Ahead of the game: 20 November 2023

"US stock markets rose for a third week after a softer-than-expected October inflation report, suggesting the Federal Reserve may have concluded its rate hike cycle in July.

In Australia, the ASX 200 surged to an eight-week high above 7,100, buoyed by gains on Wall Street. However, the rally lost momentum following a robust Australian jobs report, potentially influencing the Reserve Bank of Australia's policy decisions in 2024. Further, the market faced additional challenges after the President Xi-Biden Summit, where Biden's labelling of Xi as a dictator introduced new tensions.

• US headline inflation dropped to 3.2% in October from a June peak of 9.1%
• Core inflation decreasing slightly to 4.0% YoY
• Australian Q3 wages increased by 1.3% QoQ, raising the annual rate to 3.9%
• Australian Consumer Confidence declined to 79.9 in November
• Australian Business confidence in Australia fell to -2 in October
• Australian Business Conditions improved by 1 point to 13
• UK's October headline inflation fell to 4.6% YoY from 6.7%
• China’s retail sales and industrial production exceeded forecasts, fixed asset investment underperformed
• Japan's G3 GDP down by -0.5% versus the -0.1% forecast
• Crude oil prices dropped below $73 per barrel, the lowest since July
• Gold increased 2.2% to $1980
• The VIX index is poised to remain below 15 for a third week, indicating a strong equity market and controlled situation in Gaza.

• AU: RBA Meeting Minutes (Tuesday, November 21 at 11.30 am AEDT)
• AU: RBA Governor Bullock Speech (Wednesday, November 22 at 7.35 pm AEDT)

• CN: Loan Prime Rate (Monday, November 20 at 12.15 pm AEDT)
• JP: Inflation (Friday, November 24 at 10.30 am AEDT)

• US: FOMC Meeting Minutes (Wednesday, November 22 at 6.00 am AEDT)
• US: Durable Goods (Thursday, November 23 at 12.30 am AEDT)
• US: S&P Global Flash PMI (Saturday November 25 and 1.45 am AEDT)

• GE: HCOB Flash PMI (Thursday, November 23 at 7.30 pm AEDT)
• EA: HCOB Flash PMI (Thursday, November 23 at 8.00 pm AEDT)
• UK: S&P Flash PMI (Thursday, November 23 at 7.30 pm AEDT)
• GE: IFO Business Climate (Friday, November 24 at 8.00 pm AEDT)

• AU

RBA meeting minutes

Date: Tuesday, 21 November at 11.30 am AEDT

The minutes from the Reserve Bank's meeting this month are scheduled to be released on Tuesday, November 22 at 11.30 am.

At its November meeting, the RBA increased its official cash rate by 25 basis points (bp) to 4.35%. This was the RBA's first rate rise since June and was widely expected. The rate hike was prompted by an upgrade in the RBA’s inflation forecasts to 3.5% from 3.3% by the end of 2024, aiming to keep inflation within the 2-3% target range by the end of 2025.

The Board noted, 'The increase in interest rates is warranted today to be more assured that inflation will return to target in a reasonable timeframe.' Although the RBA maintains its tightening bias, this stance has softened, adding a dovish aspect to the rate hike, shifting from 'Some further tightening of monetary policy may be required...' to 'Whether further tightening of monetary policy is required... will depend upon the data and the evolving assessment of risks.'

The upcoming board meeting minutes are anticipated to echo these sentiments, with a focus on the options considered by the board, triggers for acting on its tightening bias, and factors that might lead to a more neutral stance.

RBA cash rate chart

• US

FOMC meeting minutes

Date: Wednesday, 22 November at 6.00 am AEDT

As widely expected, the Federal Reserve maintained its target rate for the Fed Funds at 5.25%-5.50% at its November meeting.

The FOMC statement, mostly unchanged, left the door open for further rate hikes but noted that tighter financial conditions were likely to weigh on economic activity. It observed that the risks of doing too much versus too little in terms of inflation control were 'more balanced.'

This statement has raised hopes that the Federal Reserve's rate hiking cycle may have concluded. The forthcoming minutes are expected to echo the Fed's more cautious approach, while noting that rates are anticipated to remain higher for an extended period.

Federal effective rate chart

• JP

Inflation data

Date: Friday, 24 November at 10.30 am AEDT

Bank of Japan (BoJ) Governor Kazuo Ueda recently acknowledged that Japan is making progress towards sustainably achieving the central bank's 2% inflation target, a key prerequisite for ending its yield curve control (YCC) and negative interest rate policy. However, he did not provide a timeline, noting that there is 'still some distance to cover.'

To date, Japan’s headline inflation has moderated from a peak of 4.3% in February 2023 to 3.0% in September 2023. However, the core-core figure (excluding food and energy prices) remains near a multi-year high at 4.2%. Market expectations are that October's headline inflation will rise slightly to 3.4% year-on-year from 3.0%. The core-core measure is anticipated to ease to 4.0% from the previous 4.2%

Japan’s inflation % YoY chart

• US

S&P global flash PMI

Date: Saturday, 25 November at 1.45 am AEDT

After five consecutive months of contraction, the US S&P Global Composite PMI climbed to 50.7 in October, up from 50.2 previously. In detail, the Services PMI increased to 50.6 from the prior 50.1, while the Manufacturing PMI edged up to 50 from 49.8.

The US rates market is currently forecasting the Federal Reserve's first rate cut in May 2024, with an expected total reduction of 100 basis points (bp) over the course of the year. Softer PMI readings next week would lend support to these dovish market expectations.

US flash manufacturing and service PMI chart

Economics calendar

All times shown in AEDT (UTC+10).