Eurozone unemployment rate fell from 6.5% to 6.4% in November, below expectation of 6.5%. EU unemployment rate fell from 6.0% to 5.9%.
According to Eurostat, total number of unemployed individuals in EU stood at approximately 12.954m, with around 10.970m of in Eurozone. This figure represents a decrease of -144k unemployed persons in EU and -99k in Eurozone compared to October.
Australia retail sales rose 2.0% mom to AUD 36.5B in November, above expectation of 1.2% mom. That followed a fell of -0.4% mom in October.
Robert Ewing, ABS head of business statistics, attributed this surge to the impact of Black Friday sales. He noted, “Black Friday sales were again a big hit this year, with retailers starting promotional periods earlier and running them for longer, compared to previous years.”
Ewing further explained: “The strong rise suggests that consumers held back on discretionary spending in October to take advantage of discounts in November.” Additionally, he observed that shoppers might have advanced some of their Christmas shopping to November, which typically occurs in December.
Japan’s Tokyo CPI core, which excludes fresh food, slowed from 2.3% yoy to 2.1% yoy in December, aligning with market expectations. This figure represents the lowest reading since June 2022 and marks the second consecutive month of decline.
Additionally, CPI core-core, which excludes both food and energy, also slipped from 3.6% yoy to 3.5% yoy. This marks the fourth consecutive month of cooling in this measure. Headline CPI, similarly fell from 2.6% yoy to 2.4% yoy. T
Tokyo’s CPI figures are often regarded as precursors to the national data, suggesting that a similar trend might be observed in the broader Japanese economy.
In separate report, households reduced their spending in November -by 2.9% yoy, worst than expectation of -2.3% yoy. This decrease in consumer spending is attributed to the rising costs of living, which have led to more selective purchasing behaviors among shoppers.
Fed Governor Michelle Bowman indicated yesteday her willingness to consider the possibility that the current policy rate might be adequately restrictive to further reduce inflation.
“My view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time,” she said in a speech yesterday.
She added that if inflation continues to decrease towards the 2% target, “it will eventually become appropriate to begin the process of lowering our policy rate.”
However, she also emphasized “While the current stance of monetary policy appears to be sufficiently restrictive to bring inflation down to 2 percent over time, I remain willing to raise the federal funds rate further at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.”
Atlanta Fed President Raphael Bostic, in a moderated discussion yesterday, reiterated his expectation of two rate cuts by the Fed this year. He anticipates the first rate cut to occur in the third quarter.
For now, he’s “comfortable” with Fed’s “restrictive stance”. “I just want to see the economy continue to evolve with us in that stance and hopefully see inflation continue to get to our 2% level,” he added.
The US is “on a path to 2%” inflation and “the goal is to make sure we stay on the path,” he said.
Eurozone retail sales fell -0.3% mom in November, worse than expectation of -0.1% mom. Volume of retail trade decreased by -0.4% for non-food products and by -0.1% for food, drinks and tobacco, while it increased by 1.4% for automotive fuels.
EU retail sales fell -0.2% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in the Germany (-2.5%), Luxembourg (-1.4%) and Austria (-0.7%). The highest increases were observed in Portugal (+3.1%), Croatia and Slovenia (both +3.0%), Malta and Romania (both +1.7%).
Eurozone Sentix Investor Confidence rose from -16.8 to -15.8 in January, below expectation of -15.4. That’s nonetheless the third increase in a row, and the highest reading since May 2023. Current Situation Index also rose for the third month from -23.5 to -22.5. Expectations Index rose for the fourth month, from -9.8 to -8.8, highest since February 2023.
Sentix noted that the sharp drop of -18 points in the sub-index of inflation expectations, from 16.25 to -1.75, raises concerns. This significant decrease is attributed not only to extensive administrative cost increases from tax hikes in Germany but also to a noticeable rise in freight costs, influenced by recent unrest in the Red Sea area. These factors suggest that the prevailing interest rate optimism might be misguided, potentially imposing new challenges on the already struggling Eurozone economy.
Also to be noted, Germany’s overall Investor Confidence Index fell from -25.5 to -26.1. Current Situation Index fell from -35.3 to -35.5. Expectations Index fell from -15.3 to -16.3. Sentix noted, “Germany is not emerging from the recession and thus from its economic crisis.”
Swiss CPI was flat at 0.0% mom in December, above expectation of -0.1% mom. Core CPI (fresh and seasonal products, energy and fuel) rose 0.2% mom. Domestic products prices rose 0.3% mom. Import products price fell -0.7% mom.
For the 12-month period, CPI rose from 1.4% yoy to 1.7% yoy, matched expectations. Core CPI rose from 1.4% yoy to 1.5% yoy. Domestic products prices rose from 2.1% yoy to 2.3% yoy. Imported products prices from also rose from -0.6% yoy to -0.2% yoy.
Also published, retail sales rose 0.7% yoy in November, above expectation of 0.0% yoy.
