The dollar’s broad-based rally against the majors continued. JPY, AUD, and NOK outperformed and were flat to slightly higher, while GBP, EUR, and SEK underperformed and lost over 1% against USD. This week’s U.S. data should confirm that the Fed was right to pivot more hawkish. If so, the dollar should continue to gain.
AMERICAS
This will be a big week for markets. The Fed left a hawkish message for the markets last month and so the next cut isn’t fully priced in until the June FOMC meeting. Of course, its decisions remain data-dependent and so key jobs and CPI data will be closely watched each month. We get a slew of important December data points this week that will help set the tone for Q1 trading. As it is, the dollar has started off this year with strong surge and so this week’s data will be key for sustaining that surge.
FOMC minutes Wednesday will be closely watched. At that meeting, the Fed cut rates 25 bp but pivoted to a more hawkish stance. While there was only one official dissent (Hammack) in favor of steady rates, the Dot Plots showed that four policymakers in all had a 2024 Dot of 4.625% that represented steady rates in December. Chair Powell was suitably hawkish at his press conference. He acknowledged that the decision was a closer call. Most importantly, Powell stressed that the Fed is in a new phase of rate adjustments where the Fed needs to see progress on inflation.
The regional Fed rotation for 2025 is worth noting. Goolsbee (Chicago), Collins (Boston), Musalem (St. Louis), and Schmid (Kansas City) become voters on the FOMC this year while Barkin (Richmond), Bostic (Atlanta), Daly (San Francisco), and Hammack (Cleveland) become non-voters. Of note, Hammack was the lone official dissent in favor of steady rates at the December meeting and so her hawkish vote will be missing this year. There are plenty of Fed speakers this week. Cook speaks Monday. Barkin speaks Tuesday. Waller speaks Wednesday. Harker, Barkin, Schmid, and Bowman speak Thursday.
December jobs report Friday will be the data highlight. Bloomberg consensus for NFP stands at 160k vs. 227k in November, while its whisper number stands at 183k. Unemployment is expected to remain steady at 4.2%, while average hourly earnings are expected to remain steady at 4.0% y/y. Ahead of that, ADP reports its private sector jobs estimate Wednesday and is expected at 133k vs. 146k in November.
December ISM services PMI Tuesday will also be important. Headline is expected at 53.5 vs. 52.1 in November. Keep an eye on prices paid, which is expected at 57.1 vs. 58.2 in November. Final S&P Global services and composite PMIs will be reported Monday. Last week, ISM manufacturing PMI came in 49.3 vs. 48.2 expected and 48.4 in November. Of note, prices paid there came in at 52.5 vs. 51.8 expected and 50.3 in November.
Other key labor market data will be reported. November JOLTS data will be reported Tuesday. Job openings are expected at 7.745 mln vs. 7.744 mln in October. The openings rate rose to 4.6 vs. 4.4 in September and is back above the 4.5 level that typically presages a sharp rise in the unemployment rate. December Challenger job cuts and weekly jobless claims will be reported Thursday.
University of Michigan reports preliminary January consumer sentiment Friday. Headline is expected at 73.9 vs. 74.0 in December. Current conditions are expected at 74.5 vs. 75.1 in December, while expectations are expected at 72.1 vs. 73.3 in November. 1-year inflation expectations are seen steady at 2.8% and 5- to 10-year expectations are seen steady at 3.0%.
Growth remains solid. The Atlanta Fed GDPNow model is tracking Q4 growth at 2.4% SAAR and will be updated Tuesday after the data. Elsewhere, the New York Fed's Nowcast model is tracking Q4 growth at 1.9% SAAR and Q1 growth at 2.2% SAAR and will be updated Friday.
Canada highlight will also be December jobs report Friday. Consensus sees 25.0k jobs created vs. 50.5k in November, while the unemployment rate is expected to rise a tick to 6.9%. If so, it would be the highest since September 2021. However, the Bank of Canada shifted to a less dovish stance at the December 11 meeting and the market is pricing in only 75 bp of further easing over the next 12 months.
Canada December PMIs will also be important. S&P Global services and composite PMIs will be reported Monday. Ivey PMI will be reported Tuesday. Last week, S&P Global manufacturing PMI rose two ticks to 52.2.
EUROPE/MIDDLE EAST/AFRICA
Eurozone highlight will be December CPI readings. Germany reports Monday and its EU Harmonised inflation is expected to accelerate two ticks to 2.6% y/y. France and Italy report Tuesday. France’s EU Harmonised inflation is expected to accelerate two ticks to 1.9% y/y while Italy’s is expected to accelerate a tick to 1.6% y/y. Last week, Spain’s readings ran hot, with its EU Harmonised inflation accelerating four ticks to 2.8% y/y and its core reading accelerating two ticks to 2.6% y/y. Eurozone also reports CPI Tuesday. Headline is expected to accelerate two ticks to 2.4% y/y and core is expected to remain steady at 2.7% y/y.
ECB reports November inflation expectations Tuesday. Expectations had been falling steadily but appear to have plateaued even as actual inflation readings have been creeping higher. Still, the overall disinflation process should continue and keep the ECB in easing mode. The market is pricing in only 100 bp of further easing in this cycle but we suspect it will have to cut more.
