The Economic Week Ahead

Main Macro Events This Week

The collision of two opposing forces on Friday put the markets in a lather as the Senate tax cut bill garnered sufficient momentum to pass by the skin of McConnell’s teeth, but offset by news that former Trump advisor Flynn plans to plead out to lying to the FBI and indicate he was directed (by someone) to contact the Russians. According to several reports, that “someone” now appears to have been Trump’s son-in-law Kushner, who has meanwhile been invited back before the Senate Intelligence panel. At least in the short-term, this was a clear victory for volatility for a change, which was one of the main beneficiaries, contributing to large swings in stocks, yields and the dollar. It seems that December has begun with a bang and the last month of the year is certainly setting up to be an eventful one ahead of the holidays and before we close out 2017

United States: The U.S. economic calendar will feature a steady drumbeat of factory, trade, ISM services, ADP, productivity and credit data all setting the table for the main course on Friday — the jobs report. November non-farm payrolls are expected to increase by 260k, with a 250k private payroll gain following the October 261k print. Factory goods orders are forecast (Monday) to rise 0.2% for October after a 1.5% gain in September. The trade deficit is expected (Tuesday) to widen to -$47.5 bln in October vs -$43.5 bln, while ISM Non-Manufacturing index is set to slip to a still-respectable 59.0 in November from 60.1. The MBA mortgage market indices are due (Wednesday), along with the release of the private ADP employment survey. Q3 productivity is expected to increase 3.3% vs 3.0% in Q2 (Wednesday), allowing unit labor costs to slip 0.1% from 0.5%. Initial jobless claims may slip 2k to 236k for the December 2 week (Thursday). Rounding out the week after the payrolls report (Friday) will be preliminary Michigan sentiment and wholesale trade.

Canada: The BoC’s announcement (Wednesday) is the focus this week. No change is expected in the current 1.00% rate setting. Taking into consideration ongoing uncertainty over NAFTA and the Bank’s desire to gauge the impact of this year’s 50 bp in hikes and upcoming mortgage rule changes,  the next hike is anticipated in March at 25 basis point move.  Meanwhile, a busy data calendar is on tap this week. The October trade deficit (Tuesday) is expected to narrow to -C$2.6 bln from -C$3.2 bln in September. Productivity (Wednesday) is expected to contract 0.5% (q/q, sa) in Q3 after the 0.1% dip in Q2, as hours worked growth remained firm but output growth slowed sharply. Building permits (Thursday) are expected to fall 1.0% in October after the 3.8% gain in September. Housing starts (Friday) are projected to slow to a 215.0k unit growth rate in November from the 222.8k growth clip in October. Capacity utilization (Friday) is on track to improve to 85.1% in Q3 from 85.0% in Q2.

Europe: Political events move to the forefront again, as U.K. Prime Minister May is set to meet EU’s Juncker and Barnier on Monday and Germany’s Social Democrats are inching closer towards formal coalition talks with Chancellor Merkel and her CDU/CSU alliance. SPD leader Schulz has a chance to put the issue to a vote at a party conference this week but as the last round of coalition talks showed, even the start of formal negotiations would not secure that there will be a deal at the end.  Data releases this week are expected to confirm the stronger than expected growth trajectory. The final reading of the November Eurozone Services PMI (Tuesday) is expected to be confirmed at 56.2, with companies reporting swift job creation, but also a buildup of inflationary pressures that will add to the arguments of the hawks at the ECB. German October manufacturing orders (Wednesday) may be expected to correct -0.2% m/m , after the rise of 1.0% m/m in the previous month, but the overall trend remains very strong. Meanwhile German industrial production should still benefit from the robust rise in orders in previous months and is expected to have expanded 1.0% m/m in October. The data calendar also includes German trade data, French production, Eurozone retail sales and producer price inflation. Supply comes from Germany, with a EUR 2 bln 10-year Bund auction scheduled for Wednesday.

UK: Monday’s meeting between British PM May and top EU officials will draw a lot of attention, as this is the juncture when an agreement on divorcing terms is now widely expected to be announced. The pound rallied by over 1% last week at the prompt of media reports suggest that both the UK and the EU have reached a concord with both the final financial settlement Britain will pay before leaving, to square exiting obligations, and the Irish border issue — the two thorniest issues of the three issues that comprise the overall divorcing arrangements (the other being the rights of EU and British citizens living in each other’s territory). Should this prove the case, talks on a post-Brexit trading relationship can begin, along with the possibility of a transitory period.

The data calendar this week is highlighted by the release of the construction and service-sector PMI November surveys (Monday and Tuesday, respectively). These will follow the much stronger than expected November PMI report for the manufacturing sector, released on Friday, which has offered fresh evidence of the impact that a competitive exchange rate and rising European demand have been having on the sector. Production and trade figures for October are also due on Friday.

Japan: In Japan,  November services PMI (Tuesday) is penciled in edging up to 53.5 from 53.4 previously. Revised Q3 GDP (Friday) is forecast to improve to a 1.6% y/y pace, from the initial 1.4% reading. Also, the October current account surplus is seen narrowing to JPY 1,700 bln from 2,271 bln in September. November bank loan figures are also on deck Friday.

China: China November Caixin/Markit services PMI (Tuesday) is forecast at 51.5 from 51.2, while the November trade report (Friday) should see the surplus narrow to $35.0 bln from $38.2 bln. November CPI and PPI (Saturday) should show some slowing in inflation and we estimate the former at a 1.7% y/y clip from 1.9%, and 5.9% y/y from 6.9% for the latter.

Australia: The RBA is seen holding rates steady at the current 1.50% rate setting (Tuesday). The Q3 current account deficit (Tuesday) is seen narrowing to -A$9.0 bln from -A$9.6 bln. Retail sales (Tuesday) are expected to expand 0.3% m/m in October after the flat reading in September. GDP (Wednesday) is expected grow with a 0.5% gain (q/q, sa) in Q3 after the 0.8% improvement in Q2. The trade surplus (Thursday) is anticipated at A$1.9 bln in October from A$1.7 bln in September. Housing investment (Friday) is expected to rise 2.0% m/m in October after the 2.3% drop in September.

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Andria Pichidi

Market Analyst


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