Currency market liquidity is thinner than a Wegovy patient at a Thanksgiving dinner, with choppy price action leaving most major pairs effectively unchanged relative to Wednesday levels. Equity futures are pointing to a subdued holiday session, ten-year Treasury yields are holding at 4.46 percent, and trade-weighted measures of the dollar are staying stable as traders keep positions square into the weekend.

The Japanese yen is holding just north of 149 against the dollar after updated inflation numbers came in slightly below expectations, further diminishing odds on an imminent shift away from the central bank’s easy-money policies. Consumer prices excluding fresh food rose 2.9 percent year-over-year in October, up from 2.8 in the prior month on a reduction in government utility-price offsets, undershooting market forecasts for a 3-percent gain. Separate purchasing manager data for November showed the manufacturing sector remaining mired in a demand-driven downturn, while activity in the broader economy flirted with outright contraction.

The pound is marginally higher on some surprisingly-hawkish commentary from the Bank of England’s chief economist. Just weeks after appearing to set the stage for rate cuts by the middle of next year, Huw Pill took another tack in this morning’s interview with the Financial Times, saying “When I look at the prints of those indicators through the last few months, I see more evidence of the sort of stubborn, high-level rates of inflation or growth that are stronger than we would really see as compatible with price stability – 2 percent inflation – over the medium term”. In a reversion back to his “Table Mountain” speech earlier this year, he suggested that policymakers would have to “ensure that there is enough persistence in the restriction of monetary policy to bring those components of inflation down”. To wit, core inflation remains above 5 percent in the UK, and the economy is – not yet – exhibiting widespread signs of demand weakness.

Ahead today:

Canada is expected to report a further softening in consumer demand, with retail sales flatlining in September and turning modestly negative in October. With wage gains slowing, excess savings almost gone, and real estate prices tumbling, households are turning more cautious, and we expect post-holiday spending will drop more sharply, putting the economy on course toward a contraction – and a reversal in some of the Bank of Canada’s recent rate hikes. The Canadian dollar remains strictly rangebound, failing to make up ground even as oil prices firm amid signs of tension among OPEC members.

Preliminary US purchasing manager indices are expected to bear the imprint of renewed weakness on the manufacturing side of the economy while the services and composite readings point to slower growth. Weaker-than-anticipated numbers could push the greenback further toward the middle of the “dollar smile” particularly after similar data in Europe and the UK earlier in the week pointed to a bottoming out in growth rates.

Lastly, market participants will try to assess the state of consumer demand from Black Friday sales volumes – which are more difficult to capture in an era dominated by e-commerce. With doorcrasher sales – and their associated National Geographic-esque scenes of excess – largely a thing of the past, investors are now forced to rely upon anecdotal evidence and television interviews with retail executives. We suspect sales will again surprise to the upside as households engage in one last round of retail therapy – but a slowdown is surely coming.

 
Still Ahead

TUESDAY

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)

THURSDAY

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)

FRIDAY

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. (08:30 EDT)