The recovery of AUD/CAD since last September has been largely attributed to the divergence in monetary policies between RBA and BoC. While RBA extended its tightening cycle, BoC’s interest rate reached a plateau. The rally in December was particularly driven by speculations of an additional RBA rate hike, although the momentum lost steam after briefly surpassing 0.9 handle.
Technically speaking, this recovery from 0.8562 is more corrective looking than impulsive. The notable decline since the start of the year indicates that a short term top was already formed at 0.9063, on bearish divergence condition in D MACD. Break of 0.8875 support should also confirm rejection by 50% retracement of 0.9545 to 0.8562 at 0.9054. That would turn near term outlook bearish for retest 0.8562 low.
The upcoming release of Australia’s monthly CPI data could serve as a catalyst for a downturn in AUD/CAD. However, the sustainability of downside momentum, especially in breaking through 0.8562 support, will very much depend on which central bank between RBA and BoC starts cutting interest rates first and the subsequent policy paths they adopt.
Traders of Swiss Franc are closely monitoring Swiss CPI release today. Headline inflation is anticipated to increase from 1.4% yoy to 1.7% yoy in December. This expected rise aligns with SNB’s own conditional inflation forecast, which projects inflation to reaccelerate from 1.6% in Q4 of last year to 1.8% in Q1, peaking at 2.0% in Q2 before tapering off to 1.9% in Q4.
Regarding SNB’s monetary policy, current interest rate stands at 1.75%, which is comparatively unrestrictive. Unlike the more aggressive rate hikes implemented by counterparts like ECB and Fed, SNB’s past rate increases have had much less detrimental impact on the Swiss economy. Consequently, there is no immediate pressure for a rate cut, and it is generally anticipated that SNB will maintain current interest rate at least until Q3 of this year. Should today’s inflation reading surpass expectations, it could increase the likelihood of SNB holding interest rate unchanged for the remainder of the year.
GBP/CHF recovered after hitting 1.0634, being supported by falling channel support line. Price actions since there are corrective looking. Also, the recovery is kept below 1.0879 minor resistance. Thus, outlook is staying bearish. Break of 1.0746 minor support will bring retest of 1.0634 low first. Further break there will resume recent down trend to 100% projection of 1.1502 to 1.0779 from 1.1153 at 1.0430.
Dallas Fed President Lorie Logan, in her speech on Saturday, emphasized the importance of maintaining tight financial conditions to prevent resurgence of inflation. She expressed concern that if these conditions are not sustained, progress made in controlling inflation could be reversed.
Logan Logan underscored the significant role that restrictive financial conditions have played in “bringing demand into line with supply and keeping inflation expectations well-anchored”.
However, she noted a recent reversal in this trend, pointing out that long-term yields have relinquished much of the tightening observed over the summer. She warned, “We can’t count on sustaining price stability if we don’t maintain sufficiently restrictive financial conditions.”
Logan also addressed the Federal Reserve’s balance sheet runoff. She indicated that it might be appropriate to consider slowing the pace of this runoff, particularly as overnight reverse repurchase agreement balances approach lower levels.
US ISM Services PMI fell from 52.7 to 50.6 in December, below expectation of 52.7. Business activity/production rose from 55.1 to 56.6. New orders fell from 55.5 to 52.8. Employment fell sharply from 50.7 to 43.3. Prices ticked down from 58.3 to 57.3.
The past relationship between the Services PMI and the overall economy indicates that the Services PMI for December (50.6 percent) corresponds to a 0.3-percent increase in real gross domestic product (GDP) on an annualized basis.
Canada’s employment rose 0.1k in December, well below expectation of 13.2k.
Employment rate fell -0.2% to 61.6%. Unemployment rate was unchanged at 5.8%. Participation rate fell -0.2% to 65.4%. Total hours worked rose 0.4% mom , 1.7% yoy. Average hourly wages rose 5.4% yoy.
US non-farm payroll employment grew 216k in December, above expectation of 168k. Unemployment rate was unchanged at 3.7%, below expectation of a rise to 3.8%. Participation rate fell from 62.8% to 62.5%. Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over the past 12 months, average hourly earnings increased 4.1% yoy.
Eurozone PPI was down -0.3% mom, -8.8% yoy in November, versus expectation of -0.1% mom, -8.7% yoy. For the month, industrial producer prices, decreased by -0.8% for energy, by -0.5% for intermediate goods and by -0.1% for both capital goods and durable consumer goods, while prices remained stable for non-durable consumer goods. Prices in total industry excluding energy decreased by -0.2%.
EU PPI was down -0.2% mom, -8.1% yoy. The largest monthly decreases in industrial producer prices were recorded in Slovakia (-3.0%), Portugal (-2.3%) and Spain (-2.1%), while the highest increases were observed in Sweden (+4.1%), France (+2.4%) and Bulgaria (+0.7%).
