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Dollar steadies amid softer flows

The dollar is trading just above a three-month low and Treasury yields are creeping higher after yesterday’s drop. Benchmark ten-year rates tumbled more than 10 basis points during the session after the government auctioned $109 billion in short-term notes without triggering any turmoil, adding to a weaker-than-forecast new home sales number in convincing investors that markets and the economy are beginning to normalize after a prolonged sequence of unusual developments.

The euro is inching lower in early trade, failing to gain traction after Bundesbank President Joachim Nagel tried pushing back against rate cut expectations. “It would be premature to lower interest rates soon or to speculate about such steps,” he said, “It’s not just the level of interest rates that matters for the stance, but also expectations about the future path of interest rates. The main effect of the policy tightening on inflation is yet to unfold”. After crossing its 200-day moving average last week—a break of which has virtually always preceded a sustained run-up in the last twenty years—the common currency has struggled to push higher.

Oil prices remain volatile, with the major benchmarks gaining this morning on hedging flows associated with Thursday’s postponed meeting of the Organization for Petroleum Exporting Countries. Most market participants expect Saudi Arabia and Russia to respond to growing signs of demand weakness with an extension of supply cuts into the early new year, but broader or deeper reductions remain well within the realm of possibility, carrying the potential for an upside shock.

Risk-sensitive currencies are struggling for direction. The Canadian dollar, particularly, is caught in a quandary, broadly supported by the lower-rates, weaker-dollar narrative that has gripped global markets, but also limited by fears of a harder landing that could destabilize the country’s already-vulnerable housing market and consumer spending growth engine. Renewed losses in the greenback could carry the exchange rate back through the 1.35 threshold in the near term, but skepticism remains well warranted when it comes to the 2024 outlook.

A relatively quiet day beckons: The Chicago Fed’s Goolsbee, along with Governors Waller and Bowman – both known hawks – are scheduled to speak. At 10:00, the Conference Board’s measure of US consumer confidence is expected to show further signs of weakness, contrasting with what is happening in the real world, where consumers are believed to have set spending records over the Black Friday and Cyber Monday retail holidays.


The Conference Board’s measure of US consumer confidence is seen weakening further in early November, with the overall index tumbling to 101 from 102.1 in the prior month as households react to growing evidence of slowing growth. (10:00 EDT)


Euro area consumer price growth likely decelerated further in November, helping mute any remaining hawks on the European Central Bank’s Governing Council. Headline inflation is seen easing to 2.7 percent year-over-year, down from 2.9 in the prior month, while the core measure might have slipped closer to 3.8 percent from 4.2 previously. This shouldn’t support a dramatic change in the central bank’s rhetorical stance – officials will likely maintain an aggressive inflation-fighting posture for many months yet – but with markets overwhelmingly convinced policy has been overtightened, might support further narrowing in expected cross-Atlantic rate trajectories for next year. (05:00 EDT)

Personal income and consumption numbers should show US household demand beginning to ebb in October, giving the Fed room to maintain rates at current levels through the early part of next year. With labour markets showing clear signs of exhaustion, wage gains should slow, with investment returns doing the heavy lifting in keeping income gains – narrowly – on the positive side of the ledger. Spending levels are widely expected to slow, dropping to 0.2 percent month-over-month, down from 0.7 percent in September – but an upside surprise is certainly possible, given consumers’ recent propensity to spend more than they earn. And the central bank’s preferred inflation indicator – the core personal consumption expenditures index – is seen slowing further, falling to 0.2 percent month-over-month and 3.5 percent year-over-year. (08:30 EDT)

The Canadian economy likely dipped into a technical recession in the third quarter, with updated numbers expected to confirm Statistics Canada’s preliminary estimates. Data out in October showed activity contracting an annualized -0.1 percent in the three months ended September, following a -0.2 percent decline in the prior quarter. This, in and of itself, is unlikely to impact the Canadian dollar – traders already expect the central bank to stay on hold before beginning to cut rates in mid-2024 – but the preliminary estimate for October could easily move markets, helping determine whether the easing timetable should be moved up. (08:30 EDT)


We are looking for another decline in job creation in Canada’s November Labour Force Survey, adding to October’s print in offsetting strong gains through August and September. Even if the headline is positive, the mix between full- and part-time jobs will be critical in discerning the underlying trend, with seasonal retail hiring ramping up even as a profound slowdown in the services sector drags down growth. The unemployment rate is likely to rise as labour markets fail to absorb higher immigration levels. (08:30 EDT)

The Institute for Supply Management’s manufacturing gauge likely stayed in contractionary territory in November, but a modest pickup in demand should mean that the pace of deterioration has slowed somewhat. Markets will review respondent anecdotes closely however, with more talk of “recession” helping moderate any potential revival in animal spirits. (10:00 EDT)

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