Week Ahead: highlights include OPEC+, RBA, BoC, China Trade/CPI, Uni. of Mich.

• MON: Eurogroup; Chinese Caixin Services PMI (Nov), EZ, UK & US
  Composite/Services PMI Final (Nov), EZ Retail Sales (Oct), US ISM Services PMI
  (Nov).
• TUE: RBA Policy Announcement; Norges Bank Regional Network (Q4), US Georgia
  Runoff, EIA STEO; German Industrial Orders (Oct), EZ & UK Construction PMI
  (Nov), Canadian Ivey PMI (Nov).
• WED: BoC, BCB & NBP Policy Announcements; Australian Real GDP (Q3),
  Chinese Trade Balance (Nov), Swiss Unemployment (Nov), German Industrial
  Output/Production (Oct), EZ GDP Revised (Q3), Employment (Q3).
• THU: RBA Bulletin; Australian Trade Balance (Oct), US IJC (w/e 3rd Dec).
• FRI: ECB TLTRO.III Repayment Publication; Chinese CPI (Nov), Norwegian CPI
  (Nov), US PPI Final Demand (Nov), Uni. of Michigan Prelim. (Dec).

NOTE: Previews are listed in day-order

JMMC/OPEC+ (Sun):

Market expectations are currently split on whether the group of oil
producers will hold production targets steady or opt for another cut. The most
recent sources have been leaning towards an unchanged output policy in
December. A poll conducted by Bloomberg in the week beginning 28th November
suggested ten out of 16 respondents expect a production cut, ranging from 250k
BPD to 2mln BPD. The December meeting is expected to be conducted virtually –
signalling little likelihood of a policy change, sources suggested. Given the
high market volatility and uncertainty ahead, some suggest the group may opt to
revert to monthly meetings. In terms of the prior meeting, OPEC+ decided to cut
output targets by 2mln BPD from the August 2022 required production levels. The
group also adjusted the frequency of the monthly meetings to every two months.
The release also suggested that the JMMC was granted the authority to hold
additional meetings or to request an OPEC and non-OPEC Ministerial Meeting at
any time to address market developments if necessary, and members reiterated
the “critical importance of adhering to full conformity.” Looking at
the schedule, OPEC+ cancelled the Joint Technical Committee (JTC) meeting. The
JTC reviews oil market developments and relays findings to the Joint
Ministerial Monitoring Committee (JMMC). Timings of the JMMC and OPEC+ meetings
have not been released at the time of writing. The main factors the group will
need to weigh include 1) the recent decline in oil prices, 2) the fluidity of
China’s zero-COVID policy, and 3) the upcoming EU Russian oil embargo on Monday
5th December. Market sentiment is leaning towards an unchanged output policy as
OPEC+ awaits clarity on China’s COVID stance and the Western Russian price cap.
Desks suggest a small cut is also possible given the decline in oil prices seen
since the last meeting in October.

US ISM Services PMI (Mon):

As a proxy, the S&P Global flash US services business activity index
posted 46.1 in November, down from 47.8, for the second-fastest decline on
record. S&P said “panellists often stated that the impact of inflation and
interest rates on customer disposable income had dented demand conditions,” and
in line with weak demand, “new business fell at a solid pace in November,”
which was the second successive monthly decrease, and the sharpest since May
2020. Meanwhile, on the prices front, S&P noted that input costs were at a
slower pace midway through the fourth quarter. “The increase in cost burdens
was the softest in almost two years, as firms noted lower prices for some key
inputs,” but it added that the rate of services inflation eased for the seventh
straight month to the softest since October 2020. “Firms often noted that
slower price hikes were linked to efforts to remain competitive and drive new
sales.”

RBA Policy Announcement (Tue):

RBA is likely to hike rates again next week in which money markets had
priced in a 70% chance for the central bank to increase the Cash Rate Target by
25bps to 3.10% and a 30% probability of the central bank maintaining the
benchmark rate at the current 2.85%. Expectations for the central bank to hike
rates follows the last meeting where it maintained the slower pace of 25bps
rate increases which was widely expected although there were outside calls for
a return to a more aggressive move given the elevated inflation data from
Australia. The central bank’s comments at the meeting also lacked any major
hawkish surprises as it reiterated that it expects to increase interest rates
further over the period ahead and that the size and timing of future interest
rate increases will continue to be determined by the incoming data and the
Board’s assessment of the outlook for inflation and the labour market.
Furthermore, RBA Governor Lowe reiterated shortly after the meeting that rates
are not on a pre-set path and noted the board judged it appropriate to raise
rates at a lower magnitude but added that they will return to larger rate hikes
if deemed necessary and will hold rates if the situation requires it. Deputy
Governor Bullock has also stated that they are seeing more broad based CPI
pressure in the economy and need to raise interest rates to influence demand,
but separately commented that they are getting closer to the point where they
might be able to pause and take a look. The latest data releases have been
mixed with Employment Change better than expected at 32.2k vs. Exp. 15.0k
(Prev. 0.9k) and the Unemployment Rate fell to 3.4% vs. Exp. 3.6% (Prev. 3.5%).
Conversely, Retail Sales showed a surprise monthly contraction in October at
-0.2% vs. Exp. 0.5% (Prev. 0.6%) and also disappointed for Q3 at 0.2% vs. Exp.
0.4% (Prev. 1.4%), while Wage Price Growth for Q3 accelerated to 3.1% vs. Exp.
3.0% (Prev. 2.6%) which adds to the already heightened inflationary pressures
and supports the view that rate will be increased further. However, there are
differing views to what extent rates will be increased with CBA anticipating
just one more rate hike through a 25bps increase and the Cash Rate to peak at
3.10%, while Goldman Sachs recently revised its forecast for the Cash Rate to
peak at 4.1% vs prev. view of 3.6%.

