‘Tis the day before the night before Christmas, and all through the markets, not a trader is stirring, not even one with a mouse. Trading ranges are narrow and volumes are down after better-than-forecast economic data triggered a selloff during yesterday’s session, lifting the dollar and crushing nascent rallies in risk-sensitive currencies.
Upward revisions in consumer spending and business investment categories lifted third quarter gross domestic product to 3.2 percent annualized, up from the previously-reported 2.9 percent, and the number of jobless claims came in below economist estimates – suggesting that the Federal Reserve’s rate hikes are not delivering the “sustained period of below-trend growth” that policymakers are hoping to engineer. Monetary tightening expectations climbed, raising yields on the front end of the curve and tilting rate differentials back in the dollar’s favour.
Data out last night showed Japanese prices rising at the fastest annual pace since 1982 in November, making the Bank of Japan’s easy-money policies look less tenable. Consumer prices climbed 3.7 percent year-over-year as imported energy and food costs rose. Inflation has now topped the central bank’s target for eight consecutive months, and many observers expect higher wage demands to follow.
Economists think the Canadian economy essentially flatlined through the autumn months. This morning’s data from Statistics Canada is expected to align with the 0.1-percent early estimate previously reported for October, and growth in November isn’t likely to look much better. Commodity exports should decline with prices, inventory accumulation is going into reverse, and housing market activity is slowing. Consumer spending could be the lone bright spot, helping prevent an outright contraction.
The latest US personal spending numbers might reflect slower growth in November, with outlays up 0.2 percent month-over-month, down from the 0.5-percent pace recorded in October. Personal income is expected to rise 0.2 percent as well. The core personal consumption expenditures index – the Federal Reserve’s preferred inflation indicator – is seen rising 0.2 percent on a monthly basis, up 4.7 percent over last year.
Separate data is expected to show purchases of long-lasting goods falling -1.0 percent in November as consumer spending preferences shift toward services.
The University of Michigan consumer sentiment index for December, out at 10:00 am, is expected to hold at 59.1, unchanged relative to the preliminary reading.
There are no major data releases scheduled for next week, and—in contrast with several other year-end periods—dollar funding markets are showing no obvious signs of stress.
Please note: Our Daily Market Briefing won’t be published again until Tuesday, January 3. Thank you for reading this year. Enjoy your holidays, and have a happy, healthy, and prosperous 2023!
Karl Schamotta, Chief Market Strategist