Market Outlook: Fed Minutes & Economic Data

Overall the market was rather turbulent in the past few days and its swings continued to catch trader’s attention, yet we would expect no less in the coming week as well. On the monetary front’s calendar the Fed’s release of its meeting minutes stands out on Wednesday, late in the American session and on second base we would also note from Sweden Riksbank’s interest rate decision on Thursday. Also planned statements from policymakers from around the world could swing the market’s attitude. As for financial releases on Monday we note the release of Eurozone’s preliminary Consumer Confidence for November and on Tuesday we get Australia’s, Eurozone’s, UK’s and the US preliminary Markit PMI figures for November. On Wednesday we highlight from the US the release of the 2nd estimate of the GDP rate for Q3 among a plethora of data. On Thursday we get Australia’s Capital expenditure growth rate for Q3 while on Friday we get Switzerland’s GDP rate for Q3.

USD – Fed’s minutes in focus

The USD is about to end the week higher against a number of its counterparts. The greenback was able to build on the bullish sentiment of the market, which was caused by the release of the higher than expected CPI rates for October. The acceleration of the retail sales growth rate, as well as the industrial production rate, which also exceeded market expectations, provided further support for the USD. Financial releases in the coming week may create room for further advancement and we highlight Wednesday the 24th of November as the main day, as we get a slew of data from the US. We note the release of the Durable goods orders growth rate for October, the weekly initial jobless claims figure, the consumption rate for October, the final University of Michigan consumer Sentiment for November and the new home sales figure for October, but the highlight regarding US financial releases is expected to be the release of the 2nd estimate of the US GDP rate for Q3. Before that though please also note on Tuesday the 23rd the release of the preliminary Markit PMI figures for the US. On a monetary level the market’s bets on whether the Fed will tighten its monetary policy at a faster pace or not intensified after the US retail sales for October were released last Tuesday. Fed officials in recent statements seemed to lean towards the hawkish side and market expectations seemed to rise. In the coming week, we highlight the release of the FOMC minutes for the November meeting and investors and analysts are expected to scrutinise the document for clues regarding the Fed’s intentions. Should the document verify a more hawkish approach by a number of policymakers, we may see the USD gaining and vice versa. Remaining on the Fed issues we expect US President Biden to name the nominee for the Fed’s top position and the main candidates currently considered are incumbent Fed Chairman Jerome Powell and the Fed’s Board of Governor member Lael Brainard. The issue is strongly political as the left leaning side of the Democrats seems to favour Brainard for a stronger supervision of financial institutions, while Republicans seem to favour Powell, yet overall caution is advised at the release. Also on a fundamental level, we note the friendly tone in the meeting of US president Biden and Chinese leader Xi Jinping and its characteristic that the Chinese leader called the US President an “old friend”, while also called for more cooperation and communication. Further thawing of the tensions in the US-Sino relationships could create some safe haven outflows for the USD on a fundamental level, while also cause a more risk-on attitude by the markets. On the other hand, US Treasury Yellen’s warning that the US government may run out of money on the 15th of December caused some disturbance among market participants. Despite a temporary solution being found by US lawmakers, some degree of uncertainty about the issue remains, but at a low level.

GBP – Pound gets support from financial data

It’s been a great week so far for the pound as it strengthened against the USD and the EUR. The pound found support from the recent data released, especially the better-than-expected employment data as well as the higher-than-expected CPI and retail sales rates for October. All prementioned releases intensified expectations for the BoE to hike rates in its next meeting, thus building on the pound’s bullish momentum. On a monetary level, BoE’s dilemma is still present as to hike rates or not and the answer to that question may still be far off but could affect the market’s mood regarding the sterling in the coming week. As for financial releases we note the release of UK’s preliminary PMI figures for November on Tuesday the 23rd , while on Wednesday the 24th and Thursday the 25th we get the CBI Industrial trends for orders and distributive trades respectively, both being for the month of November as well. On the fiscal front we note the plans to revamp the UK railway with emphasis being placed on the North and the Midlands. The program is expected to cost around £96 Billion ($130 billion) which could push UK’s economic recovery faster and is considered a great investment plan for UK’s economy.