Final December services and composite PMIs will be reported Monday. Italy and Spain report for the first time and their composite PMIs are expected at 50.2 and 54.3, respectively. If so, both would improve significantly from November.
Key eurozone industrial data for November will be reported. Germany reports factory orders Wednesday and are expected at -0.2% m/m vs. -1.5% in October. German IP and trade data will be reported Thursday. IP is expected at 0.5% m/m vs. -1.0% in October, exports are expected at 2.0% m/m vs. -2.8% in October, and imports are expected at 0.7% m/m vs. -0.1% in October. France and Spain report November IP Friday. France is expected at -0.1% m/m.
Eurozone retail sales data for November will also be in the spotlight. Germany reports Wednesday and sales are expected at 0.5% m/m vs. -0.3% in October. Eurozone reports November retail sales Thursday and are expected at 0.3% m/m vs. -0.5% in October. Italy reports November retail sales Friday. France reports November consumer spending Friday and is expected at 0.2% m/m vs. -0.4% in October.
U.K. December DMP inflation expectations will be reported Thursday. In November 1-year expectations rose three ticks to 2.8% and 3-year expectations rose two ticks to 2.7%. Both are expected to remain steady in December and remain well above their series lows of 2.5% in October. If so, these readings should keep the Bank of England on a very cautious easing path, which is reflected by 50 bp of total easing priced in over the next 12 months. Breeden speaks Thursday.
U.K. BRC reports key December data. Sales will be reported Monday and are expected at -0.2% y/y vs. -3.4% in November. Shop prices will be reported Wednesday and are expected at -0.4% y/y vs. -0.6% in November. Both should provide some insight into the official retail sales and CPI data out later this month.
Switzerland reports December CPI data Tuesday. Headline is expected to fall a tick to 0.6% y/y and core is expected to drop two ticks to 0.7% y/y. If so, headline would fall back to the cycle low from October and move further below the 2% target. At the last meeting December 12, Swiss National Bank delivered a dovish surprise and cut rates 50 bp to 0.50%. However, the bank toned down its dovish guidance by noting it “will adjust its monetary policy if necessary.” Nevertheless, the bar for additional easing remains low and be remain an ongoing drag for CHF. Despite the less dovish guidance from the SNB, the swaps market is still fully pricing in 50 bp of further easing over the next six months followed by 50% odds of another 25 bp cut over the subsequent six months that would take the policy rate into negative territory.
Sweden reports December CPI data Wednesday. Headline is expected at 1.1% y/y vs. 1.6% in November, CPIF is expected to fall a tick to 1.7% y/y, and CPIF ex-energy is expected to fall two ticks to 2.2% y/y. If so, CPIF would decelerate for the first time since September and move further below the 2% target. At the December 19 meeting, the Riksbank cut rates 25 bp to 2.5% but signaled the easing cycle is nearing an end as it maintained its projection for the policy rate bottoming at 2.25%. The bank said that “the policy rate may be cut once again during the first half of 2025” while the minutes showed that several board members preferred the next cut early in the year rather than pausing. The market is now fully pricing in a 25 bp cut at the January 29 meeting along with nearly 60% odds of a larger 50 bp move. Looking ahead, the market sees the policy rate bottoming between 2.0-2.25% over the next 12 months.
Norway reports December CPI data Friday. Headline is expected to rise two ticks to 2.6% y/y, while underlying is expected to fall two ticks to 2.8% y/y. If so, headline would accelerate for the first time since September and move further above the 2% target. At the last meeting December 19, Norges Bank kept rates on hold at 4.5% and indicated that “the policy rate will most likely be reduced in March 2025” which was in line with previous guidance as well as current market pricing. However, the bank’s updated policy rate path projections points to fewer rate cuts in this cycle as it sees the policy rate bottoming at 3.0% over the next two years vs. 2.75% previously. The swaps market disagrees and sees it bottoming near 3.5%.
ASIA
Japan highlight will be December cash earnings data Thursday. Nominal earnings are expected at 2.7% y/y vs. 2.2% in October, while real earnings are expected at -0.6% y/y vs. -0.4% in October. Scheduled full-time pay is expected at 2.8% vs. 2.9% in October. None of these readings would scream out for imminent BOJ tightening. Indeed, the market sees only 40% odds of a hike at the January 24 meeting, rising to 70% for March 19 and fully priced in for May 1.
Australia highlight will be November CPI data Wednesday. Headline is expected to pick up a tick to 2.2% y/y. If so, it would be the first acceleration since May but would remain near the bottom of the 2-3% target range. At the last meeting December 10, the Reserve Bank of Australia kept rates steady at 4.35% but set the stage for a rate cut in February. First, the RBA scrapped its previous neutral policy guidance that “the Board is not ruling anything in or out.” Second, the RBA noted “the Board is gaining some confidence that inflation is moving sustainably towards target,” adding that “some of the upside risks to inflation appear to have eased.” Meanwhile, Governor Bullock was deliberately vague about future monetary policy adjustments. Regardless, AUD is vulnerable to more downside as markets ramp up bets on a February rate cut. Odds of a move then have risen to around 70% vs. 50% before the December decision.
November retail sales and trade data Thursday will also be important. Sales are expected at 1.0% m/m vs. 0.6% in October. Household spending will be reported Friday and is expected at 0.6% m/m vs. 0.8% in October.
