Written Commentary
US and Japan holidays to make for thin trading, but data and events schedule busy; digesting Dutch election, French Business Confidence; awaiting Eurozone, UK PMIs, ECB minutes, Sweden, Turkey & South Africa rate decisions, Mexico CPI; also digesting UK household energy price cap hike, OPEC+ meeting delay
Sweden: Riksbank faces tough decision on further rate hike, but guidance inevitably hawkish
Flash PMIs: Manufacturing expected to edge higher remain firmly in contraction territory, Services sluggish at best
EVENTS PREVIEW
Market trading volumes will inevitably be very subdued due to the US and Japanese holidays, but the data and events schedule today is a good deal busier than it has been since the start of the week, and there is plenty to ponder on the events schedule, above all the win for the far-right Freedom party in the Dutch elections, with coalition formation possibly stretching into Q2 2024. Surveys dominate via way of flash PMIs for the Eurozone and UK, and French Business Confidence, while Mexico looks to mid-month CPI, and tonight brings Japan’s national CPI. As expected Bank Indonesia held rates at 6.0%, while ahead lie policy rate decisions in Sweden, Turkey and South Africa, which accompany the minutes (‘account’) of the last ECB policy meeting, and speeches by ECB’s Schnabel, Panetta and Makhlouf.
The OPEC+ decision to delay its weekend meeting to 30 November underscores the level of disagreement, with Saudi Arabia apparently pushing for the African members of OPEC to reduce production, perhaps more so as the UAE already secured the right to raise production from January 2024 after the previous spat over production levels. Meanwhile, UK gas and electricity OFGEM’s decision to raise the household energy price cap by 5.0%, reflecting relatively sharp rises in wholesale gas and electricity prices since September underlines the challenges the BoE faces in reining inflation in further, with base effects now turning adverse.
Today’s ‘flash’ PMIs for Eurozone and UK readings follow on from a very downbeat UK CBI Industrial Trends survey yesterday, with Orders sliding 11 pts to -36. They are expected to show Manufacturing deep in contraction and Services slipping more modestly, though in both cases fractionally better or unchanged from October, while tomorrow’s US and Japan readings are seen flatlining.
In central bank terms, the focus will be on whether Sweden’s Riksbank opts for a further rate hike of 25 bps to 4.25% as the majority of forecasters expect, or decides to hold, but attempts to offset any resulting additional downward pressure on the SEK, by increasing the pace of QT and very hawkish rhetoric. As for the ECB ‘account’, the primary question is how far it attests to the hawks pulling in their horns on the potential need for further rate hike(s), whether the recent frequently mentioned financial stability risks were discussed, and indeed any need to push back on markets pricing rate cuts for Q2 2024. Turkey’s TCMB is seen opting for a further aggressive, though more modest rate hike of 250 bps to an eye-watering 37.50%, though forecasts range from a 200 bps to another 500 bps hike. Governor Erkan has thus far offered little in the way of guidance as to when and at what level a less aggressive policy stance might be entertained.
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