The Week Ahead
4 December

The Week Ahead – 4 December

Financial markets continued to rally during the week, supported by further dovish comments by US Fed Chair Jerome Powell who indicated that US cash rate policy was ‘well into restrictive territory’. We now take the view that US cash rates have peaked, and the next move will be lower. However, while the market is pricing in the first rate cut in the US through the 1q24 and 125bps (1.25%) in rate cuts over 2024, we believe this is premature given that inflation still remains slightly above the Fed’s target along with the continued strength of the US economy, which grew at an annualised rate of 5.2% over the 3q23, with personal consumption contributing +2.4% to the figure. With the jobless rate set to remain at 3.9% (no change pcp) when released later this week (despite the JOLTs report f’csting a -220k decline pcp), we continue to expect that the Fed will take its time and require further convincing that it should look to cut rates. While both factory order data (f’cst -3.8%, -5.8% pcp) and durable goods orders (f’cst -5.4%) for Oct are set for release this week and are likely to show some slowly from prior periods, overall trend growth remains sound. Should there be any cuts in US rates we continue to expect that it will occur through the 2h24 with only a material slowdown in the outlook for the US economy warranting an earlier move lower. In Aust, the focus will be on the RBA meeting (Tues 5th Dec) and the release of the 3q23 GDP figures. We see no change to the current policy of the RBA (official cash rate at 4.35%) but believe its still a 50/50 probability of one further rate hike through the 1q24. Despite a better than f’cst (m/m) inflation print for Oct (4.9% v’s est 5.2%), the challenge to get inflation back within the RBA target band remains, and while retail sales were weaker for Oct (-0.2%, f’cst +0.1%), stronger building approvals along with solid private credit data show domestic consumption remains sound. In China, the release of PMI data (f’cst 50.0) for Nov along with both CPI (f’cst-0.2% y/y) and PPI data ( f’cst -2.9% y/y) will continue to add to the pressure facing the government and PBOC as it deals with further evidence of a slower growth outlook. This will continue to add to further downside pricing pressure across some commodity markets into the back end of the year.

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