The Overnight Report: Buoyant Post-Thanksgiving

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The US came back from the Thanksgiving break in a buoyant mood.

SPI futures are suggesting the local market will start the new month in a positive mood.

World Overnight
SPI Overnight	8479.00	+ 21.00	0.25%
S&P ASX 200	8436.20	– 8.10	– 0.10%
S&P500	6032.38	+ 33.64	0.56%
Nasdaq Comp	19218.17	+ 157.69	0.83%
DJIA	44910.65	+ 188.59	0.42%
S&P500 VIX	13.51	– 0.39	– 2.81%
US 10-year yield	4.18	– 0.06	– 1.51%
USD Index	105.83	– 0.31	– 0.29%
FTSE100	8287.30	+ 6.08	0.07%
DAX30	19626.45	+ 200.72	1.03%

By Chris Weston, Head of Research, Pepperstone

Good morning.

As we gear up to take on whatever the markets throw at us through the final month of 2024, it is worth highlighting the event risk through December is stacked with landmines that could cause outsized gyrations across asset classes.

Setting a precedent to what lays ahead, Trump has raised his tariff game even further with his weekend post threatening 100% tariffs on BRICS nations that continue to push for a replacement for the USD.

A somewhat perplexing target for tariffs, but I’m hesitant to think this rhetoric sees an immediate impact on the USD, or the prospects for a Strategic Bitcoin Reserve.

It certainly showcases that Trump is fine with weaponizing the USD and using tariffs liberally and at any time.

Gauging the upcoming policy shifts from G10 central banks

Looking at the calendar for the week ahead, we see a number of important data points that will massage market expectations around the potential policy actions from the 8 G10 central bank meetings between 11-19 December.

Looking at current market pricing we see that in six of these rates/swaps traders are torn on the potential outcome for policy change.

Subsequently, the market requires new data and/or central banker guidance to really increase conviction levels.

Typically, when we see the market split on an interest rate decision, it can often lead to increased volatility in the respective currency and even on a cross-asset basis.

As things are, there is indecision as to the next move from the Fed, BoC, SNB, ECB, BoJ and Riksbank.

The BoJ is offered a 66% chance of a -25bp hike 25bp on 19 December. The market is also yet to be fully convinced that the Fed cut rates at the upcoming FOMC meeting (also on 19 December), with current pricing in US interest rates swaps implying a 65% chance of a cut.

The BoC, SNB and ECB meetings also interest, as we see a healthy debate between a 25bp vs 50bp cut suggesting increasing volatility in the CAD, CHF, and EUR.

Reduced liquidity will be a factor as we roll through the month, but so could a potential performance chase from active managers (to beat their set benchmark) with end-of-year rebalancing flows also due to impact.

When these dynamics reconcile with uncertainty as to various central banks next move, anyone hoping for a quiet last month of the calendar year may be disappointed.

The key event risks to navigate this week 

Much of the attention will fall on the week’s US economic data flow and how it could influence the Fed’s thinking.

There is a whole list of US data points that could rock markets, notably should we see an outcome that deviates significantly from the consensus.

The data points which hold the greatest possibility of moving the dial are the ISM manufacturing, ISM services, and the nonfarm payrolls print.

US data have been missing expectations of late, and we can see the Citi US economic surprise index falling from 43 to 27.

Down, but not out by any means, and few are currently talking about increasing recession risk.

But a further fall in the surprise indices driven by below-expectation data outcomes and the USD selling momentum will only increase.

USD bulls will want to see the ISM manufacturing reports push towards and even above the 50 expansionary read they will also want to see the various US labour market reads show improvement and stave off any signs of further signs of cooling.

US nonfarm payrolls is the marquee event risk for the week

Naturally, it’s the US nonfarm payrolls (NFP) which will get the greatest level of attention.

The economist’s consensus is for 200k jobs to have been created in November, with the range of estimates seen between 270k and 155k a potentially healthy snapback after the weather and strike impacted October print (of 12k jobs).

