Monday

BoJ Governor Ueda continues to be uncertain about them hitting the 2% target sustainably:

• Cannot say with conviction that inflation will hit 2% sustainably.
• Japan economy is recovering moderately.
• The output gap has narrowed to near zero.
• Some positive signs seen in wages and inflation.
• But there is still high uncertainty on whether this cycle can strengthen further.

BoE Governor Bailey (neutral – voter) pushed back on rate cuts expectations:

• It is too soon to discuss about cutting interest rates.
• Getting inflation down to 2% will be hard work.
• A lot of the recent fall in inflation is due to unwinding of energy cost surge.

ECB President Lagarde (neutral – voter) acknowledged the stagnation in the Eurozone economy but remains wary of prematurely declaring victory against inflation:

• Euro area activity has stagnated in recent quarters and is likely to remain weak for the rest of the year.
• Advises that it is premature to start declaring victory in the current economic scenario.
• There are indications of potential job growth slowdown towards the end of the year,
• Emphasizes the need to stay focused on the mandate of price stability, considering various forces affecting inflation.
• Notes that wage pressures remain strong.
• Looking beyond 2024, the ECB's Governing Council is committed to exploring ways to further decarbonize corporate portfolios.
• Expects the weakening of inflationary pressures to continue.
• States that the medium-term outlook for inflation is still surrounded by considerable uncertainty.
• Says the PEPP will be discussed in the not-so-distant future.
• We will re-examine a proposal to keep reinvesting until the end of 2024.

Tuesday

The Australian Retail Sales for October missed expectations:

• Retail Sales M/M -0.2% vs. 0.1% expected and 0.9% prior.
• Retail Sales Y/Y 1.2% vs. 2.0% prior.

RBA Governor Bullock highlighted that the strength in the labour market is keeping inflation high for longer than expected:

• High employment is helping people to pay expensive mortgages.
• Says Australia inflation path is similar to overseas.
• Says again she expects inflation to decline to just under 3% in 2025.
• Notes uncertainty on inflation's path.
• Monetary policy is restrictive.
• Rate hikes are dampening demand but demand being propped up by immigration, this has contributed to second round effects of cost rises.
• Sticky services inflation.

BoE’s Ramsden (neutral – voter) reiterated that the central bank will keep interest rates high for an extended period of time to ensure that inflation goes back to the 2% target:

• Monetary policy is likely to need to be restrictive for an extended period of time to get inflation back to 2% target.
• UK inflation is more homegrown.
• The path of rates will be data dependent.
• We are not making any commitments on where rates will be.

ECB’s Nagel (hawk – voter) pushed back against rate cuts expectations:

• Rate hikes are not necessarily over.
• Would have to hike again if inflation outlook worsened.
• Premature to discuss about rate cuts, would prefer to err on the side of caution.
• Inflation outlook is encouraging but core inflation dynamics continue to be strong.

BoE’s Haskel (hawk – voter) pushed back against rate cuts expectations citing labour market tightness as a reason for persistently high inflation:

• Labour market tightness continues to impart inflation pressures.
• This will need higher rates for longer to get inflation sustainably to target.
• Current outlook does not suggest scope for moderation in rates any time soon.
• This is why I have been voting for higher rates at recent meetings.
• At current rate of change, it would take at least a year to fall back to average pre-pandemic tightness.
• Rates will have to be held higher and longer than many seem to be expecting.

The US Consumer Confidence beat expectations, although the labour market details continue to show weakness:

• Consumer Confidence 102.0 vs. 101.0 expected and 99.1 prior (revised from 102.6).
• Present situation index 138.2 vs. 138.6 prior (revised from 143.1).
• Expectations index 77.8 vs. 75.6 prior.
• 1 year inflation expectations 5.7% vs. 5.9% prior.
• Jobs hard-to-get 15.4 vs. 13.1 prior.

Fed’s Waller (hawk – voter) delivered mostly neutral remarks, but the market reacted on him saying that they could start lowering rates if inflation continues to fall for several more months, which is consistent with the current market pricing:

• Need some improvement in services inflation ex-housing for overall inflation to reach 2%.
• Increasingly confident policy is well-positioned to slow economy, get inflation back to 2%.
• Cannot say for sure if Fed has done enough.
• Data over the next couple months will hopefully tell if the Fed has done enough.
• Recent loosening of financial conditions a reminder to be careful about relying on market tightening to do Fed's job.
• Encouraged by signs of moderating economic growth.
• Inflation still too high, too early to say if slowing will be sustained.
• Supply-side problems mostly behind us. Monetary policy will need to do the work from here.
• Premature to rely on productivity growth gains to guide stance of Fed policy.
• Consumer spending is slowing, manufacturing and nonmanufacturing activity has slowed.
• Labor market is cooling off, but still fairly tight and will watch closely.
• Will closely monitor goods, services prices in coming weeks to see if inflation still on downward path.
• If the decline in inflation continues for several more months, three months, four months, five months, we could start lowering the policy rate just because inflation is lower.

