Week of NOVEMBER 17

Geopolitical events took centre stage last week, with the reopening of the US government overshadowing UK jobs and GDP figures.

The week ahead is reasonably calm, barring the release of delayed US economic figures, with other highlights including the release of the FOMC minutes, Japan's and the UK's inflation reports, and flash PMI figures.

Week in Review

The major headline of the week was the reopening of the US government. Still, the drought of US official data continued as traders await a new economic release schedule, potentially early next week.

Several FOMC officials spoke throughout the week, presenting a divided picture of the prospects for a December rate cut. By Friday, the futures were pricing in even odds of 25 bps of easing at the next Fed meeting.

In terms of data releases, the UK stood out with an avalanche of macroeconomic figures. Markets initially responded positively after the unemployment rate unexpectedly rose to 5.0%, suggesting the BOE will be more inclined to ease. However, UK Q3 GDP disappointed, growing at 0.1% instead of the expected 0.3%. UK September industrial production was also substantially lower at -2.0% instead of the -0.2% forecast.

In geopolitics, the US Congress agreed to end a 43-day government shutdown, the longest in history, funding the government until 20 January. The government formally reopened on Thursday, with markets looking forward to a new schedule of data events from the BLS. Rumours circulated in UK politics that there was an attempt by disgruntled Labour ministers to oust Prime Minister Kier Starmer, but the participants vehemently denied this. Additionally, on Friday, rumours circulated that the Chancellor had dropped plans to increase income taxes as part of the Autumn Budget.

Biggest Market Movers

• Gold prices surged higher amid the US government reopening, as economists worry that official data will show the economy slowing.
• The Swiss franc was the best-performing currency, supported by gold flows and statements from Swiss officials implying a potential deal to reduce US tariffs.
• The yen underperformed amid a fiscal easing push by the Prime Minister and comments from BOJ Governor Ueda, which were interpreted as more dovish.

Top Events in the Week Ahead

The coming week is relatively light in terms of data releases. Still, it's speculated that the BLS may publish an economic calendar for the release of some delayed data, which could impact the markets. Barring that, inflation may be a theme of the week, as several countries are scheduled to update their CPI figures.

FOMC Minutes May Provide Guidance for December

With markets pricing a 50-50 chance of a rate cut in December, Wednesday's release of the minutes from the last meeting is likely to come under extra scrutiny. Traders will be looking for clarification on how the Fed sees the lack of data over the last month and a half, as well as insight into the diverging views on whether to cut rates or pause in December. A hawkish interpretation of the minutes could weigh on gold, paving the way for $4k unless support at $4100 holds firm and brings into focus $4150 and $4200+.

More Signs for BOE Rate Cut

The focus could stay on the UK this week as the ONS will publish the October CPI figures on Wednesday. The headline CPI is expected to ease to 3.7% from 3.8%, supporting the argument that inflation has peaked and solidifying hopes of a rate cut in December. The core inflation rate is expected to ease to 3.4% from 3.5%. Later in the week, UK retail sales are expected to turn negative in October at -0.2% compared to 0.5% amid signs that consumers are holding off on spending amid uncertainty. The cable might finally break out of the 1.3100-1.3200 range it has been stuck in since early November.

Canada in a Holding Pattern

The Canadian headline CPI change is expected to remain steady at 2.4% on Monday. The BOC's preferred measure, the trimmed mean, is projected to remain unchanged at 3.1%. At the last meeting, the BOC suggested that it could pause its easing cycle, given that inflation was just above the top of the range, but with the economy expected to remain slow. Cooling CPI could help USDCAD form stronger support at 1.4000 and potentially head towards prior highs near 1.4150.

Japan Inflation Unlikely to Move BOJ

Friday also sees the release of Japan inflation figures, with the headline rate expected to rise to 3.1% from 2.9% a month earlier. However, the rising price pressures contrast with recent comments from Ueda that were interpreted as dovish. Markets are pricing in only a 25% chance of a December rate hike. Japan's preliminary Q3 GDP is expected to turn negative, with a quarterly growth rate of -0.4% compared to 0.5% in the prior quarter. Poor numbers could see USDJPY turn back to the upside, leaving behind 153.00–154.00 and heading towards the 155.00 handle.

Eurozone Flash PMIs Could Signal Growth

Friday’s preliminary PMI readings for October from the Eurozone are expected to show manufacturing advancing further into expansion, at 50.9, up from 50.0 a month earlier. However, this could be offset by services, which are expected to decline to 52.3 from 53.0 previously. The ECB has been able to keep rates unchanged as long as the economy remains in the green and inflation is stable. Fibre could move on the release, with the next levels settled at 1.1700 and 1.1600.

Other Events and Earnings

Monday sees the US Empire manufacturing data. The RBA will release the minutes of its last meeting on Tuesday. For Wednesday, Japan's trade balance is expected. Thursday has the Chinese loan prime rate and US existing home sales. Friday includes Canadian retail sales. Earnings season will wind down to its unofficial close, with notable names expected, such as Home Depot, Medtronic, Nvidia, Palo Alto Networks, Target, Walmart, Intuit, Imperial Brands, and Johnson Matthey.