Rate Decisions, Geopolitics and Non Farm Payrolls

The markets are set for another busy week, including central bank interest rate decisions and Non Farm Payrolls.
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Things look set for a very busy week in the markets.

President Trump and President Xi have agreed to a trade war ceasefire. This means all eyes will be on the market’s reaction to this on Monday. We also have interest rate decisions from the BOC and RBA. 

The week will finish with NFP on Friday. It looks like we’re set for lots of potential trading opportunities. 

In this article, we’ll go through important events that happened last week. We will also discuss events to look out for in the week ahead along with some trade ideas.  

Below are the countries we will discuss in this week’s article:  

United States Dollar 
Canadian Dollar 
Great British Pound 
Australian Dollar 
New Zealand Dollar 
Japanese Yen 

United States Dollar 

What happened last week 

The Dollar benefited from auto tariff concerns early last week. Remember, trade war concerns have seen safe-haven inflows into the USD this year. 

As a result, the USD remained bid at the start of the week despite US rate path concerns. On Tuesday we had a few Fed speakers on the wires. 

It seemed that most of them were tilting to a less hawkish stance on rate hikes. Certainly, the most significant move in the USD came from a speech by Fed Chair Powell. 

Powell changed his rhetoric about how far the Funds Rate is from neutral. In October Powell said they were a long way from neutral. 

In contrast, on Wednesday Powell explained interest rates were just below neutral. As a result, the USD sold off across the board with the dovish rhetoric. 

We also had the FOMC Meeting Minutes on Thursday. Danske bank notes the minutes confirmed the market’s expectations of a December hike. 

The most important part was the mention of data dependency. Some Fed members emphasized the importance of incoming data. 

They also reminded the market that monetary policy was not on a pre-set course.

Key data points last week

In terms of data, there were a few important releases. Wednesday was the release of 2nd Estimate GDP for Q3. The release came out as expected at 3.5%. 

However, this was 2nd Estimate GDP sp the reaction to the event was muted. 

After that, PCE Price Index for October was released on Thursday. Core CPE YY were softer at1.8% versus consensus of 1.9%. 

PCE is the Fed’s preferred measure of inflation. Despite this, PCE usually has a muted reaction as CPI is released a week or two before. 

From the chart above we can see core CPI and PCE has slowed from August. We can also see that core PCE is moving away from the Fed’s 2% inflation target. 

Further drops in core inflation will be very important to watch going forward. 

The Dollar also saw support on Friday with the Chicago PMI number. 


The PMI beat all expectations with a big deviation. 

Markets were expecting a print of 58.0 and the PMI came in at 66.4. 

The week ahead 

Reports over the weekend stated Trump had agreed to a temporary tariff ceasefire. As a result, the US has agreed to halt new tariffs on China. 

Market responses to this will be important on Monday. 

In addition, this week will be a busy one in terms of Fed speakers. We have Clarida, Quarles, Williams, Brainard and Bostic throughout the week. 

On Monday 3 December we hear from Clarida, Quarles, Williams and Brainard. Then on Tuesday 4 and Friday we have Williams speaking again. 

Then, we hear from Bostic and Brainard again later in the week. The highlight will be from Fed Chair Powell on Wednesday 5 December. 

Powell testifies on the economic outlook before the Joint Economic Committee of Congress. Scotiabank notes this will be a good chance for Powell to clarify recent communication. 

It seems the majority of Fed members has turned less hawkish recently. Noting global growth as a concern for the Fed. 

This week will provide ample opportunity to clarify their policy stance.

Key data points to consider

In terms of data, we have a few important data points to watch. On Monday 3 December we have ISM Manufacturing PMI. 


According to Wells Fargo, the ISM Manufacturing has been high compared to other data. 

Markets are expecting ISM Manufacturing to slow to 57.5 from 57.7. 

After that, we see ISM Non-Manufacturing PMI numbers for November on Wednesday 5 Dec. The Non-Manufacturing PMI reached a 21-year peak in September. 

