From Powell's Insights to OPEC+ Dynamics: What to Watch in the Upcoming Trading Week

Traders' Opinions

Summary:

The upcoming week promises a flurry of market-moving events, with a focus on the U.S., where data releases include PCE prices, personal income, spending, and the ISM Manufacturing PMI.

The upcoming week promises a flurry of market-moving events, with a focus on the U.S., where data releases include PCE prices, personal income, spending, and the ISM Manufacturing PMI. Fed Chair Powell's speeches will be closely monitored for insights into the central bank's policy direction. Globally, interest rate decisions in South Korea and New Zealand, along with speeches from ECB and BoJ officials, will shape the monetary policy landscape. Inflation rates from major European economies, GDP growth figures from Turkey, India, Canada, and Switzerland, and China's Manufacturing and Services PMIs add to the global economic narrative. Oil traders await OPEC+'s virtual meeting outcomes amid challenges in reaching a consensus on future production levels.

As markets brace for another week of dynamic shifts, a plethora of economic indicators and central bank actions is set to influence global financial landscapes. Here's a comprehensive look at the key events and data points shaping the week ahead.

United States: Unraveling Economic Insights

In the United States, investor attention will be captivated by crucial releases, including October's PCE prices, personal income, and spending. The ISM Manufacturing PMI is anticipated to reveal insights into the manufacturing sector's health. Additionally, speeches from several Federal Reserve policymakers, culminating in Chair Powell's remarks on Friday, will be closely scrutinized for cues on the central bank's policy direction.

Expectations suggest a slowdown in PCE price inflation to 3.1%, marking the lowest rate since March 2021. The core rate is expected to ease to 3.5%, the lowest in over two years. In the realm of GDP, the second estimate for Q3 is projected to be revised higher to 5%, reflecting accelerated consumer spending and robust exports.

The housing market will be under the spotlight with new and pending home sales data, complemented by insights from Case-Shiller home prices. The earnings season continues with reports from major companies like Intuit, CrowdStrike, Workday, Snowflake, Synopsys, Salesforce, VMware, and Dell.

North of the border, Canada will release a slew of data, including employment figures, third-quarter GDP, current account data, and Manufacturing PMI. Mexico and Brazil will contribute to the regional narrative with releases on trade balance, business morale, unemployment rate, industrial output, and foreign trade.

Europe: Inflation, Monetary Policy, and Economic Indicators

In Europe, eyes are on the preliminary November CPI reports for major economies, including Germany, the Euro Area, France, Italy, Spain, the Netherlands, and Poland. Anticipated declines in the Euro Area's annual inflation rate to 2.8% and Germany's to 3.5% will be closely observed.

Speeches by ECB officials, including President Lagarde, are expected to shed light on the course of monetary policy. Germany's GfK Consumer Climate Indicator and retail sales figures will provide insights into consumer sentiment and spending habits. Jobs data from the Euro Area, Germany, France, and Italy will contribute to assessing the labor market.

France and Italy will release final Q3 GDP estimates, while Switzerland and Turkey will unveil preliminary figures. The Euro Area's business survey, Switzerland's KOF leading indicators, and retail trade figures will add depth to the economic landscape. Attention in the United Kingdom will center on the Bank of England's monetary indicators and the CBI distributive trades report.

Asia-Pacific: Economic Indicators and Central Bank Actions

China kicks off November with fresh PMI figures, offering a glimpse into economic activity following recent stimulus measures. Japan awaits crucial data on unemployment, retail sales, industrial production, and insights from key BoJ members. India's focus is on Q3 GDP and the latest manufacturing PMI.

Central banks in South Korea and Thailand will decide on monetary policy, with South Korea also releasing consumer and business confidence figures for November. Australia's inflation data for October takes center stage after persistent price growth triggered the RBA's resumption of its hiking cycle. The RBNZ is expected to maintain borrowing costs unchanged.

Oil Markets: OPEC+ Virtual Meeting Anticipation

Oil traders are on edge as they await the results of the OPEC+ virtual meeting scheduled for November 30th. Producers face challenges in reaching a consensus on future production levels, adding an extra layer of uncertainty to energy markets.