Eurozone CPI reaccelerated from 2.4% yoy to 2.9% yoy in December, below expectation of 3.0% yoy. Core CPI (excluding energy, food, alcohol & tobacco) slowed from 3.6% yoy to 3.4% yoy, matched expectations.
Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in December (6.1%, compared with 6.9% in November), followed by services (4.0%, stable compared with November), non-energy industrial goods (2.5%, compared with 2.9% in November) and energy (-6.7%, compared with -11.5% in November).
Euro is currently trading weaker against its European peers and Dollar as market anticipates the release of Eurozone CPI flash data for December. Expectations are set for the headline CPI to increase from 2.4% yoy to 3.0% yoy, ending a six-month streak of consecutive declines. Meanwhile, core CPI is expected to slow down from 3.6% yoy to 3.4% yoy.
The jump in headline inflation shouldn’t be a surprise to ECB officials. Executive Board member Isabel Schnabel had acknowledged last monththat a temporary uptick in inflation was possible. But she also expected it to “gradually” fall to ECB’s 2% target by 2025. The anticipated continued decline in core inflation could reinforce the ECB’s confidence that the trend of disinflation is still ongoing.
Currently, swap markets are factoring in approximately 1.6 percentage points of rate cuts by ECB this year, with 60% probability of these cuts commencing as early as March. The critical consideration now is the pace of disinflation: whether it is rapid enough to justify earlier rate cuts, or slow enough to warrant maintaining the current restrictive policy stance for a longer duration.
Today’s Eurozone CPI data could be pivotal for the Euro’s performance. Any results that fall short of expectations might trigger another wave of selling pressure. Specifically, break of 0.9252 support will resume EUR/CHF’s down trend from 1.0095, and target 100% projection of 0.9995 to 0.9416 from 0.9683 at 0.9104 next.
As financial markets await December US non-farm payroll data, remains the strongest major currency for the week. 10-year treasury yield continues its attempt to breach break 4% psychological level, as its near-term recovery is still intact. Concurrently, NASDAQ leads pullback in the stock markets, reflecting cautious investor sentiment.
The current market mood suggests recalibration of expectations regarding Fed’s policy loosening path. Traders are increasingly skeptical about Fed starting rate cuts as early as March, with the likelihood now estimated around 65% according to Fed funds futures. A robust set of NFP numbers could further solidify this sentiment shift, potentially boosting Dollar and treasury yields while exerting pressure on stocks.
Markets expect NFP to show 168k job growth in December. Unemployment rate is expected to tick up from 3.7% to 3.8%. Average hourly earnings are expected to grow 0.3% mom.
Recent released job market data suggest the possibility of an upside surprise in the NFP report. ADP private employment report showed 164k new jobs in the same month, exceeding expectations and showing an increase from the previous month’s 101k. ISM Manufacturing PMI’s employment component also improved, rising to 48.1 from 45.8, though it remains in contraction territory. Furthermore, 4-week moving average of initial unemployment claims decreased to 208k, down from previous month’s 221k.
Market response to NFP data could particularly impact 10-year treasury yield. Technically, a short-term bottom appears to be in place at 3.785 with the current recovery, and D MACD crossed above signal line. Firm break above 4% level could provide momentum for TNX to target the 55 D EMA, currently at 4.212. While a break through 38.2% retracement of 4.997 to 3.785 at 4.247 seems unlikely at present, even a moderate rebound in TNX should lend near-term support to Dollar, especially against Yen.
Japan’s PMI Services was finalized at 51.5 in December, up slightly from November’s 50.8, signaling a modest but positive growth in the sector. Composite PMI also improved, reaching the neutral mark at 50.0, up from 49.6 in the previous month.
Usamah Bhatti of S&P Global Market Intelligence attributed this growth to an increase in new orders and customer numbers. This uptick in business activity led firms to end the year with a more positive outlook. Service providers also expressed confidence about future activity, driven by expectations of economic recovery and plans for long-term business expansion.
However, Bhatti noted “steeper increase in inflationary pressures”, mainly from escalated costs for raw materials, fuel, and labor. This resulted in the highest increase in service output charges since August.
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Canada’s merchandise exports down -0.6% mom in Nov, imports up 1.9% mom
In November, Canada’s merchandise exports fell -0.6% mom to CAD 65.74B. This decrease occurred despite increases in 7 of the 11 product sections. Merchandise imports rose 1.9% mom to CAD 64.17B, with increases in 8 of the 11 product sections.
Merchandise trade surplus narrowed from CAD 3.2B to CAD 1.6B, smaller than expectation of CAD 2.5B.
Services exports rose 1.0% mom to CAD 16.6B. Services imports fell -0.1% mom to CAD 17.6B.
Combining goods and services, exports decreased -0.3% mom to CAD 82.4B. Imports rose 1.5% mom to CAD 81.8B. Trade surplus fell from CAD 2.0B to CAD 594m.
Full Canada trade balance released here.