 It has eased slightly after this but remains very high. As leading indicators, the PMI releases are important. 

Especially as the US economy is late in its cycle. 

On Wednesday 5 December we have ADP Non-Farm Employment Change. ADP Employment is forecasted to fall to 195K from a prior of 227K. 

The impact of ADP employment is usually muted. This is due to its proximity to Non-Farm Payrolls two days later.

Watch out for NFP this Friday

On Friday 7 December we have the US employment report for November. Markets are expecting another big print of 200K this month. 

Wells Fargo notes the recent uptick in jobless claims show hiring has slowed in November. However, they also explained that one-month data does not make a trend. 

We expect the most important part of the report to be Average Hourly Earnings. Wage inflation can have a considerable impact on inflation expectations. 


A big deviation can affect US treasury and Equities markets. Consensus expects Average Hourly Earnings MM at 0.3% from 0.2%. 

Average Earnings YY is expected to stay flat at 3.1%. However, at 3.1% it is still the fastest wage growth since 2009. 

In addition, we’ll also see the Unemployment Rate numbers. 


The market expects Unemployment to stay flat at 3.7%. Currently, US Unemployment is at forty-year lows. 

Trade ideas 

It will be important to consider the market’s reaction to the trade developments. 

Big deviations on ISM PMI’s can provide good trading opportunities. Take note to trade these releases in line with the current USD sentiment. 

Apart from that, we suspect the biggest event of the week will be Non-Farm Payrolls. Here is a breakdown below of how we would approach it. 

  1. The first reaction is usually from headline Non-Farm Payrolls numbers 

Any big deviations between actual and expectations are important. A positive deviation is usually Dollar positive. Similarly, a negative print is usually Dollar negative.  

The initial reaction from the numbers can be very volatile. Consider all the employment data before jumping in.  

  1. Average Earnings YY is often more important. 

Wage inflation numbers usually offer a more sustained reaction. Any deviations in wage growth can impact inflation expectations. 

This means a deviation in wage numbers can affect US Treasury yields.  

A jump in Treasury yields is normally supportive of the USD and negative for equities. The opposite is also true.  

  1. The Unemployment Rate is the final piece of the puzzle 

Don’t neglect the Unemployment rate number. Big changes in unemployment can also affect inflation expectations.  

Any unexpected change in the Unemployment rate can affect the USD.  

  1. Putting it all together 

The US Employment reports are the most volatile of any other data point. This can make the NFP release tricky to trade. 

Look at the report in its entirety for the best probability trade opportunities. So don’t jump in on one data point only. 

Be careful when the report is mixed. The best opportunities come from reports where all the data is in line. 

Canadian Dollar 

What happened last week 

Oil remained the biggest driver of the Canadian Dollar last week. Canada’s economic dependency on Oil makes it vulnerable to big fluctuations. 

The prices of WTI and Crude has fallen well over 30% since the start of October. 


The Canadian dollar traded up and down at the start of the week. A small recovery in Oil prices and better risk tones did not offer much support. 

CAD remained pressured due to Oil prices throughout the week. 

On Friday we also saw GDP numbers for Q3. Canadian GDP QQ Annualized came in as expected at 2.0%. This was still a drop from the 2.9% for Q2. 

GDP MM came in soft at -0.1% versus expectations of 1.0%. The miss on GDP MM added pressure to the CAD on Friday. 

The week ahead 

Oil should stay the main driver of the CAD this week. Especially, with the December 6 OPEC meeting coming up. 

Over the weekend Russia and Saudi Arabia agreed to continued support for oil output cuts. There were no specific volumes mentioned so there is nothing concrete. 

Agreements to pursue further cuts should provide some relief for oil price. Keeping track of the OPEC meeting will be important for the CAD. 

More importantly, on Wednesday we’ll have the BOC rate decision. This meeting will be accompanied by a rate statement but not a press conference. 

The consensus in the markets is for the BOC to leave rates unchanged. Wells Fargo notes that there is a reason for the BOC’s rate path to remain hawkish. 

With solid growth and employment numbers, the BOC has reason to continue tightening. 