In conclusion, the upcoming week presents a diverse array of economic indicators and events that will keep global markets on their toes. Investors and analysts will navigate these developments to gain a deeper understanding of the economic landscape and potential shifts in monetary policy.

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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ING

Bond

Economic

The year ahead will be all about anticipation for rate cuts, and then delivery

Bond markets tend to get very excited when central banks gear up for rate cuts. So far, both the Federal Reserve and the European Central Bank (ECB) are doing their best to keep the rate hike narrative alive and well, but markets have concluded that they are done and that the next move is down. In fact, markets are discounting almost 100bp of cuts from both the Fed and the ECB in 2024. Once central banks start to cut, the discount for cumulative cuts tends to deepen further. At the beginning of the rate cut cycle, it's all about anticipation. Actual delivery is assumed, and market rates fall.

What happens to front end rates is obvious. If central banks cut, then 2yr yields will clearly gap lower. Typically, once the cuts are coming (about three months ahead), the 2yr jumps lower – often by as much as 100bp in a matter of days. The big question is what happens to longer tenor rates. The answer is they usually fall, too, right out of the curve. In fact, total returns are typically maximised in the 30yr. There is a nagging fear that the US back end might struggle to perform due to fiscal pressures. But we are of the opinion that the bond market obsession with the rate cycle should dominate, causing a bullish steepening of the curve from the front end.

But, beware of waning liquidity...

And there are concerns about liquidity conditions to consider. We've been awash with liquidity since the pandemic, but both the Fed and the ECB are – in varying degrees –engaging in (soft) quantitative tightening. It's gone under the radar so far but will become an accelerated issue through 2024. It's unusual for liquidity to get tighter as central banks cut rates, but that's the juxtaposition we're facing.

Central banks need to be careful not to overdo the liquidity withdrawal, as there is a route to hurting the functioning of the system here. Separately, liquidity in US Treasuries has already become a worry, and both bank and market repo are not as influential as they once were in driving overall liquidity. Ideally, this theme should not be overly impactful, but is still a key area to keep an eye on in 2024.

The bullish steepening expected will also be impacted by other risks and prospects for 2025

Bond markets will also be keeping an eye on prospects for 2025, as they must, given they are long-tenor products. Here, the baseline market discount for both the Fed and the ECB in terms of lows for official rates is benign. In both cases, the end game is some 100bp short of where we anticipate official rates getting to. We think the 3% area is the neutral Fed funds rate and 2% to 2.5% is neutral for the eurozone, and we anticipate getting to these levels. That assumes a convergence on neutrality for 2025, with upward sloping 2/10yr curves stacked on top, or about 100bp in the US and 50-75bp for the eurozone.

That discount can be impacted by many things, and the US supply story is one. By 2025, we could have a fresh administration to deal with following the US presidential elections, and how that administration deals with the deficit and geopolitics will be key. In the eurozone, the prognosis with respect to Russia and Ukraine – as well as future linkages with China – will be key, and their impact on Germany will be particularly important for the region's economy. There are also significant macro uncertainties to consider. We will know more as we progress through what is expected to be a difficult 2024 in terms of macro activity.

An uncomfortable call for a return to normality

Our baseline view is that we will land in a better place as we progress beyond 2024 and into 2025. We will still be in a rate-cutting phase, but we assume that both the Fed and the ECB get rates down to normal levels and to a point where they are neither contractionary nor stimulative. In many ways, it would be the completion of a return to normal process, following a decade and a half of a post-great financial crisis legacy and a pandemic-induced jump start to inflation. What makes us uncomfortable is this is all too balmy an outcome. Our conviction is centred on the lure of government bonds as official rates fall in 2024. After that, it gets much more fuzzy.

To stay updated on all economic events of today, please check out our Economic calendar

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Stocks

In a holiday-shortened week, US equity markets locked in a fourth week of gains. The Dow Jones added 442 points (+1.27%), the S&P 500 gained 1%, and the Nasdaq gained 0.91% for the week. Wall Street's measure of fear, the VIX, closed at 12.45%, its lowest close since January 2020.

In economic news, the not-too-hot, not-too-cold run of data continued Friday night as the US Composite Flash PMI for November printed unchanged at 50.7. Within the details, the Manufacturing PMI surprised to the downside at 49.4 vs 49.8 that was expected, while the Services PMI at 50.8 was stronger than the 50.4 expected.

