Week of November 20

Falling inflation numbers were the theme for the week as US prices rose slower than expected, and UK inflation and jobs figures supported the narrative. Markets have another relatively calm week to digest the latest data points, with the focus on the release of the FOMC minutes and inflation from Japan.

Top Events in Review

The US showed both headline and core inflation was lower than anticipated. The news weakened the dollar index to 104 as investors speculated the Fed would not only not go through with a final rate hike but a cut might be coming sooner than anticipated. The data came with a strong shift towards risk appetite, but in light of other indicators, many analysts worried that the "goldilocks" scenario still remains a tight target to hit, such as slowing retail sales and underperformance in late-season earnings reports.

Weekly US unemployment figures tended higher, contributing to a drop in treasury yields and oil prices and a rise in gold prices throughout the latter part of the week, up 2.85% shy of $2K.

The US Congress approved another continuing resolution that allowed the government to avoid a shutdown and provided funding until January.

UK inflation dropped further than expected, but not enough to fully dispel the potential of the BOE tightening. Cable rose over 2% but settled lower as bulls failed to reclaim $1.25. On the politics front, Prime Minister Rishi Sunak conducted a Cabinet shuffle over controversy around policy on the Israeli-Palestinian conflict, which brought back former PM David Cameron as Foreign Secretary.

Biggest Market Movers

• The dollar weakened over 1.60% through the week as yields fell in the wake of slower inflation and weaker economic data.
• The yen fluctuated against the dollar initially, falling to a near 33-year low before bouncing back under the 150 handle.
• China data and a surprise build in inventories contributed to WTI sliding for the fourth consecutive week, down over 20% since September's peak.

Top Events in the Week Ahead

Markets are heading into a truncated week, with the US off on Thanksgiving holiday on Thursday and limited trading on Friday.

All Eyes on Minutes

Just before that, the Fed will release the minutes from its last meeting, where traders will be keenly focused on figuring out how much interest there is in a final rate hike for this cycle. The thought is that the rise in yields through the autumn might be viewed as a reason to forego a hike. However, Fed Chair Jerome Powell's steadfast refusal to close the door on rate hikes has left doubts about whether the FOMC is indeed done with the hiking. If the minutes show dovishness or less hawkishness, Nasdaq could break the 16K handle and head towards the record peak.

Keeping with the central banks, the RBA will also release minutes from the last meeting, and the Riksbank will hold what is unanimously expected to be an uneventful policy meeting. Investors seem to still believe that the RBA needs to do more to curb inflation and will be keen to see if there are any clues as to whether another hike at the next meeting is a strong possibility. Up nearly 2.5% on the back of a weaker dollar, a break of 0.65 could see an upward rip towards 0.66 and beyond. On the flip side, support can be expected around 0.64 for AUDUSD.

Still on Recession Watch

In line with the notion that investors might have been too eager to take up risk following the latest US data, the Flash reading of PMIs at the end of the coming week could provide some sobering for the market as it's expected that broad weakness in manufacturing will persist, though the measure is expected to rise slightly. Gold could be impacted negatively if PMIs disappoint and add to the peak rate narrative, exposing $1950 per ounce. It assumes the $2K resistance offers rejection and no easy upward price action. 

The US will report durable goods midweek, with analysts expecting a substantial drop in the headline figure and ex-defence reading, in line with expectations that the American economy will slow substantially in the year's final quarter.

Inflation Figures Keep Falling

Canada is expected to report further deceleration in its inflation, keeping the onus on the BOC to hold rates steady. Core inflation is expected to tick down to 2.6% from 2.8% prior. USDCAD remains in no man's land, determined by the break of 1.39 or 1.3630.

Japan's inflation numbers will be keenly watched as investors judge the timing of the BOJ's move out of ultra-easing. Headline inflation in Japan is expected to increase to 3.2% from 3.0%, but the core is expected to accelerate more to 2.9% from 2.8%. The USDJPY is eyeing the round support at 147 at its current pace, with a bounce at 149 or 148 as a potential positive catalyst.

Other Events and Earnings

Monday has Chinese Loan Prime Rates. The US existing home sales and Swiss trade balance are on the docket for Tuesday. Wednesday sees US Consumer Sentiment. On Friday, the German Ifo business climate barometer will be released.

Halfway through the week, the UK Chancellor Jeremy Hunt will announce the Autumn Statement, laying out the government's spending priorities for the rest of the year.

Third quarter earnings season comes to a close, with a few notable earnings expected in the coming days, including Agilent Technologies, NVIDIA, Lowe's, Deere and Ingles Markets.