Scotiabank notes the speech by Governor Poloz on Thursday 6 December is important. Poloz is due to speak about monetary policy and the economic outlook. 

They will be looking for any mention from Poloz about the recent fall in oil prices. 

On Friday 7 December we also have the November jobs report. Markets expect the economy to have added 15K jobs in November. 

The Unemployment Rate is forecasted to stay flat at 5.8%. 

Trade ideas 

Oil prices should be the main consideration for CAD trades this week. Especially with the important OPEC meetings coming up. 

A rally in oil prices is possible if substantial output cuts are announced. 

Look out for Gov Poloz’s speech this week. A hawkish or dovish tone from him will be enough to move the markets. 

Also, watch the jobs report this week for opportunities. Don’t get blindsided by the headline number alone. 

The initial reaction from headline numbers can fade very quickly.  Therefore analyze the employment change in line with full-time employment.  

A big deviation in full-time employment will likely have a bigger reaction. 

Great British Pound 

What happened last week 

The first news of the week for Brexit came from the November EU summit. 

The European Council endorsed UK PM May’s Brexit deal. Market reactions were muted as it was an expected outcome. 

The doubts of the UK parliament approval of the deal kept the GBP pressured. 

On Tuesday, further downside was seen in the Pound. This came after President Trump voiced his concerns over the Brexit deal. 

Trump stated the Brexit deal was only good for the EU and not the UK. He also explained that the deal might not allow a trade deal with the US. 

However, the UK did comment saying the declaration would allow a US trade deal. This was not enough to stop the fall in the Pound. 

Worries about PM May’s ability to get her deal through parliament weighed on the Pound. 

The week ahead 

In the week ahead, the main theme for the Pound will remain Brexit developments. 

The debate about PM May’s proposed deal starts on Tuesday 4 December. Five days have been set aside for the debate in the House of Commons. 

We expect a lot of whipsaw moves in the Pound this week. Especially since different speakers state their position on the deal. 

On Tuesday the BOE is also due to testify on the Brexit Withdrawal Agreement. Markets will carefully scrutinize the BOE’s opinion of the deal. 

We also have important data releases this week. The Manufacturing, Construction and Services PMI’s for November are due this week. 


All three PMI’s have slowed from the middle of 2018. The most notable drops were seen in Manufacturing and Services. 

More importantly, is the fall in Services as it contributes 80% to UK’s total GDP. Markets are expecting the Manufacturing PMI to edge up to 51.8 from 51.1. 

Construction PMI is expected to slow to 52.5 from 53.2. The Services PMI is forecasted to climb to 52.5 from 52.2. 

These are important data points, but we don’t expect much of reaction to them. All focus should remain firmly fixed on Brexit. 

Trade ideas 

The Pound has had a very bumpy ride recently. Especially with Brexit sentiment changing daily. 

With the whipsaw moves the Pound is a risky currency to trade right now. 

Brexit developments should remain a key driver for the Pound this week. Keep the news squawk on to take advantage of developments. 

Majority of Brexit headlines seem to fade quite quickly. Make sure to manage your risk with any GBP trades. 

Australian Dollar 

What happened last week 

The AUD soared last week on positive risk tones and Powell’s speech. As a commodity currency, the currency is correlated with risk sentiment. 

There were also two important data points for the AUD last week. The first of these were Construction Work Done. 

The release came out with a big miss of -2.5%. This was against expectations of a 1.0% gain. 


On Thursday we also saw Q3 Capital Expenditure. The release was also softer than expected. 

Capital Expenditure came it at -0.5% versus a forecast of 1.0%. 


According to Westpac the CAPEX survey as a total was not all bad. They explained investment expectations for 2018/19 rose to 3%-4% versus a prior estimate of -1%. 

With these recent numbers, Westpac anticipates a GDP of 0.7% for Q3. 

The week ahead 

It will be an interesting start to the week following the temporary trade war ceasefire. The AUD should enjoy some support from the trade war news. 

