Week In Review: Nov 28th to Dec 2nd

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While the Fed’s favored inflation gauge, the PCE Core Deflator, has so far continued to trend upward, there hasn’t been any evidence that US consumer spending is decreasing. The Fed has no reason to alter its present hawkish monetary policy stance given that core prices continue to exhibit underlying resilience. Despite the headline CPI topping at 9.1% in June, this is the case.

PCE Core Deflator increased little from 4.9% in August to 5.1% in September, but it is still below its February highs of 5.4%. However, the US dollar may come under more pressure if it starts to show signals that the market is beginning decline, adding to the previous drops that have been observed since the late-September peaks.

Eurozone CPI

If the trend of energy prices is an indication, we may be nearing peak inflation. In Europe, we’ve seen little sign of this with headline CPI rising to 10.6% in October, up from 10% in September. In October, the German PPI fell by -4.2% on a monthly basis, bringing the annualized figure down from a record high of 45.8% to 34.5%.

If the weather doesn’t get too cold in the upcoming weeks and this is in fact a leading signal for headline CPI, there is a possibility that, even though the headline statistics may remain high for a long, they may begin to gradually decline.

The ECB is growing more concerned about tightening monetary policy too aggressively, so some signs of softer CPI could provide a convincing argument for the bank to raise interest rates by 50 basis points or even less when it meets the following week. Core prices are over half the level of the headline numbers at 5%.

US jobs report takes center stage

Although there are concerns about the health of the US economy, the labor market has so far held up admirably, with weekly jobless claims currently averaging around 225k. Compared to September’s higher-than-expected 315k employment total, October’s non-farm payrolls came in at 261k.

The lowest figure this year is anticipated for November payrolls, 200k down from 261k. Due to a greater participation rate, it is anticipated that the unemployment rate will edge up to 3.8%, while pay growth will likely stay at 4.7%.

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