Fed’s Bowman (hawk – voter) remains one of the most hawkish members as she still sees a rate hike as her baseline scenario:

• Says she Favors hiking if inflation progress stalls.
• Inflation remains high, recent progress is uneven.
• Baseline outlook is that the Fed will need to increase rates further to keep policy sufficiently restrictive.
• Fed should keep in mind risks with prematurely declaring victory on inflation.

Fed’s Williams (neutral – voter) welcomed the decline in inflation:

• Encouraging to see decline in inflation pressure.
• Fed has signalled strong commitment to get inflation back to 2%.
• Longer run inflation expectations have been very stable.

Wednesday

Fed’s Goolsbee (dove – voter) is focused on housing inflation:

• Of all pieces of data, housing inflation is most paramount.
• Market-based inflation expectations have been anchored.
• Have some concern about keeping rates too high for too long.
• Once you believe you are on path to 2% inflation, amount of restrictiveness needs to be less.
• Data will determine how fast we go.

The Australian Monthly CPI for October missed expectations:

• CPI Y/Y 4.9% vs. 5.2% expected and 5.6% prior.
• CPI M/M -0.4% vs. 0.3% prior.
• CPI Trimmed Mean Y/Y 5.3% vs. 5.4% prior.
• Goods inflation Y/Y 4.6% vs. 5.7% prior.
• Services inflation 5.0% vs. 5.3% prior.

BoJ’s Adachi, as other BoJ members, continue to highlight the importance of wage inflation as a key decision maker for any BoJ policy normalisation:

• Japan yet to see positive wage-inflation cycle become embedded enough.
• Appropriate to patiently maintain easy policy.
• If needed BoJ will take additional easing steps.
• Steps BoJ took in October to make YCC flexible not aimed at laying the groundwork for policy normalisation.
• Japan's inflation expectations heightening moderately.
• See risk to Japan's inflation outlook skewed to upside.
• Companies starting to shed deflationary price-setting practices.
• Hard to predict now whether wage hikes will continue next fiscal year.
• Given high uncertainty over global economic outlook, there is risk Japan’s inflation, wages face downward pressure.
• If positive wage-inflation cycle strengthens, that could further push up prices.
• Positive wage-inflation cycle has not happened yet.
• But if chances of it happening increases, then we can start discussing exit strategy.
• Don't need to necessarily wait for it to turn positive to debate exit from negative rates.
• Will probably need to wait until the start of the next fiscal year in determining wage talks outcome.
• The outcome will be crucial in making any big policy decisions.
• Does not think BoJ are at the stage to discuss an end to negative rates.

The RBNZ left the OCR unchanged at 5.5% as expected:

• Interest rates are restricting spending in the economy and consumer price inflation is declining, as is necessary to meet the committee's remit.
• Interest rates will need to remain at a restricted level for a sustained period of time.
• However, inflation remains too high, and the committee remains wary of ongoing inflationary pressures.
• Demand growth has eased, but by less than anticipated over the first half of 2023 in part due to strong population growth.
• The committee is confident that the current level of the OCR is restricting demand.
• The OCR will need to stay restrictive, so demand growth remains subdued, and inflation returns to the 1 to 3 percent target range.
• If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.

Forecasts:

• Sees official cash rate at 5.63% in March 2024 (prior 5.58%).
• Sees official cash rate at 5.66% in December 2024 (prior 5.5%).
• Sees official cash rate at 5.56% in March 2025 (prior 5.36%).
• Sees official cash rate at 3.55% in December 2026.
• Sees NZD TWI at around 70.7% in December 2024 (prior 71.0%).
• Sees annual CPI 2.5% by December 2024 (prior 2.4%).