Australia sends over 30% of their exports to China. This is one of the reasons why the trade war has pressured the AUD so much. 

Make sure to evaluate the risk tones in the market. If risk tones are positive it should be supportive for the AUD. 

In addition, there is a very busy economic calendar for the AUD this week. On Monday 3 December we have two more key inputs for Q3 GDP. 

Firstly, we have Building Approvals for October. Westpac explains there is a good chance for a weak print this week. 

They note that weakening housing markets should weigh on the number. Consensus is for a slow to -2.0% from 3.3%. 

Secondly, we also have Company Profits for Q3 on Monday. Markets are expecting a climb to 2.8% from 2.0%. 

On Tuesday 4 December the RBA have their policy announcement. It’s widely expected for the RBA to leave rates unchanged. 

Westpac notes that growth and employment should be encouraging for the RBA. However, the challenge is lagging inflation and sluggish wage growth. 

No new information is expected from the RBA this week. 

On Wednesday 5 December we see Q3 GDP for Australia. Big misses on Building Approvals and Company profits can negatively impact GDP. 

Markets are expecting GDP to slow to 0.6% from 0.9% in Q2. 

Trade ideas 

The AUD usually depreciates and appreciates based on risk sentiment. If the risk tones are positive the AUD could be a good buy opportunity this week. 

We would look to pair the AUD with safe-haven currencies if that happens. During risk-on sentiment, safe-havens are usually pressured. 

Furthermore, there is a big calendar for the AUD this week. Any big deviations could be enough to move the markets. 

We expect positive risk tones from the trade war developments to support the AUD. However, a challenge to this would be negative data points this week. 

However, the best opportunity would be if risk sentiment and data numbers are in line. If we have a mixed bag the AUD can be a bit risky this week. 

New Zealand Dollar 

What happened last week 

The NZD stated the week strong due to a positive risk tone in markets. Global Equities were up across the board on Monday. 

The Kiwi Dollar outperformed early in the week despite softer data points. 

On Sunday Retail Sales for Q3 were flat at 0.0% versus a prior of 1.1%. There was also a miss on trade balance data at -1,295M versus expectations of -850M. 

Despite softer data NZD remained strong against most of its counterparts. 

On Tuesday we saw the RBNZ Financial Stability Report. A reduction in financial risk allowed the RBNZ to ease LVR mortgage restrictions. 

The RBNZ said households remained exposed to financial shocks. There was no significant reaction in the NZD. 

The week ahead 

As a risk-sensitive currency, we need to watch the NZD at market open. Especially after the news about a temporary de-escalation in the US-China trade war. 

It will be important to evaluate the risk sentiment in the market. If markets react positively to the trade war news it should support the NZD. 

There is no tier one data events for the NZD this week. Due to the light calendar, we expect risk sentiment to remain the main driver. 

The only event of interest is the GDT Price Index on Tuesday 4 December. We highlighted the drop in Dairy prices in a previous article. 


One of New Zealand’s biggest exports is Dairy products. If the trend continues to drift lower, it could affect the NZD. 

It is not something that we are expecting a lot of fireworks from though. 

Trade ideas 

Make sure to evaluate risk sentiment before taking NZD trades this week. 

With the trade war ceasefire, we would expect markets to react positively. Therefore, we would look for buy opportunities on the NZD. 

A good counter currency would be safe-havens such as the Japanese Yen. Risk sentiment can be fickle so keep that in mind when trading this week. 


What happened last week 

On Monday last week, we had the release of November IFO numbers. 

The IFO Business Climate came in at 102.0 versus forecasts of 102.3. The IFO Current Conditions were slightly better at 105.4 with a consensus of 105.3. 

In addition, IFO Expectations were softer at 98.7 against a forecast of 99.2. 


There has been a significant turn in IFO numbers from December 2017. The fall in IFO numbers is similar to that in PMI and ZEW numbers. 


Similarly, German PMI numbers have taken a plunge from December 2017. 


German Zew numbers show the same slowdown. According to Eurostat, Germany accounts for over 20% of EU GDP. 

