December 06, 2023

“Despite the lowest number of job openings since 2021, the dollar managed to recover further from its November slide yesterday, drawing strength from a positive surprise in services sector activity. Friday’s non-farm payrolls and wage growth reports will now be crucial for the near-term market direction.”

Sam Cornford – Head of Trading

Main Headlines

Increased sales of electric vehicles in recent years have prompted forecasters to accelerate their predictions for the peak of global oil consumption. Public subsidies and advancements in technology have played key roles in helping consumers overcome the high upfront costs associated with battery-powered cars, as noted by industry experts. The International Energy Agency (IEA), based in Paris and consisting of 29 industrialised nations, now anticipates that global oil consumption will reach its highest point at the end of this decade, hitting 103 million barrels per day. This forecast is a revision from its 2017 projection, which predicted a peak of nearly 105 million barrels per day by 2040.

Junior doctors in England are set to engage in further strike action later this month and in January, as announced by their trade union on Tuesday. Despite weeks of negotiations with the government, the British Medical Association (BMA), representing nearly 200,000 doctors in Britain, stated that the talks failed to resolve the ongoing dispute over pay. Junior doctors plan to walk out from Dec. 20 until Dec. 23, and then again from Jan. 3 until Jan. 9. British health minister Victoria Atkins expressed disappointment at the BMA Junior Doctors Committee’s decision to walk away from negotiations and initiate new strikes.

GBP

Sterling strengthened overnight ahead of a key speech by Bank of England Governor Bailey this morning. UK private sector services activity expanded at a faster pace than the US in November, according to the final PMI prints, in what has been a rapid compression in the growth differential between the two countries in Q4, after the US notched 5.2% annualised growth in Q3. This updated figure failed to spur bullish momentum in the GBP/USD pair, however, with the pound ultimately dented by the US data in the afternoon. Among today’s market events are the construction PMI and the BoE’s Financial Stability Report, followed by Bailey’s speech later this morning. Firm policymaker pushback against rate cut bets thus far has allowed sterling’s November strength to persist whilst the euro has weakened, as markets have priced in far fewer rate cuts for 2024.

EUR

The euro continues its retreat from November highs this morning as bearish domestic factors weigh on the common currency. An upwards revision yesterday to November’s services PMI, which remains in contractionary territory, provided little extra hope for the European economic outlook, worsened today by a 3.7% plunge in German factory orders in October. Poor growth conditions and waning inflation have led markets to price in around 140bps of rate cuts next year. The eurozone macro diary is fairly light today, with retail sales this morning the only data point of note ahead of a speech by the ECB’s Nagel this afternoon.

USD

The dollar remains buoyant near a two-week high as investors evaluate a cooling labour market and robust services data. Job vacancies fell to a two-year low in yesterday’s JOLTS release, in a stark signal of rebalancing supply and demand dynamics in the labour market that should support easing inflationary pressures. This soft release was ultimately overshadowed by robust services activity, as indicated by the concurrent upside surprise on the ISM services PMI, which printed at 52.7 versus a 52.2 forecast and up on October’s 51.8. Catch-up rate cut bets for foreign central banks have also been a positive factor for the dollar this week. The ADP non-farm payrolls report, which tends to move markets despite recently showing a negative correlation to the Friday report it is supposed to predict, is forecast to show a strengthening in the jobs numbers with an increase of 131k this afternoon. Elsewhere in North America, investors will closely watch the Bank of Canada rate decision this afternoon, where they are widely expected to hold at 5.0%.

Markets

US equity futures saw an uptick following a continued slowdown in the labour market, fuelling speculation that the Federal Reserve will implement interest rate cuts next year. MSCI’s Asia Pacific Index, reflecting benchmarks across the region, experienced its most significant increase in three weeks, with Japanese equities leading the gains. European stock futures also advanced by 0.3%.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Germany Oct. Factory Orders
10:30 a.m.: UK Nov. S&P Global/CIPS Construction PMI
11:00 a.m.: Euro-area Oct. Retail Sales
11:00 a.m.: Greece 3Q GDP
11:30 a.m.: BOE releases Financial Stability Report
2:15 p.m.: US Nov. ADP Employment
2:30 p.m.: US Oct. Trade Balance
3:30 p.m.: Wall Street CEOs testify on regulatory oversight to the US Senate banking committee
Poland Rate Decision

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