From the minutes of the meeting:

• Committee agreed that interest rates will need to remain at a restrictive level for longer.
• Members agreed they remain confident that monetary policy is restricting demand.
• Ongoing excess demand and inflationary pressures were of concern, given high core inflation.
• Members discussed the possibility of the need for increases to the OCR.
• Members agreed that with interest rates already restrictive, it was appropriate to wait for further data and information.
• Members agreed that monetary policy was supportive of sustainable house prices.
• Pressure in the labour market is easing, although employment remains above its maximum sustainable level.
• Members also noted that most major central banks have indicated that they intend to retain current restrictive policy rates for longer, and are willing to tighten further, if required.
• While growth in parts of the economy is slowing, there has been less of a decline in aggregate demand growth than expected earlier in the year.
• Committee noted that the estimate of the long-run nominal neutral OCR has increased by 25 basis points to 2.50%.

Moving on to the Governor Orr Press Conference:

• Meeting with new PM was highly constructive.
• We've been adamant on holding rates through next year.
• Projection shows upward bias to rates, but it is not a done deal.
• Risk to inflation is still more to upside.
• We did discuss raising rates at this meeting.
• Had a robust discussion about rates.
• Nervous that inflation has been outside the band for so long.
• Concerned that longer-term inflation expectations are creeping up.
• Global rates do matter to us, very tuned into that outlook.
• Will make decision on debt-to-income restrictions early next year.
• Seeing credit growth slowing rapidly, our message on rates is being heeded.
• We are saying rates need to be this high for some time to come, banks should listen.
• We are not bound by policy meeting dates, can act on shocks if needed.
• Comfortable on waiting until the February meeting right now.
• Domestic inflation is causing the challenge, big part of that is dwelling costs.

ECB’s de Guindos (neutral – voter) just explained why they raised interest rates:

• Our objective is to bring inflation back to 2% target.
• Rate hikes are both for borrowers and savers.
• That is part of our monetary policy transmission.
• If savings become more attractive, consumers will spend less, reducing demand.
• This is what we aim for to push down inflation.

Fed’s Barkin (neutral – non voter) pushed back on rate cuts expectations as he sees inflation being more stubborn than expected:

• Revised consumer spending data is more consistent with what I am hearing on the ground.
• I'm hearing consumers slowing down, but not falling off the table.
• Sceptical that price setters at this point have gone back to where they were pre-Covid.
• 5.2% GDP tells companies that they can still try to raise prices.
• The goods inflation has clearly come down. It’s basically back to pre-Covid levels.
• While I think that entry rates have clearly come down, but housing inflation is still going up.
• A lot of services prices are still going up driven by wages.
• I am still in the "looking to be convinced category" that inflation is coming down.
• Not willing to take another rate hike off the table.
• Want the option of doing more on rates if inflation flairs again.
• Markets have a different forecast than me on inflation.
• I believe inflation will be stubborn then we'd like.
• Talking about rate cuts is premature.
• We do hope the messages we send go into the financial conditions in the markets.
• Try not to get overly focused on the financial conditions in the markets.
• Market bets on 4 rate cuts next year might be based on expectations for soft landing. I hope they are right.
• My forecast is that inflation will come down but stubbornly.
• We will in the end have some kind of slowdown.
• To lower rates you'd need to be confident inflation is headed back to 2%.

Fed’s Mester (hawk – non voter) toned down her hawkish stance as she’s comfortable with the current policy setting:

• Monetary policy is in a good place.
• Sees “clear progress” in getting inflation to 2%.
• It will take time to get to 2% but Fed will do it.
• Fed has time to vet incoming data.
• Monetary policy must be nimble in current circumstances.
• Monetary policy well positioned to be flexible.

The Fed’s Beige Book showed slowing economic activity with the index now at levels consistent with a recession:

• On balance, economic activity slowed since the previous report.
• Retail sales, including autos, remained mixed; sales of discretionary items and durable goods, like furniture and appliances, declined, on average, as consumers showed more price sensitivity.
• Four Districts reported modest growth, two indicated conditions were flat to slightly down, and six noted slight declines in activity.
• Demand for transportation services was sluggish.
• Manufacturing activity was mixed, and manufacturers' outlooks weakened.
• Consumer credit remained fairly healthy, but some banks noted a slight uptick in consumer delinquencies.
• The economic outlook for the next six to twelve months diminished over the reporting period.
• Price increases largely moderated across Districts, though prices remained elevated.
• Most Districts expect moderate price increases to continue into next year.
• Demand for labour continued to ease, as most Districts reported flat to modest increases in overall employment.
• Several Districts continued to describe labour markets as tight with skilled workers in short supply.

