Ahead of the game: 13 November 2023

US stock markets snapped their winning streak as US yields surged following a weak 30-year bond auction. This occurred after Federal Reserve Chair Powell noted that the Fed will not hesitate to tighten monetary policy further if necessary.

It is not surprising that the Fed Chair sounded more hawkish and pushed back after the recent sharp easing in financial conditions (lower bond yields and higher equities). The Federal Reserve requires financial conditions to remain tight to stay on the sidelines, waiting for inflation to moderate.

In Australia, the ASX 200 gained for a second consecutive week. This was supported in the early part of the week as Wall Street extended its rally, and following the Reserve Bank of Australia's (RBA) dovish rate hike. We believe this hike likely signifies the end of the RBA's tightening cycle.

• Federal Reserve Chair Powell expressed uncertainty about achieving 2% inflation and is open to further rate hikes
• The RBA raised rates to 4.35%, easing its tightening approach
• China's October inflation dropped by 0.2% YoY, sparking deflation worries
• China's October trade surplus decreased, with exports falling significantly
• Crude oil price dropped to $75.00, marking a potential second weekly decline over 5%
• Gold price dropped to $1950 amid ongoing losses and stable Gaza conflict
• The VIX Index rose to 15.28, indicating increased market uncertainty.

• AU: Westpac Consumer Confidence (Tuesday, November 14 at 10:30 am AEDT)
• AU: NAB Business Confidence (Tuesday, November 14 at 11:30 am AEDT)
• AU: Wages (Date and time not provided)
• AU: Employment (Thursday, November 16 at 11:30 am AEDT)

• JP: Q3 GDP (Wednesday, November 15 at 10:50 am AEDT)
• CN: Industrial Production, Retail Sales, FAI, and Employment (Wednesday, November 15 at 1:00 pm AEDT)

• US: CPI (Wednesday, November 15 at 12:30 am AEDT)
• US: PPI (Thursday, November 16 at 12:30 am AEDT)
• US: Retail Sales (Thursday, November 16 at 12:30 am AEDT)
• US: Building Permits and Housing Starts (Saturday, November 18 at 12:30 am AEDT)

• GE and EU: ZEW Economic Sentiment Index (Tuesday, November 14 at 9:00 pm AEDT)

• US

CPI

Date: Wednesday, November 15 at 12.30 am AEDT

September’s headline inflation remained at 3.7% year-on-year (YoY) after peaking at 9.1% in June 2022. Core inflation, which excludes volatile items such as food and energy, decreased to 4.1% YoY from 4.3% in the previous month.

This month, the market anticipates the headline rate to decline to 3.3% YoY, with core inflation expected to hold steady at 4.1% YoY.

Inflation continues to exceed the Federal Reserve's (Fed's) 2% target. However, with interest rates in a restrictive range and inflation projected to further moderate, the rates market anticipates the Fed maintaining its stance until the end of the first quarter of 2024.

US inflation rate chart

• JP

Q3 GDP

Date: Wednesday, November the 15 at 10.50 am AEDT

Japan’s 3Q GDP is expected to contract by an annualised 0.6%, reversing the 4.8% expansion seen in 2Q. This would be the first contraction since 3Q 2022, potentially complicating the Bank of Japan’s (BoJ) policy normalisation process. On a quarter-on-quarter basis, the economy is forecast to shrink by 0.1%, compared to the previous 1.2% growth.

The strong 2Q GDP growth was largely due to a 1.8% contribution from net trade. However, trade activities have since softened amidst weaker external demand, while the recovery in private consumption remains modest. The anticipated contraction of Japan’s economy in 3Q may underscore ongoing growth risks and bolster the argument for the BoJ to take a more gradual approach in adjusting its ultra-accommodative stance.

Japan's GDP growth chart

• CN

Industrial production, retail sales, FAI and employment

Date: Wednesday, November 15 at 1 pm AEDT

Over the past week, downside surprises in China’s October Purchasing Managers' Index (PMI) and inflation data have continued to indicate a fragile economic recovery in the world’s second-largest economy. The weak data have cast doubt on the effectiveness of easing policy efforts thus far and prompted calls for more stimulus from authorities to bolster growth.

Looking ahead, expectations are for China’s October retail sales to show stronger recovery momentum, rising to 7% year-on-year from 5.5% in September. However, industrial production and fixed asset investment are anticipated to remain steady at 4.5% and 3.1% respectively, unchanged from the previous month.

China's retail sales, fixed investment, industrial production chart

• AU

Employment data

Date: Thursday, November 16 at 11.30 am AEDT

In September, the Australian economy added 6.7k jobs, below the expected 20k, while the unemployment rate edged down to 3.6% from 3.7%, following a decrease in the participation rate to 66.7% from 67%.

Kate Lamb, ABS Head of Labour Statistics, stated, "With a slight increase in employment, by around 7,000 people, and the number of unemployed people falling by around 20,000, the unemployment rate fell to 3.6% in September. It is important to note that a decrease in unemployment does not always signify a substantial increase in employment. The decline in the unemployment rate in September primarily reflected a higher proportion of people moving from being unemployed to not in the labour force."

For October, the market anticipates a rise of 20k in employment and an increase in the unemployment rate to 3.7%. The participation rate is expected to remain stable at 66.7%.

AU unemployment rate chart

Q3 2023 earnings season

Q3 earnings season is in the home stretch with reports from companies this week including the giant retailers Home Depot, Target, and Walmart along with JD.com, Alibaba and Cisco.

Economics calendar

All times shown in AEDT (UTC+10).