Markets Hang on Powell and Data to Kick Off Busy December

All Eyes on Powell’s Speech

We are getting into the time for decisions about when to put up Christmas trees and decorations. Is it too early yet or should we delay it until closer to the festive period? Monetary policy decisions of a bigger kind will have to be made soon in mid-December when all three of the major central banks meet to decide their next steps on their policy tightening paths.

Indeed, the calendar sees US CPI data released hours before the final FOMC meeting on December 14, which comes the evening before the last Bank of England and ECB gatherings of the year. It promises to be spicey ending to another tumultuous year!

In the meantime, we get to hear what Chair Powell makes of the economy and labour market in a speech later today. This is the final chance we will hear from the main man ahead of the Fed blackout period which comes two weeks before the Saturday preceding the FOMC meeting.

After this time, no Fed speakers will be on the wires which means it could potentially be a significant occasion for Powell to guide markets. Otherwise, markets may be watching the WSJ’s Nick Timiraos who is the Fed’s whisperer-in-chief for further policy clarity.

Chair Powell is likely to remind markets that the Fed is unlikely to pivot soon and will keep raising rates further and most probably hold them at an elevated level for longer. Most Fed watchers see him reiterating that demand remains strong, the labour market is still tight and there needs to be compelling evidence that inflation is coming down soon.

These kind of comments in theory should support the stabilisation and bottoming out process in US Treasury yield and the dollar after their recent correction. The widely followed DXY index tapped its 200-day simple moving average yesterday, so this offers major support to the buck.

US Data Dump Kicks Off Thursday

Markets will be laser-focused on the monthly non-farm payrolls report released at the end of the week. This is the last big employment report before the Fed meeting in a few weeks. Consensus expects job gains of a still healthy 200,000 in November, down from the 261,000 and the three-month average of 289,000.

The jobless rate is forecast to remain at 3.7% with earnings set to grow 0.3%. Whether the data shows some cooling in the labour market will be central to hiking expectations into next year and with it, the peak terminal rate in the US Fed funds rate.

We also get an array of other figures tomorrow which includes the Fed’s preferred inflation gauge, the PCE. This is a broader measure of price pressures and is expected to cool to 0.3% from 0.5% in September. Fed rate expectations were pulled back after the softer 0.3% rise in core CPI earlier this month.

Finally, ISM manufacturing figures are predicted to fall to 50 with attention on new orders and the employment metric ahead of NFP. It’s a busy few days which should set markets up for the middle of next month.

Written on 30/11/2022 by Lukman Otunuga, Senior Research Analyst at FXTM

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