In light of recent rapid market activity, a slight pullback in US equity indices would not be unexpected. Timing-wise, the end of this month, into early December, looks to be a possible window for a pullback to rebuild energy and to set up for the end-of-year finale.

This week's key economic data

This week, a pivotal economic event in the US is the unveiling of the Fed's favoured inflation metric, Core PCE, scheduled for Friday morning, which may influence the expected timing of the Fed's first "adjustment" cut.

What is expected from Friday's Core PCE inflation data?

The consensus expectation is for Core PCE to increase by 0.2% in October, which would see the annual rate ease to 3.5% from 3.7%, the lowest rate since April 2021.

Headline PCE is expected to rise by 0.1% in October, allowing the annual rate to moderate to 3.1% from 3.4%, on track to fall to 2.5% in the months ahead.

S&P 500 technical analysis

Last week, the rally from the October 4122 low, traded to a high of 4580.50, a gain of over 11% in just 18 trading sessions. Although we remain bullish into year end, we would not contemplate opening fresh longs at these elevated levels.

Instead, we would prefer to use dips back towards support at 4450/30 in anticipation of a retest and break of the July 4634.50 high. Above here is blue sky towards the November 2021, 4740.50 high, followed by the January 2022, 4808 high.

Aware that a sustained break below the support of the 200-day moving average at 4300 would warn that the rally has run its course and that a deeper pullback is underway.

Nasdaq technical analysis

Last week, the rally from the October 14,140 low traded to a fresh cycle high of 16,173, a gain of over 14% in just 19 trading sessions. A move in line with our expectations - however, the "easy money" in the Nasdaq has now been taken off the table.

Although we remain bullish into year end, we would not contemplate opening fresh longs at these elevated levels. Instead, we would prefer to use dips back towards support at 15,700/450 in anticipation of a push towards 16,400/500 in the weeks ahead.

Aware that should the Nasdaq see a sustained break of support at 15,450, it would warn that the rally has run its course and that a deeper pullback is underway towards the 200-day moving average at 14,400. US Markets Surge with Fourth Consecutive Weekly Gains and Inflation Focus_2

US Markets Surge with Fourth Consecutive Weekly Gains and Inflation Focus_2

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Titan FX

Forex

EUR/USD Technical Analysis

The Euro started a steady increase above the 1.0850 level against the US dollar. EUR/USD even climbed toward 1.0960 before there was a downside correction. EUR/USD Remains in Uptrend, Gold Rallies Again_1

EUR/USD Remains in Uptrend, Gold Rallies Again_1

Looking at the 4-hour chart, the pair corrected lower and tested the 1.0850 support. The bulls remained active above 1.0850 and the pair started a fresh increase. The pair settled above the 1.0880 level, the 100 simple moving average (red, 4 hours), and the 200 simple moving average (green, 4 hours).

The pair is now trading above the 1.0920 level with a positive angle. Immediate resistance is near the 1.0960 level. The next key resistance is near the 1.1000 level.

The main resistance is now near the 1.1050 level. A close above the 1.1050 zone could open the doors for more upsides. The next stop for the bulls might be 1.1200.

If not, the pair might start a fresh decline below the 1.0920 support. The first major support is now forming near 1.0900. There is also a connecting bullish trend line forming with support at 1.0895 on the same chart.

The next key support sits at 1.0850, below which the pair could test the 1.0800 pivot level in the near term.

Looking at Gold, there were strong bullish moves above $2,000 and the bulls might now aim for more gains in the near term.

Economic Releases

US New Home Sales for Oct 2023 (MoM) – Forecast -0.5% versus 12.3% previous.

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Forex

Market Recap

With the US markets back from its holiday break, greater cues for the risk environment may be presented this week. Thus far, major US indices have gained for the fourth straight week, with the S&P 500 looking on track to retest its year-to-date high at just less than 1.5% away. On the other hand, the VIX has pushed to its lowest level since January 2020 as the broader risk-on sentiments prevail. US yields rose slightly, with the 10-year yields back at its 4.50% level, while the US dollar failed to tap on it for a move higher.