RBI Policy Announcement (Wed):

RBI is likely to hike the Repurchase Rate again from the current level
of 5.90% with 33 out of 52 economists surveyed by Reuters calling for a 35bps
hike to 6.25% and 11 anticipate a 50bps move, while 20 out of 28 respondents
think it is too soon for the central bank to shift its focus away from
inflation to growth. As a reminder, the central bank hiked its key rate by
50bps at the last MPC meeting through a 5-1 vote which was the third
consecutive 50bps increase and the fourth rate hike in the current cycle which
began in May. RBI Governor Das also stated at the last policy decision in late
September that the MPC is to remain focused on withdrawal of accommodation and
that consumer price based inflation remains elevated, while he added that the
persistence of high inflation necessitates a further calibrated withdrawal of
monetary accommodation and that liquidity remains at a surplus with overall
monetary and liquidity conditions still accommodative. The main reason for the
expectations of a hike is due to inflation which remained elevated for October
at 6.77% vs. Exp. 6.73% (Prev. 7.41%) and the Monetary Policy Committee even
conducted a special meeting last month to prepare its report to the government
on missing the inflation target where it refrained from discussing and taking
action on rates as expected, although there were outside calls for a
25bps-50bps move. Aside from the inflationary pressures, another factor that
was seen as an influence for the central bank’s recent rate hikes was a weaker
currency as the rupee had continuously depreciated against the dollar and
although it had since recovered off record lows, it still remains at depressed
levels.

BoC Policy Announcement (Wed):

Having already lifted rates by a cumulative 350bps this cycle, the
consensus expects the Bank of Canada to lift its overnight rate by 50bps at its
statement-only meeting in December, taking it to 4.25%. However, it is a fine
call, with just under half of analysts surveyed by Reuters looking for a
smaller 25bps move. Money market pricing, meanwhile, is tilted towards the
smaller hike. Traders will also be looking out for any guidance about how close
the central bank is to ending its hiking cycle. The Reuters’ poll noted that
although there was no clear consensus on where rates would top-out, 26 of the
29 surveyed see the terminal rate at 4.25% or higher, which suggests that the
BoC could either be ready to conclude, or near concluding, its rate tightening;
in October Governor Macklem hinted that the end of the cycle was near, but “we
are not there yet,” he said. NOTE: the BoC’s Deputy Governor Sharon Kozicki
will be delivering remarks as the central bank publishes its economic progress
report.

Chinese Trade Balance (Wed):

November’s Trade Balance in Dollar terms is expected to modestly narrow
to a surplus of USD 79.05bln from October’s USD 85.15bln surplus, whilst
Exports are expected at -3.6% (prev. -0.3%) and Imports at -5.0% (prev. -0.7%).
November was a month plagued by various Chinese COVID lockdowns as cases
soared, in turn sparking social unrest in several large Chinese cities. With
China being the second largest economy, the data will offer a glimpse at the
health of the domestic and overseas markets. To recap the prior month’s data,
China’s exports and imports fell unexpectedly for the first time in more than
two years, with recession fears hitting exports whilst COVID-zero policy and
the slump in real estate impacting imports – with Chinese purchases from
Australia, the US, Japan, South Korea and Taiwan all falling.

Chinese CPI (Fri):

There are currently no market expectations for Chinese CPI and PPI,
whilst this month’s Caixin Services and Composite PMIs have also not yet been
released and thus giving limited hints for the CPI release. Nonetheless for the
PPI metric, looking at the Caixin Manufacturing PMI, the details of the
sub-indices indicated that manufacturing deteriorated faster in November. “The
employment sub-index was the lowest it has been since March 2020. In contrast,
the input price sub-index has been above 50 for the last two months due to high
crude oil and metals prices. And even though the two sub-indices diverged, they
point to slower sales growth and slimmer profit margins for smaller
manufacturers, which is a more downbeat story than that suggested by the
headline numbers”, ING summarises. Meanwhile, PBoC Governor Yi on Friday said
the forecast for China’s inflation in 2023 is in a moderate range, and he noted
the current focus is on growth and that monetary policy has been pretty
accommodative. Furthermore, Chinese Finance Minister Liu Kun said they will
keep the economy within a reasonable range and strive to realise better
results, while Liu added that China’s economy will keep growing at a reasonable
speed with stable employment and prices, according to Reuters.

US University Of Michigan Sentiment (Fri):

After the drop in November, analysts at Credit Suisse expect to see a
rebound in the preliminary December Michigan consumer sentiment gauge to 58.0
from 56.8. “Falling gasoline prices and a rally in the stock market will boost
confidence, and consumers could also react positively to slowing inflation
data,” Credit Suisse writes. There will also be attention on the inflation
measures after consumer’s 1-year and 5-10 year inflation expectations both
picked-up last month by one-tenth of a percentage point to 5.1% and 3.0%
respectively. “Even though inflation has peaked, we would expect the Fed to
remain on high alert for any signs that expectations are drifting higher,” CS
writes.

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