Outlook: AI Demand and New Products Fuel Growth as Key Earnings Report Approaches_1

Valuation: strong fundamentals at a premium

Nvidia’s profitability supports its premium valuation. With a gross margin of 72.72% and operating margin of 54.12%, the company demonstrates efficient operations in high-demand markets. Still, its trailing p/e of 68.20 and forward p/e of 38.8x signal elevated growth expectations, making the stock vulnerable to any disappointment in earnings or guidance. Wall Street remains mostly bullish, with an average price target of $153.63. However, with the stock price already close to this target, some analysts see limited short-term upside without strong Q3 results.

Analyst sentiment: Blackwell launch drives growth optimism

Analysts continue to view Nvidia favorably, especially with the upcoming Blackwell chip launch. Piper Sandler recently increased its price target to $175, citing Nvidia’s potential to capture a large share of the $70 billion ai accelerator market by 2025. UBS, raising its target to $185, expects Q3 revenue in the $34.5 billion to $35 billion range, above the $32.96 billion consensus. They also expect Q4 revenue guidance around $37 billion, bolstered by sovereign ai investments, which could add $10 billion in 2024.

Q3 earnings preview: high expectations for growth

For Q3, Nvidia is projected to report adjusted EPS of $0.70 and revenue of $32.96 billion (FactSet consensus). UBS’s higher forecast of $34.5 billion to $35 billion reflects strong confidence in Nvidia’s ability to outperform, especially in data center sales. Analysts like Jefferies expect Nvidia-powered servers to account for 66% of data center demand by 2025-26, underscoring Nvidia’s growing dominance in ai infrastructure.

Risks: valuation, supply constraints, and competition

Despite a positive outlook, Nvidia’s high valuation presents risks. A forward p/e of 38.8x leaves little room for error, making the stock sensitive to any signs of slowing demand. Morgan Stanley analyst Joe Moore has flagged limited chip supply as a short-term risk, which could constrain Nvidia’s growth temporarily. Competition is also heating up. Amazon’s Trainium 2 chips are expected to launch soon, with AMD and Broadcom stepping up their presence in ai hardware. This increased competition could impact Nvidia’s market share and pricing power over time.

Conclusion

Nvidia’s November 20 earnings report is pivotal for justifying its premium valuation. Analysts remain optimistic, with strong demand for ai chips and the Blackwell launch driving growth expectations. However, high valuation, supply constraints, and increasing competition introduce potential risks. For growth-oriented investors, Nvidia remains a compelling ai play, but maintaining momentum will require continued innovation and effective supply management.

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Owen Li

Economic

Markets

More dollar strength pulled EUR/USD to a first 1.05-quote since October 2023, but that level triggered some rebound action higher. It’s only a matter of time though for a test (and potential) break of the 1.0448 range bottom in place since 2023. Next support levels stand at 1.0406 and 1.0201 which are respectively 50% and 62% retracement on EUR/USD’s bounce from 0.9536 to 1.1276 in 2022-2023. The trade-weighted dollar touched 107 with the 2023-top at 107.35 being the near-term technical reference. USD/JPY changes hands at 156, making way to the 160 potential intervention area. The Ministry of Finance conducted FX purchases both in April and in July after passing this threshold.

Fed governor Kugler – labelled amongst the most dovish FOMC members together with governor Cook, Chicago Fed Goolsbee and Philly Fed Harker on Bloomberg’s hawk-dove spectrometer – said that the Fed must focus on both inflation and jobs goals. “If any risks arise that stall progress or reaccelerate inflation, it would be appropriate to pause our policy rate cuts,” she said. “But if the labor market slows down suddenly, it would be appropriate to continue to gradually reduce the policy rate.” Kugler’s comments seem to be skewing to the upside inflation risks (stubborn housing inflation and high inflation in certain goods and services) which obviously carries some weight given her more dovish status.

US eco data played second fiddle with weekly jobless claims and producer prices squeezed in between yesterday’s CPI data and tomorrow’s retail sales. Weekly claims continue to hover at low levels (217k from 221k). Headline PPI rose by 0.2% M/M as expected, following an upwardly revised 0.1% in September. Core PPI excluding volatile food and energy categories climbed 0.3% M/M and 3.1% Y/Y (vs consensus of +0.2% M/M and 3% Y/Y). Both services costs and goods prices rose by 0.3% in October. The data triggered a tick lower in US Treasuries, but the magnitude was smaller than the past days’ declines and like in the dollar was met with a countermove following one-way traffic.