The economic calendar last Friday brought a mixed set of purchasing managers index (PMI) readings out of the US, with its manufacturing sector dipping back into contractionary territory (49.4 versus 49.8 forecast) while services activities held firm (50.8 versus 50.4 forecast). The unchanged composite reading of 50.7 from a month ago, alongside signs of cooling employment in the private sector, could point towards limited upward pressures on inflation and support the Federal Reserve (Fed)'s decision to keep rates on hold.

Ahead this week, the US personal consumption expenditures (PCE) price data, which is the Fed's favoured inflation metric, will help to clarify the extent to which the disinflation process was continuing. It will also be on watch to provide validation for market pricing of rate cuts as early as June 2024. For now, the US dollar continues to struggle around its 200-day moving average (MA), as recent move to reclaim the key trendline did not manage to find much follow-through. Further downside may leave the 102.00 level on watch next, with a declining moving average convergence/divergence (MACD) pointing to prevailing downside momentum for now. US Dollar Struggles, NZD/USD Retesting Upper Channel Resistance_1

US Dollar Struggles, NZD/USD Retesting Upper Channel Resistance_1

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.16%, ASX -0.18% and KOSPI +0.52% at the time of writing, as sentiments await greater cues for direction with a return of trading volume this week. Singapore's industrial production data last Friday has surprised significantly on the upside (7.4% year-on-year versus -2.1% forecast), which helped to push back further on recession risks. Any follow-through from recent expansion will be on watch over the coming months to mark an improving trend in global demand.

Aside, the economic calendar this morning saw the contraction in China's industrial profits ease for the eight straight months on a year-on-year basis (-7.8% in October versus -9% forecast). While conditions have been improving, it also indicates that recovery has been slow. From the series of economic data lately, recovery momentum has also been on-and-off, which will continue to leave market participants seeking for further improvement in the data for some much-needed conviction.

For the China A50, a series of resistance may have to be overcome to mark a trend reversal to the upside. Thus far, the index has struggled to cross a downward trendline resistance, alongside its Ichimoku cloud resistance on the daily chart, which kept its prevailing downward bias intact. Recent attempt to bounce has been short-lived, and a move above the 12,300 level may be warranted to indicate buyers in greater control. For now, further downside may leave its October 2022 bottom on watch for a retest. US Dollar Struggles, NZD/USD Retesting Upper Channel Resistance_2

US Dollar Struggles, NZD/USD Retesting Upper Channel Resistance_2

On the watchlist: NZD/USD retesting upper channel resistance with RBNZ meeting this week

Ahead of the Reserve Bank of New Zealand (RBNZ) meeting this week, the NZD/USD is back to retest an upper channel trendline resistance at the 0.610 level, which stands alongside its key 200-day MA. Broad expectations are priced for the RBNZ to keep its official cash rate on hold for the fourth straight meeting, with the pair likely to take its cue from the US dollar ahead.

A break above the channel pattern in place since the start of the year may reflect buyers taking control, which may pave the way towards the 0.623 level next. On the downside, the daily Ichimoku cloud zone at the 0.594 level will serve as immediate support to hold. US Dollar Struggles, NZD/USD Retesting Upper Channel Resistance_3

US Dollar Struggles, NZD/USD Retesting Upper Channel Resistance_3

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Thomas

Stocks

Asian shares got off to a hesitant start on Monday ahead of potentially market-moving inflation data from the United States and Europe later in the week, and a meeting of oil producers that could stop, or extend, the recent slide in prices.

The approach of month end could also cause some caution given the hefty gains investors are sitting on. Japan's Nikkei added 0.3 per cent, having surged 9 per cent so far in November.

MSCI's broadest index of Asia-Pacific shares outside Japan was flat, but 6.7 per cent firmer for the month.

S&P 500 futures eased 0.1 per cent, while Nasdaq futures lost 0.2 per cent. The S&P 500 has now rallied for four weeks straight and up 8.7 per cent on the month so far, which would be its best performance since mid-2022.

The Federal Reserve's favoured measure of inflation is due on Thursday and is expected to slow to its lowest since mid-2021, reinforcing market wagers that the next move in rates will be down.

Fed Chair Jerome Powell will have a chance to push back against the doves at a Fireside Chat on Friday, and there are at least seven other Fed speakers on the docket this week.

