The quality of the economic data ramps up this week with the marquee US non-farm payrolls report topping off a busy few days. The dollar dipped lower again last week in a few holiday-abbreviated trading sessions. The approximate 7% fall in the greenback’s value, together with a near 0.5% fall in the 10-year Treasury yield means financial conditions have loosened markedly. This is not what the Fed wants to see and may lead to some officials becoming more hawkish in the near term.

Inflation data on both sides of the Atlantic comes in the form of the Eurozone flash estimate of HICP and the US core PCE deflator. The Euro region data point is hugely significant as it will play a key role in the ECB’s rate decision at its meeting in a few weeks. With energy prices easing and other supply shocks waning, the key question is how fast this is affecting consumer prices. Money markets price in a 50bp rate hike in mid-December. Inflation is a key part of the puzzle that could sway the pendulum in favour of another jumbo-sized 75bp rate increase. This would give a boost to the EUR/USD as it attempts to move decisively above its 200-day SMA at 1.0386. If the figures yield a downside surprise, support just above 1.02 might be tested.

The US core PCE data is probably less followed than the timelier CPI readings, but more favoured by Fed officials. It doesn’t always follow the path of the widely watched core CPI so certainly a +0.4% print for the core deflator could see high market volatility. That would see a dollar bounce and selloff in stocks and gold as the Fed pivot idea is again impacted.

The end of the week brings the release of the monthly US employment report. Jobs gains should be in the region of 200,000 due to vacancies continuing to exceed the unemployed by nearly two to one. This would be the lowest reading since February last year. The weekly initial jobless claims have started to rise but if there are no signs of the tightness in the labour market abating, the dollar correction may ease as the peak Fed funds “terminal” rate could go back to 5% and above.

Major risk events of the week

29 November 2022, Tuesday:

– US Consumer Confidence: The market median forecast is for a print of 100, down from 102.5 in October. Elevated inflation and rising interest rates are expected to weigh heavily on households going forward. The recent Michigan sentiment index slipped by less than forecast earlier this month.

30 November 2022, Wednesday:

– Eurozone CPI: The headline rate is expected to ease slightly to 10.4% from 10.6% in October. The core rate is also forecast to edge lower, dropping by one-tenth to 6.3%. Food inflation and rising energy prices boosted the previous report. ECB speakers will be worth listening out for after the data.

01 December 2022, Thursday:

– US Core PCE: Consensus sees the m/m number cooling to 0.3% from 0.5% in September. The annual reading is forecast to rise to 5.2% from the prior 5.1%. This is the Fed’s favoured price gauge so is more important than the more widely followed CPI data. Fed rate hike expectations were reined in after the 0.3% m/m rise in core CPI earlier this month.

– US ISM: Analysts estimate the November print falling to 50 after the prior reading of 50.2. Attention will be on new orders after the sharp drop in the recent PMI data. Focus might also be on the employment metric ahead of NFP and the prices paid component.

02 December 2022, Friday:

–US Non-Farm Payrolls: Headline November NFP is expected to slow to 200k after a gain of 261k in October. The unemployment rate is forecast to remain unchanged at 3.7%. That is likely to support wage growth at 0.3%. The Fed is hoping to see some loosening in labour market conditions to justify a smaller December rate hike.