Daily changes on the US yield curve currently range between -5.9 bps and -3.6 bps with the wings of the curve outperforming the belly. German Bunds outperformed again, especially at the front end of the curve (2-yr yield -5.6 bps). We retain some interesting comments coming from Minutes of the October ECB meeting, pointing out that the disinflationary process was gathering steam with initials improvements in services as well. The ECB stance might approach neutral levels earlier than thought, cementing at least another 25 bps rate cut in December.

News & Views

In its November monthly report the International Energy Agency (IEA) forecasts world oil demand to rise by 920k b/d this year and just shy of an additional 1m b/d in 2025 (2024 102.8 mb/d, 2025 103.8 mb/d). The slowdown in growth from recent years reflects the end of the post-pandemic pent-up demand and below-par underlying global economic conditions, as well as clean energy technology deployment, the IEA assesses. This slowdown in growth compares to a growth of close to 2m b/d last year and 1.2 m b/d on average over the 2000-2019 period.

Regarding the demand-supply balance, the IEA expects ongoing healthy supply growth. It expects non-OPEC supply growth at 1.5m b/d this year and next year, mainly driven by US production alongside higher output from Canada, Gyana and Argentina. OPEC+ postponed a scheduled increase of 180k b/d earlier this month and will reassess its policy at a meeting early December. However, even in a scenario where OPEC+ cuts remain in place, IEA expects global supply to exceed demand by more than 1m b/d next year.

Polish GDP growth unexpectedly contracted by 0.2% Q/Q in Q3, bringing the Y/Y-growth to 2.7%. Q2 growth was strong at 1.2% Q/Q and 3.2% Y/Y. The consensus expected Q3 growth at 0.3% Q/Q. The office didn’t release any details yet. A more in depth/detail release will be published on November 28. Poor retail sales data suggest a weak performance of private consumption. The National Bank of Poland recently indicated that uncertainty on the path of inflation probably will provide little to no room to cut the policy rate before March next year. MPC member Wnorowski today reconfirmed that the NBP could start to discuss rate cuts in Q1. Even so, the Polish 2-y yield today declined slightly more than regional peers (- 8 bps to 4.98%). The zloty held strong as EUR/PLN eased from near 4.3325.

Source: KBC Bank

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FxPro

Economic

Cryptocurrency

Market Picture

Cryptocurrencies continued to surge, pushing the total capitalisation of this market to a new high of $3 trillion. It was just $2.2 trillion on November 5th. In other words, over 10 days, the increase was more than 35%.

Bitcoin has gained nearly 20% since the start of the week, barely slowing at the $80K mark. It wasn’t until it approached $90K that we saw any significant shakeout of positions. On Wednesday, Bitcoin stormed to $93K, but after 4 hours, it was at $88K. We also saw a similar intraday range of over 5% on Tuesday.

At these levels, more and more crypto enthusiasts are switching to looking for interesting altcoins as they lock in profits in the first cryptocurrency. The easiest choice is Dogecoin, which has gained over 200% from the lows of November 3rd to the present. Given bitcoin’s 60% share of the total crypto market capitalisation, which we last saw in 2021, the altcoin season has yet to begin.

Elon Musk has joined forces with former presidential candidate Vivek Ramaswamy to lead the US government’s new Department of Government Efficiency (DOGE). The idea for DOGE was first floated in August during Musk’s interview with Donald Trump. While it has nothing to do with the cryptocurrency itself, mentions of the word are supporting the rise in price of Dogecoin, which became the first major meme coin and was created as a joke.

News Background

Glassnode notes that realised profits for both short—and long-term holders of Bitcoin remain below previous peaks at the all-time high (ATH). In such circumstances, many investors are willing to wait for higher prices to lock in profits.

According to Bitwise CIO Matt Hougan, the first cryptocurrency will remain in the “early stages” and will only enter the maturity phase when it reaches $500K. Until Bitcoin equals gold and becomes a familiar asset for central banks and institutional investors, it will remain in the “early stage.”

ConsenSys CEO Joseph Lubin said Ethereum “stands to gain more than any other cryptocurrency” from Donald Trump’s victory in the US presidential election. He attributed this to ETH’s greater ‘maturity’ compared to its competitors.

The Italian government will increase the capital gains tax on cryptocurrencies to 28%, down from the previously proposed 42%. From 2023, the country’s citizens will be obliged to pay 26% to the state if the profit from cryptocurrencies exceeds €2,000.

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