Will US growth hold up?
Two key data points see light of day this week as markets wrestle with the question of whether US growth holds up or not. First up, Oct. US Core CPI m/m gets released on Thursday 12.30am AEDT while not long after markets catch Oct. Core Retail Sales m/m early Saturday morning at 12.30am AEDT. How both read will factor into the Fed’s data-dependent monetary considerations. Given little to no easing is priced-in currently from the Fed and G10 central banks, a negative read could see rate cut expectations creep higher driving bonds up and offering some resistance for equities approaching all-time highs, especially S&P 500 Futures which are trading marginally under 3,100. Short USDJPY with 108.5 target appears to be an attractive risk-reward bet against a negative equity market move.
Markets split on RBNZ call
Central bank risk materialises on Wednesday with RBNZ due to make a rate decision at 12pm AEDT. Consensus taken from short-term rate futures for the time being leans on a 65% chance that RBNZ cut, or in other words, around 16bps of easing is currently priced in. However, we think risks are probably more symmetric than that in NZDUSD which also sees quarterly inflation expectations on Tuesday, the day prior. There’s moderate upside risk to NZDUSD if RBNZ hold having sold off over 100pips from November highs of 0.6465.
Aussie traders catch employment
The RBA are set to most likely stay dormant in December though will still want to take stock of how employment figures print come Thursday, 11.30am AEDT. Consensus is forecast for a 16k job gain while unemployment is expected to stay at 5.2%. Trading into AUDUSD, we expect markets to balance the unpredictability of US-China headlines against the employment result. Though, having said that, we look to take advantage of relative RBA hawkishness by getting long AUDNZD in the medium-term buying dips. The RBA mention that “employment has continued to grow strongly” and so we take this as a sign that there could be more upside than downside risk to the print.