The 2^nd estimate for the US Q3 GDP was revised upwards, but personal consumption and Core PCE were revised downwards:

• US Q3 GDP 2nd Estimate 5.2% vs. 5.0% expected and 4.9% for the advance reading.
• Q2 final reading was 2.1%.
• Personal consumption 3.6% vs. 4.0% advance reading.
• Core PCE prices 2.3% vs. 2.4% expected.
• PCE prices 2.8% vs. 2.9% advance.
• GDP deflator 3.5% vs. 3.5% expected.
• GDP final sales 3.7% vs. 3.5% advance.
• Corporate profits after tax 4.1% vs. 0.5% in Q2.

Thursday

The Japanese Industrial Production for October beat expectations:

• Industrial Production M/M 1.0% vs. 0.8% expected and 0.5% prior.
• Industrial Production Y/Y 0.9% vs. -4.4% prior.

The Chinese PMIs for November missed expectations:

• Manufacturing PMI 49.4 vs. 49.7 expected and 49.5 prior.
• Services PMI 50.2 vs 51.1 expected and 50.6 prior.

BoJ’s Nakamura reiterated the central bank’s dovish stance as they remain uncertain on inflation hitting the 2% target sustainably:

• Will need some more time before we can modify easy monetary policy.
• Now is a time to be cautious in our policy response.
• Current inflation is mostly driven by cost-push factors.
• We haven't reached a stage where we can say with conviction that sustained, stable achievement of 2% inflation accompanied by wage growth is in sight.
• We are seeing signs Japan will see wage growth exceeding rate of inflation.
• Must patiently maintain current monetary easing for time being.

The Eurozone CPI for November missed expectations across the board:

• CPI Y/Y 2.4% vs. 2.7% expected and 2.9% prior.
• CPI M/M -0.5% vs. 0.1% prior.
• Core CPI Y/Y 3.6% vs. 3.9% expected and 4.2% prior.
• Core CPI M/M -0.6% vs. 0.2% prior.

The Eurozone Unemployment Rate remained unchanged at 6.5% vs. 6.5% prior.

ECB’s Panetta (dove – voter) reaffirmed the central bank’s “wait and see” approach:

• Current interest rates level consistent to bring inflation down to target.
• May be able to ease monetary conditions if persistently weak output accelerates the decline in inflation.
• Monetary tightening has not yet had full impact and will continue to dampen demand in the future.
• Risks to Eurozone economy are tilted to the downside.
• The economy remains weak in Q4 2023.

The Canadian Q3 GDP missed expectations coming in with a negative print:

• Q3 GDP Q/Q -0.3% vs. 0.2% expected.
• Annualized Q/Q GDP -1.1% vs. 0.2% expected.
• Q2 annualized Q/Q GDP revised to 1.4% from -0.2%.
• September GDP 0.1% vs. 0.0% expected.
• August GDP was 0.0%.
• Preliminary October GDP 0.2%.
• Q2 GDP revised to 0.3% from 0.0%.
• GDP implicit price Q/Q 1.8% vs. 0.4% prior (revised from 0.7%).
• Q3 final domestic demand 0.3% vs. 0.3% prior.

The US PCE came in line with expectations:

• PCE Y/Y 3.0 vs. 3.0% expected and 3.4% prior.
• PCE M/M 0.0% vs. 0.1% expected and 0.4% prior.
• Core PCE Y/Y 3.5% vs. 3.5% expected and 3.7% prior.
• Core PCE M/M 0.2% vs. 0.2% expected and 0.3% prior.

The US Initial Claims beat expectations once again while the Continuing Claims missed by a big margin:

• Initial Claims 218K vs. 220 expected and 211K prior (revised from 209K).
• Continuing Claims 1927K vs. 1872K expected and 1841 prior (revised from 1840K).

Fed’s Daly (neutral – non voter) pushed back against rate cuts expectations as she continues to support the “high for longer” stance:

• It's still too early to know if Fed is done hiking rates.
• Should take our time now and remain vigilant.
• Need to better understand what's happening with the economy and inflation.
• Latest data is encouraging.
• I'm not thinking about rate cuts at all right now.
• Economy needs to cool down a little more.
• Further rate hikes are not our base case.
• Hearing more and more it is harder for companies to pass along price hikes.
• People's fear of recession has faded into the background.