JPY – Safe haven flows to move JPY

JPY seems about to end the week lower against the USD and the GBP, back to back with the previous week, despite some safe haven flows providing some support on Wednesday for the Japanese currency. On a fundamental level we expect safe haven flows to continue to move JPY in the coming week as well, due to its dual nature. Also on a fundamental level we note the plans for the release of another fiscal stimulus by the Japanese government of around ¥40 Trillion (US$350 billion). Analysts may not be so certain that the aggressive government spending will have the desired effect on the growth of the Japanese economy nor will it accelerate inflationary pressures. Overall though, we note that despite the shrinking of the Japanese economy the outlook for a recovery is still present given the high vaccination rates for the country. Also a possible drop of oil prices could support the recovery of the oil consuming Japanese economy. But worries of a prolonged shortage of supply, especially for semiconductors could slow the recovery somewhat. It’s characteristic that BoJ Governor Kuroda stated concerns at the beginning of the week about the issue. Nevertheless BoJ’s monetary policy is expected to remain accommodative and the ultra loose monetary policy could weigh on JPY. As for financial releases we note the release on Wednesday the 24th of November of the preliminary Jibun manufacturing PMI figure for November and on Friday the 26th Tokyo’s CPI rates for the same month.

EUR – Preliminary PMIs eyed

The common currency is about to end the second week lower against the USD, but also against the pound as well as CHF and JPY in a clear indication of EUR weakeness. The solid financial data released in the past days from the US and the UK tended to increase market expectations for a more hawkish stance for the Fed and the BoE, in contrast to the dovish ECB thus increasing the adverse interest rate differential outlook for the EUR. It’s characteristic that ECB President Lagarde had pushed back against the idea of a rate hike in 2022 on Monday, thus underscoring the dovish stance of the bank and allowing for little hope for such a scenario to materialise. However on a different tone, ECB board member Schnabel stated that the bank must be ready to act should inflationary pressures persist in the area. On a more fundamental level we note the delay of the operation of Nordstream 2 in Germany, as German authorities have announced a halt of its approval, which in turn could have an adverse effect on the economic recovery of the Eurozone. As for financial releases EUR traders may be more busy in the first days of the week as we get on Monday Eurozone’s preliminary consumer confidence for November. On Tuesday the 23rd we highlight the release of the preliminary PMI figures of November for the area which tends to be closely watched by EUR traders and analysts. On Wednesday we get Germany’s Ifo indicators for November while also Germany’s final GDP rate for Q3 is to be released during the week.

AUD – CapEx and Preliminary PMIs to be watched

The Aussie seems about to end in the reds for a third week in a row against the USD. Fundamentally the partial thawing in the tensions of the US-Sino relationships seems to have failed to provide some support for the Aussie. On the monetary front we note that RBA Governor Lowe resisted the idea that the bank could proceed with a rate hike in 2022. Governor Lowe stated that “ I would like to repeat a point I made a couple of weeks ago – that is, the latest data and forecasts do not warrant an increase in the cash rate in 2022”. The dovish stance of the bank as expressed by its Governor could weigh on the Aussie. Also the minutes of the bank’s November meeting which were released on Tuesday, seem to suggest patience until wage and inflation targets are met. On the other hand, RBA Assistant Governor Ellis suggested that strong growth could suggest a “virtuous cycle” for the economy. As for financial releases we note on Tusday the 23rd the release of Australia’s preliminary PMI figures for November, while on Thursday the 25th we get Australia’s Capital Expenditure growth rate for Q3.

CAD – Oil prices to move the CAD

The CAD is about to end the week weaker against the USD for a fourth time in a row. In the current week it was characteristic that despite Canada’s better than expected CPI rates for October the Loonie failed to capitalise on the release. The acceleration of inflation in the Canadian economy may add pressure on the BoC to act. On the other hand, BoC Governor Macklem stated that the bank is not to hike rates until the slack in the Canadian economy is absorbed, something that has not happened yet, but is getting closer. We expect monetary policy issues to continue to affect the Loonie the coming week as well as fundamentals, given the lack of high impact financial releases. On a fundamental level we note the downward motion of oil prices in the past days, which may have weighed on the Loonie. Bear in mind that the US has asked countries such as China, Japan and India, which are heavy users of oil to consider tapping their national oil reserves in a combined effort to bring oil prices down. It was also reported by Reuters that China’s State Reserve Bureau has said that it was working on a release of crude oil reserves yet did not comment on the reports for the US proposal. Overall, we may see the releases from the strategic oil reserves of various countries actually exercising pressure on the oil prices, yet a correction of the oil market could be achieved only by a rebalancing of supply and demand levels in the long term.