"A view we hold strongly is that central banks are unlikely to deliver easing in the first half of 2024 absent a threat to the expansion or financial stability," agues Bruce Kasman, head of global economics at JPMorgan.

"Indeed, this message of patience is likely to be notable in upcoming DM policy communications in response to recent financial market developments."

Oil Hangs On OPEC+

European Central Bank President Christine Lagarde has also sounded in no hurry to ease and will have another opportunity to ram home the message at the EU parliament later on Monday.

Data on EU consumer prices for November is due Thursday and expected to show a cooling in both the headline and core rates, which would support market pricing for cuts.

Markets priced in almost 90 basis points of U.S. easing next year, and around 83 basis points for the ECB.

The chance of an easing in borrowing costs has generated a big rally in bonds, with yields on 10-year Treasuries down 37 basis points so far this month at 4.49 per cent.

That in turn has been a drag on the dollar which has lost 3 per cent on a basket of major counterparts this month.

The euro was up at $1.0940 on Monday, not far from its recent four-month high of $1.0965, while the dollar was holding steady at 149.53 yen.

The drop in yields has been a fillip for non-yielding gold which stood at $2,000 an ounce and near its October peak of $2,009.29.

The oil market faces a tense few days ahead of a meeting of OPEC+ on Nov. 30, a meting that had originally been slated for Sunday but was postponed as producers struggled to find a unanimous position.

Reports suggest African oil producers are seeking higher caps for 2024, while Saudi Arabia may extend its additional 1 million bpd voluntary production cut, which is due to expire at the end of December.

The uncertainty kept prices tight on Monday and Brent edged up 15 cents to $80.73 a barrel, while U.S. crude added 14 cents to $75.68 per barrel.

Source: Reuters

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FastBull Featured

Daily News

[Quick Facts]

1. Pill: BOE will not relent in inflation battle.

2. Canada's retail sales jump 0.6% MoM in sharp spending rebound.

3. Muller: ECB probably won't need to raise rates again.

4. A temporary Israel-Hamas truce takes effect.

[News Details]

Pill: BOE will not relent in inflation battle

Despite signs that the British economy is weakening, the central bank will not relent in the fight against inflation, the Bank of England's (BOE) chief economist Huw Pill said in a speech last Friday. Domestic inflationary pressures such as wage growth and services inflation remain at very high levels.

The slower growth in economic activity is more supply-driven rather than demand-driven, which means that the weakening of activity is not as associated with the easing of inflationary pressures. "The challenge for the monetary policymaker is to ensure that there is enough persistence in the restriction of monetary policy to bring the domestic components of inflation down. And to do this at a time when there would be lots of pressure in the face of weaker employment and activity growth and declining headline inflation, to declare victory and move on," he added.

Canada's retail sales jump 0.6% MoM in sharp spending rebound

On November 24, Statistics Canada released data showing that Canada's retail sales increased 0.6% in September, far exceeding the market's expectations of 0%. Four of the nine sub-sectors saw sales growth, with automobile and parts dealers seeing the largest increase in sales, up 1.5% in September. Retail sales excluding autos rose 0.2%, compared to expectations for a 0.1% decline. While the overall numbers rebounded sharply, details in the report show that spending remained slightly weak. Core retail sales excluding gas stations and auto dealers fell 0.3% in September. The decline was led by lower sales at sporting goods, hobby and musical instrument retailers as well as beer, wine and liquor stores, suggesting consumers cut back on some discretionary purchases.

Muller: ECB probably won't need to raise rates again

In a speech on Saturday, Nov. 25, European Central Bank (ECB) Governing Council member Madis Muller said that the ECB probably won't need to raise interest rates again. While inflation is clearly showing a trend of slowing, it isn't quite at the ECB's 2% goal yet, he said, adding that high rates are a "smaller problem" than high inflation.

A temporary Israel-Hamas truce takes effect

A temporary truce between Israel and Hamas came into effect, and the two sides made the first and second rounds of exchange of detainees. Hamas said it was committed to reaching a "comprehensive exchange agreement" and completely lifting the blockade of Gaza. Israeli Prime Minister said he was committed to the release of all Israeli detainees and would welcome extending a temporary truce if it meant that on every additional day 10 captives would be freed.