While next week’s US CPI print will also be an important input, an NFP print above 230k-250k, with the unemployment rate unchanged at 4.1%, will have some questioning if the Fed should cut rates at all in December.

A jobs report between 160k to 190k with an unchanged U/E rate of 4.1% is likely the sweet spot for risk, as it keeps a December cut in play but is also a healthy level of job creation.

The US 2-year Treasuries and the USD (notably USDJPY) are the clearest expressions of a strong/weaker NFP print.

I suspect that it would take a truly weak NFP (below 100k with a higher U/E rate) to derail the US equity juggernaut, and after the S&P500 printed its 54th all-time high for the year on Friday, the wind is clearly to its back.

Offering some degree of guidance, we hear from 10 different Fed speakers through the week, including the more influential Christopher Waller and Chair Jay Powell.

The appetite expressed for a cut in December, and the pace of easing ongoing could move markets.

Fed members Goolsbee, Hammack and Daly speak after the NFP print, with traders looking to see how the jobs report influences their call on a cut in December.

There is little data of great interest in the UK, or Europe, although we do hear from 5 ECB speakers (including President Lagarde), and they will likely guide us towards a -25bp cut for the December meeting.

China released its Nov PMIs on Saturday, with manufacturing index at 50.3 vs 50.2 expected, and services at 50.0 vs 50.3 levels that shouldn’t cause much reaction in Chinese markets.

In the week ahead we see the Caixin manufacturing/services PMIs, which are both expected to show expansion in the smaller end of the Chinese business landscape.

OPEC-plus meets on Thursday with the overriding consensus that the group will keep its voluntary output caps in place for several more months.

We may get a surprise, but with Brent tracking a US$75 to US$70.70/bbl range of late, global demand estimates falling and the Trump administration talking of increasing output by 3 Mbps, it’s understandable to think that OPEC-plus delay any output increases until late Q125.

Subsequently, we see calm conditions in the Brent price, with traders feeling spot is at a fair value.

On the calendar today:

-New Zealand Oct Build permits

-Australia ANZ Bank Nov job ads

-Australia Oct build approvals

-Australia Oct retail sales

-Eurozone Unemployment rate

-US Nov ISM manufacturing

-Metcash ((MTS)) earnings report

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Retail Food Group ((RFG)) has hired a defense advisor, Gresham, to protect itself from a potential takeover bid by its largest shareholder, United Petroleum

-Downer EDI ((DOW)) is selling its Spotless New Zealand catering business

Spot Metals,Minerals & Energy Futures
Gold (oz)	2681.00	+ 19.20	0.72%
Silver (oz)	31.11	+ 0.43	1.40%
Copper (lb)	4.14	+ 0.01	0.21%
Aluminium (lb)	1.17	+ 0.00	0.27%
Nickel (lb)	7.20	– 0.05	– 0.67%
Zinc (lb)	1.40	+ 0.03	2.16%
West Texas Crude	68.00	– 0.88	– 1.28%
Brent Crude	72.94	+ 0.26	0.36%
Iron Ore (t)	104.44	+ 2.00	1.95%

The Australian share market over the past thirty days

Index	29 Nov 2024	Week To Date	Month To Date (Nov)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8436.20	0.51%	3.38%	2.01%	11.14%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ADA	Adacel Technologies	Downgrade to Hold from Buy	Bell Potter
AMC	Amcor	Upgrade to Outperform from Neutral	Macquarie
AVJ	AV Jennings	Downgrade to Hold from Buy	Bell Potter
HUB	Hub24	Downgrade to Hold from Accumulate	Ord Minnett
HVN	Harvey Norman	Downgrade to Neutral from Buy	UBS
QAN	Qantas Airways	Downgrade to Neutral from Buy	UBS
SGR	Star Entertainment	Downgrade to Underperform from Neutral	Macquarie

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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