Market Outlook for the Week of 2nd – 6th December

The week begins on Monday with the focus in the U.S. on the ISM manufacturing PMI, providing a picture of the health of the manufacturing sector. On Tuesday, Switzerland will release its inflation data, while in the U.S., attention will turn to the JOLTS job openings, offering a view of labor market conditions.

Wednesday sees the release of GDP q/q data for Australia. In the U.S., the spotlight will be on the ADP non-farm employment change and the ISM services PMI, both key indicators of economic activity.

Thursday’s primary focus in the U.S. will be on unemployment claims data, a measure of the labor market’s weekly performance.

Friday is set to be a busy day for economic events. In Japan, the market will watch the average cash earnings y/y data. For Canada, employment change and the unemployment rate will be released. In the U.S., the focus will include average hourly earnings m/m, non-farm employment change, the unemployment rate, and the preliminary University of Michigan consumer sentiment and inflation expectations indices.

Throughout the week, remarks from several FOMC members are also expected.

In the U.S., the consensus for the final manufacturing PMI is 48.8, unchanged from the prior reading of 48.8. The ISM manufacturing PMI is expected at 47.7, up from the previous 46.5, while the ISM manufacturing prices index is likely to rise to 55.2 from 54.8.

The ISM manufacturing index fell to its lowest level in over a year in October, with much of the decline attributed to uncertainty surrounding monetary policy and the political outcome of the elections. However, with expectations of future rate cuts, lower borrowing costs could provide support for manufacturing activity in the months ahead.

In Switzerland, the consensus for CPI m/m is -0.1%, compared to the previous reading of -0.1%. Inflation in Switzerland has been declining more sharply than expected, raising concerns among analysts about the potential for deflation next year.

This week’s inflation data will be key in shaping expectations for the SNB’s December meeting. Currently, markets are pricing in a 72% probability of a 25bps rate cut and a 28% likelihood of a 50bps reduction.

SNB board chairman Schlegel has suggested that the Bank could reintroduce negative interest rates if economic conditions call for such measures.

In Australia, the consensus for GDP growth q/q is 0.5%, an improvement from the previous reading of 0.2%. Inflation in Australia remains elevated, prompting the RBA to maintain a hawkish stance. This week’s GDP data could offer further insights into the central bank’s next steps, particularly regarding the timing of potential rate cuts.

Overall, the economic outlook appears optimistic, with analysts suggesting the economy is on a recovery path. Wells Fargo analysts anticipate a first 25bps rate cut in February 2025 with risks that it could be delayed further if economic growth is slow.

In the U.S., the consensus for the ISM Services PMI is 55.5, slightly lower than the previous reading of 56.0.

Unlike the manufacturing sector, the services one has managed to stay in expansionary territory, with the ISM services index registering 56.0 in October, marking one of the strongest readings since 2022. This resilience is largely attributed to sustained consumer demand.

While a slight pullback is anticipated in this week’s data, overall activity is expected to remain stable, reflecting continued strength. Industry comments about employment in the services sector have been generally optimistic suggesting strong labor demand rather than layoff plans, Wells Fargo analysts said.

Canada’s labor market is projected to show modest growth in November, with employment increasing by only 10,000 and the unemployment rate edging up to 6.7% from 6.5%. While job creation has been steady, it has not kept pace with the country’s rapid population growth.

The recent declines in the unemployment rate during September and October were primarily driven by a reduction in the number of younger workers actively seeking employment, rather than a notable increase in hiring, according to RBC analysts. Job openings remain subdued, down 18% y/y as of September, reflecting ongoing labor market challenges.

The labor force participation rate, which declined over the past two months, may experience a partial recovery in November.

In the U.S., the consensus for average hourly earnings m/m is 0.3% vs. the previous 0.4%. Non-farm employment is expected to rise by 202K, a sharp increase compared to last month’s 12K, while the unemployment rate is projected to rise to 4.2% from 4.1%.

Last month’s weaker-than-expected figures were largely influenced by disruptions from hurricanes and strikes. Additionally, revisions for August and September reduced job gains by a combined 112K, indicating that the labor market is softer than initially thought.

While this week’s data is anticipated to show a rebound in job creation, the overall narrative remains consistent: The labor market is gradually cooling which is reflected in the rising unemployment rate.

Wish you a profitable trading week.

This article was written by Gina Constantin at www.forexlive.com.