Morning Report
December 09, 2024
“The December central bank meetings kick off with this week with decisions from Australia, Canada, Switzerland, and the eurozone. On the data calendar, US inflation figures and a UK growth report should provide plenty of catalysts ahead of Fed and BoE decisions next week too.”
Tim Hallinan – Trading Director
USD
A fleeting post-payrolls drop on Friday unwound quickly and the dollar closed out the day modestly higher. The 227K jobs created in November were a touch higher than the consensus but, with unemployment ticking up to 4.2% and the six-month average below 150K, there was enough softness in the report for the market to lift pricing on a rate cut next week to 85%. The stickiness expected in Wednesday’s CPI report could be the final stumbling block, however. While the 0.3% estimate for core month-on-month inflation should not stop the Fed from cutting next week, it is likely a contributor to the strengthening consensus around a pause in January.
Elsewhere, we have a week packed with central bank decisions from Australia, Canada, Switzerland, and the eurozone. The RBA remains a hawkish outlier within the G10, and the market does not fully price a first rate cut until April 2025. But 50bp rate cuts are on the table for the other three, although it is deemed much more likely for the Bank of Canada (90%) than for the Swiss National Bank (50%) and the ECB (8%).
GBP
Sterling eked out a gain against a softening dollar last week, having touched a one-month high on Friday, and it clocked its third consecutive weekly gain versus the euro, although both were solely the result of external dynamics. This week, US inflation and a swathe of central bank decisions are likely to dominate in the lead-up to Friday’s GDP report and next Thursday’s Bank of England decision. The BoE’s Ramsden gives a talk about financial stability in London this morning and there are a couple of low-tier data points over the next few days, before an expected 0.2% month-on-month growth figure for October to end the week.
EUR
Thursday’s ECB decision is the highlight for the euro this week. Friday’s payrolls report very briefly took EUR/USD above 1.06 for the first time since 19th November as rising bets on a Fed cut next week narrowed the rate differential slightly, but it was unable to hold on. Several weeks ago, weak growth prospects meant that investors were relatively convinced that a 50bp rate cut this week was a solid option – now it is assumed to be a tail risk. The upside surprise on the Q3 growth figure, continued stickiness in services inflation, and some starkly hawkish commentary from the ECB’s Schnabel have all suggested that there is enough to encourage policymakers to hold their nerve. A Sentix investor confidence print is the only piece of data in the diary today, which is expected to improve only slightly.
Markets
Equities were lifted by a Goldilocks-type non-farm payrolls report on Friday as jobs growth slowed enough to give markets confidence in a Fed rate cut next week but without prompting serious concerns about the state of the US labour market. The US’ Nasdaq rose nearly 1% on the session, while the UK’s FTSE 100 was the only major index in Europe to fall, dropping 0.5%.
Main Economic Events (All Times CET)
2:30am: Chinese CPI Inflation
10:30am: Eurozone Sentix Investor Confidence
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