The Economic week ahead

The year is quickly fading, but there are a couple of last hurrahs for the markets. Trade worries may ease now that President’s Trump and Xi have agreed to no new tariffs after January 1, and the G20 communique left out a reference to risks from protectionism. But, jitters over Italy and Brexit remain and attention will be on Eurogroup and Econfin meetings, while the UK parliament takes on Brexit next week.

United States: It’s a busy week of data and events in the US, which should generally be supportive for Wall Street, and a bit bearish for bonds. Fed Chairman Powell’s JEC testimony (Wednesday) highlights, as does the November Nonfarm payroll report (Friday), along with other key data. However, none will alter the outlook for a 25 bp tightening at the December 18, 19 FOMC, with the path after that up in the air. Powell and the minutes stressed the Fed is not on a pre-set course and will be data dependent. That will keep key reports in the spotlight, including this week’s numbers.

This week is packed with important data releases, including payrolls, ISMs, vehicle sales, and consumer confidence, and the trade report. The November ISM (Monday) is expected to rise to 58.5 from 57.7. The ISM-NMI (Wednesday) is expected to slip further to 59.8 in November, after falling 1.3 points to 60.3. Beyond monthly gyrations, producer sentiment continues to oscillate around high levels, enjoying a lift from fiscal stimulus and stronger domestic growth. Vehicle sales (Monday) are expected to fall 1.2% to a 17.3 mln pace, moderating from 17.5 mln in October and 17.4 mln in September, which may have been elevated by Hurricanes Florence and Michael. The Michigan sentiment index (Friday) likely edged up to 97.8 in December  after dipping to 97.5 in November. Also slated this week is the revision to Q3 nonfarm productivity (Wednesday), Unit labor costs (ULC) and the October trade deficit (Thursday).

Canada: BoC’s announcement (Wednesday) is center stage this week, with no change in the current 1.75% setting for the overnight rate widely expected. Governor Poloz speaks (Thursday) to the CFA society in Toronto. As for economic data, Q3 productivity (Tuesday) is expected to expand 0.2% (q/q, sa) after the 0.7% bounce in Q2. The trade deficit (Thursday) is seen at -C$0.9 bln in October from -C$0.4 bln in September, as falling oil prices weigh on exports. November employment (Friday) is expected to show a 15.0k gain after the 11.2k rise in October. The unemployment rate is expected to hold at 5.8%. The November Ivey PMI is due Thursday, with the November Markit manufacturing PMI out Monday.

Europe: Italy and Brexit jitters continue to cloud over the outlook. Eurozone finance ministers will once again have to discuss Italy’s budget plans at the Eurogroup and Ecofin meetings (Monday, Tuesday).

Data releases this week include the third look at Eurozone Q3 GDP growth (Friday), which is expected to be confirmed at 0.2% q/q, lower than initially expected and partly reflecting the -0.2% q/q contraction in Germany that quarter. The breakdown, which will be released for the first time, will likely confirm that net exports detracted from growth as German carmakers struggled with new global emission tests, and global trade tensions increasingly weighed on the manufacturing sector in particular.

German growth should rebound in Q3. But it is clear that economic expansion has peaked and that growth rates will look more modest than expected going forward. The November survey round failed to inspire and the final manufacturing PMI (Monday) is expected be confirmed at 51.5, with the services reading (Wednesday) at 53.1, which would leave the composite at 52.4.The latter was already reflected in German manufacturing orders this year, and while there has indeed been a rebound over recent months, we are now looking for a monthly correction of -0.2% m/m with the October numbers (Thursday). Against that background, industrial production (Friday) is expected to rise 0.4% m/m (median 0.3%). The European calendar also has the October Eurozone retail sales release (Wednesday), which is unlikely to look fantastic in the light of the renewed contraction in German sales that month.

UK: Prime Minister May and her allies are making an all-out effort to sell the Brexit deal, but it still looks likely that it will be voted down in the House of Commons vote on December 11.

The calendar this week brings the November PMI surveys, which overall, expected to show some stabilization after recent weakness. The manufacturing PMI is expected (Monday) at 51.5 after 51.1 in the month prior, and anticipate the construction PMI (Tuesday) at 52.6. As for the services PMI (Wednesday), a lift to a 52.5 reading is anticipate, after October’s 52.2 outcome. The November BRC retail sector survey is also up this week (Monday).

Japan: The November services PMI (Wednesday) may dip slightly after the 2.2 point October increase to 52.4, the best since April. October personal income and PCE numbers are (Friday) should show consumption bouncing to a 1.0% y/y rate from -1.6% previously.

China: The November services PMI (Wednesday) is pencilled dipping to 50.5 following the 2.3 point drop to 50.8 in October. That was the weakest since September 2017.

Australia’s busy calendar is highlighted by the RBA meeting (Tuesday), expected to result in no change to the current 1.50% setting for the cash rate target. The current account deficit (Tuesday) is seen narrowing to -A$11.0 bln in Q3 from -A$13.5 bln in Q2. GDP (Wednesday) is projected to expand at a 0.7% pace (q/q, sa) in Q3 after the 0.9% clip in Q2. The trade surplus (Thursday) is expected to narrow to A$2.9 bln in October from A$3.0 bln in September. Retail sales (Thursday) are projected at a 0.2% gain in October, matching the 0.2% rise in September.

New Zealand’s calendar has Q3 terms of trade, due Tuesday. The next RBNZ meeting is February 13, 2019. We expect no change to the current 1.75% setting for the OCR.