Fed’s Williams (neutral – voter) delivered mostly neutral comments. The interesting part is this line “Key for policy is persistence of easing in financial conditions”. It looks like the higher the stock market (or bond market) goes, the less incentive he’s going to have to cut:

• If inflation pressures persist, we could hike again.
• We are at or near the peak of interest rate target.
• Sees inflation falling to 2.25% in 2024.
• Inflation will close in on 2% in 2025.
• Financial conditions have tightened.
• Sees GDP at 1.25% next year.
• Sees unemployment at 4.25% next year.
• Sees upside and downside risks for inflation.
• Says he's not losing sleep over market views of Fed funds path.
• Key for policy is persistence of easing in financial conditions.
• Notes a significant decline in inflation.
• Financial conditions are volatile, and markets are sensitive.

BoE’s Greene (hawk – voter) continues to maintain her hawkish stance:

• Policy may have to be restrictive for an extended period of time.
• I believe r* may have risen.
• The labour market has shown signs of inflation persistence.
• Data on activity remains mixed though, so I continue to worry more about the risk of inflation persistence.

The OPEC+ producers failed to agree on a group cut and proceeded with voluntary output cuts of about 2.2 million BPD with Saudi Arabia extending its 1 million BPD voluntary output cut into Q1 2024 and then phasing them out. Russia increased its voluntary cut from 300K to 500K until the end of Q1 2024. Finally, Brazil was invited to join OPEC+ effective from January 1^st.

Friday

The Japanese Unemployment Rate ticked lower to 2.5% vs. 2.6% prior.

The Chinese Caixin Manufacturing PMI beat expectations:

• Manufacturing PMI 50.7 vs. 49.8 expected and 49.5 prior.

Key points in the report:

• Production returns to growth amid sustained rise in total new work.
• Softer reduction in employment.
• Business confidence ticks up to four-month high.

The Switzerland Q3 GDP beat expectations:

• Q3 GDP Q/Q 0.3% vs. 0.1% expected and -0.1% prior (revised from 0.0%).

The Switzerland Manufacturing PMI slightly beat expectations:

• Manufacturing PMI 42.1 vs. 42.0 expected and 40.6 prior.

The Canadian Labour Market report beat expectations, but the unemployment rate keeps on increasing:

• Employment Change 24.9K vs. 15.0K expected and 15.0K prior.
• Unemployment rate 5.8% vs. 5.8% expected and 5.7% prior.
• Full-time employment 59.6K vs. -3.3K prior.
• Part-time employment -34.7K vs. 20.8k prior.
• Participation rate 65.6% vs. 65.6% prior.
• Average hourly wages permanent employees Y/Y 5.0% vs. 5.0% prior.

The Canadian Manufacturing PMI fell further into contraction:

• Manufacturing PMI 47.7 vs. 48.6 prior.

The US ISM Manufacturing PMI missed expectations with all the sub-indexes in contraction:

• Manufacturing PMI 46.7 vs. 47.6 expected and 46.7 prior.
• Prices paid 49.9 vs. 45.1 prior.
• Employment 45.8 vs. 46.8 prior.
• New orders 48.3 vs. 45.5 prior.
• Inventories 44.8 vs. 43.3 prior.
• Production 48.5 vs. 50.4 prior.

Fed Chair Powell (neutral – voter) delivered mostly neutral comments as the FOMC continues to prefer a “wait and see” approach:

• FOMC is moving forward carefully as risks around rates becoming more balanced.
• It's premature to say that monetary policy is restrictive enough.
• Fed will raise rates if needed to lower inflation.
• Fed is making rate decisions meeting by meeting.
• Uncertainty over economic outlook is unusually elevated.
• Fed funds range well into restrictive territory.
• Fed has made considerable progress in lowering inflation.
• Welcomes recent softening in inflation data.
• Need to see more progress on lowering inflation to 2%.
• Wage growth still high but moderating to more sustainable levels.
• Unemployment up but still historically low.
• As the demand and supply related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated.

The highlights for next week will be:

• Monday: Switzerland CPI.
• Tuesday: Tokyo CPI, China Caixin Services PMI, RBA Policy Decision, Eurozone PPI, Canada Services PMI, US ISM Services PMI, US Job Openings.
• Wednesday: Australia GDP, Eurozone Retail Sales, US ADP, BoC Policy Decision.
• Thursday: China Trade data, Switzerland Unemployment Rate, US Challenger Job Cuts, US Jobless Claims.
• Friday: Japan Wage data, US NFP, University of Michigan Consumer Sentiment.

That’s all folks. Have a nice weekend!