Ahead of the game: 4 December 2023

In a week shortened by the Thanksgiving holiday, US equity markets recorded gains for the fourth consecutive week. The noteworthy rebound in November led to the Nasdaq reaching its highest level since January 2022, and the S&P500 traded at its peak price since July 2023.

Meanwhile, in Australia, the ASX 200 remains flat (excluding dividends) for the year. This stagnation is attributed to a hawkish Reserve Bank of Australia (RBA) communication this week, along with declines in Consumer-facing, Real Estate, and IT stocks, which exerted downward pressure on the market.

• In the US, durable goods orders plummeted -5.4% in October, exceeding exp of -3.1%
• Inflation exp from the UoM survey increased 4.5%, reaching highest level since April
• The EA PMI increased to 47.1, surpassing 46.9 exp
• UK PMI rose to 50.1, narrowly entering expansion territory from the previous 48.7
• RBA Governor Michele Bullock noted inflation remains high and is "increasingly homegrown."
• Chinese property stocks surged 7% on reports of financial support to help alleviate the housing crisis
• Crude oil fluctuated around $76 per barrel as the market awaits the outcome of the delayed OPEC+ meeting
• Gold retested its recent high of $2010 before easing back below $2000
• US dollar and yields found support
• VIX index fell 6.88% to 12.86, marking its fourth consecutive week of declines.

• AU: RBA interest rate decision (Tuesday, December 5th at 2:30 pm AEDT)
• AU: Q3 GDP (Wednesday, December 6th at 11:30 am AEDT)
• AU: Trade Balance (Thursday, December 7th at 11:30 am AEDT)

• CN: Balance of Trade (Thursday, December 7th at 2:00 pm AEDT)
• CN: Inflation (Saturday, December 9th at 12:30 pm AEDT)

• US: Factory Orders (Tuesday, December 5th at 2:00 am AEDT)
• US: ISM Service PMI (Wednesday, December 6th at 2:00 am AEDT)
• US: US JOLTS Job Openings (Wednesday, December 6th at 2:00 am AEDT)
• US: ADP Employment Change (Thursday, December 7th at 12:15 am AEDT)
• US: Initial Jobless Claims (Friday, December 8th at 12:30 am AEDT)
• US: Non-Farm Payrolls (Saturday, December 9th at 12:30 am AEDT)
• US: Michigan Consumer Sentiment (Saturday, December 9th at 2:00 am AEDT)

• EA: Retail Sales (Wednesday, December 6th at 9:00 pm AEDT)

• AU

RBA interest rate meeting

Date: Tuesday, 5 December at 2:30 pm AEDT

The RBA's November meeting resulted in a 25bp increase in the cash rate to 4.35%. This move, the first rate rise since June, was widely anticipated, and the accompanying statement retained a subdued tightening bias.

"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks."

Despite a more hawkish tone in the RBA's communications post the November board meeting, recent data has provided some relief. October's retail sales surprised on the downside at -0.2% MoM, compared to the expected 0.1%. The Monthly CPI indicator, which peaked at 8.4% last December, eased to 4.9% YoY in October, less than the expected 5.2%.

The unexpectedly subdued monthly indicator introduces downside risks to the RBA's December 2023 inflation forecast of 4.5%, likely prompting the RBA to maintain rates in December. Persistent "homegrown" services inflation, driven by consumer demand, keeps the possibility of a hike in February alive, pending the outcome of the December quarter (Q4) inflation data scheduled for release in late January.

RBA cash rate chart

• AU

Q3 GDP

Date: Wednesday, 6 December at 11:30 am AEDT

Australian GDP rose 0.4% in the June quarter of 2023 and 2.1% YoY. It was the seventh straight rise in quarterly GDP, and annual growth remained above trend, reflecting the absence of significant COVID-19 disruptions, such as lockdowns, in 2022-23.

Within the details

• Capital investment and exports of services were the main drivers of GDP growth during the quarter
• The household saving-to-income ratio fell for the seventh consecutive quarter to 3.2%, its lowest level since the June quarter of 2008
• GDP per capita fell 0.3%, which means that although the economy grew, largely due to population growth, Australians experienced a fall in living standards. Households facing cost of living pressures have dug into savings.

This quarter, GDP is expected to increase by 0.4%, and the annual growth rate is expected to increase by 1.8%. This would be the slowest pace of annual growth since the December quarter of 2020.

Annual GDP growth rate chart

• US

Non-farm payrolls

Date: Saturday, 9 December at 12:30 am AEDT

In the November Federal Reserve (Fed) minutes, policymakers acknowledged that US labour supply and demand were coming into “better balance”, but assessed that labour market conditions remained tight. They continued to view “some further softening in labour market conditions as likely to be needed” to return inflation to its 2% target.

With firm expectations that the Fed is done hiking, along with 125 basis point worth of rate cuts being priced by the end of 2024, a softer job report will be needed to provide validation for such dovish views. Current consensus is for US to add 175,000 jobs in November versus the previous 150,000, while unemployment rate is expected to hold steady at 3.9%. A more restrained wage growth will be on watch as well (previous 0.2% month-on-month) to provide more confidence of a softening inflation trend ahead.

Non-farm payrolls chart

• CN

China’s November inflation rate

Date: Saturday, 9 December at 12:30 pm AEDT

China’s purchasing managers index (PMI) numbers for November failed to impress, with manufacturing activities dipping further into contractionary territory at 49.4, while services activities softened to a new 11-month low at 50.2. The data continues to reinforce the views that the recovery momentum for the world’s second largest economy has been uneven, with the series of downside economic surprises likely to see authorities lay more options of policy support on the table.

The upcoming inflation read is expected to point to a more subdued recovery front for China as well, with November consumer prices expected to stay in deflationary territory once more with a potential tick lower to -0.3% from the previous -0.2%.

China's inflation rate % year-on-year chart

Economics calendar

All times shown in AEDT (UTC+10).