Therefore a slowing German economy is bad news for the EU. Recent numbers are not looking great for EU growth prospects. 

The Euro gained support after conciliatory comments from the Italian government. Reports stated Italy was considering reducing their budget deficit target. 

Italian bond yields fell 15 basis points after these reports. Gains in the Euro were muted though. 

The Euro gained across the board after Powell’s speech on Wednesday. Big moves in the DXY is usually exacerbated in the Euro. 

The upside in the Euro was reversed sharply on Friday. The first pressure point was weaker than expected inflation data. 

Headline CPI came out as expected at 2.0%. Headline CPI matched expectations but was still lower from the prior 2.2% reading. 

More importantly was Core CPI that eased back to 1.0% versus expectations of 1.1%. 


The weaker core inflation is a concern for the ECB. Currently, markets are expecting the ECB to lift rates after the summer of 2019. 

According to ING, a persistently weaker core inflation might push this back further. Consequently, growth and inflation remain key focus points for the ECB. 

On Friday the Euro was pressured by a stronger USD. 

The week ahead 

We have a busy but light economic calendar for the Euro this week. 

There are a couple of Final PMI numbers which are due. The more important numbers are normally the Flash PMI numbers. 

As a result, we’re not expecting a lot of reaction from the final PMI’s this week. There are also revised GDP numbers for Q3 on Friday 7 December. 

As they are revised numbers, we don’t expect a lot of reaction from them. 

Furthermore, the Italian budget concerns will remain in focus. Reports noted that Italy and the EU are looking at options for a budget compromise. 

Danske Bank notes that the ECOFIN Council meeting on Tuesday will be important. The EU will definitely discuss the current Italian budget issues.

Consequently, the meeting could lead to an excessive deficit procedure (EDP) against Italy. 

Trade ideas 

Our medium-term bias for the Euro remains bearish. This is mainly based on the slowdown in Growth numbers over in 2018. 

There is also the challenge of sluggish core CPI numbers. Another negative factor is the Italian deficit target. 

If there is a breakthrough it would provide short-term relief for the Euro. As long as it remains a concern it should weigh on the Euro. 

Keep the news squawk on this week to take advantage of further developments. Also, keep an eye on the Dollar Index. 

The Euro has a 57% weighting in the DXY. This means any big moves in the Dollar will affect the Euro. 

Japanese Yen 

What happened last week 

The JPY had a bit of a whipsaw start to the week. Markets opened on Monday with a risk-on tone. 

As a result, the majority of JPY pairs nursed losses from the prior week. The JPY did pullback some of the losses during the North American session. 

This was probably due to tensions between Russia and Ukraine. 

On Tuesday positive trade war comments supported the Yen. Reports stated President Trump and Xi agreed to reach a mutually beneficial agreement. 

Shortly afterwards the move was reversed. This was due to reports that the comments about the deal were outdated. 

On Monday we also had the Nikkei Manufacturing PMI. The PMI came in softer at 51.8 from a prior of 52.9. 

On Thursday we saw Retail Sales YY for October. The numbers climbed to 3.5% from a forecast of 2.6%. 

The reaction from both these data points was muted in the markets. The JPY was largely moved by risk sentiment and trade comments. 

The week ahead 

Above all, the focus for the JPY will be risk sentiment this week. Especially with the US-China trade war ceasefire. 

As a safe-haven currency, the JPY is very sensitive to changes in risk tones. Hence, we expect the JPY to be pressured as markets open on Monday. 

However, this is highly dependent on risk sentiment to remain positive. This means if risk tones change it would invalidate such a trade idea. 

In terms of data, the only release of note is Average Cash Earnings YY. The release is scheduled for Friday 7 December. 

Danske Bank explains that cash earnings play a significant role in inflation. If cash earnings slow it won’t be positive for inflation expectations. 

We expect risk sentiment to remain a key driver for the Yen this week. Especially following the Trump and Xi meeting over the weekend. 

Trade ideas 

The JPY might be setting up for a good selling opportunity this week. The JPY depreciates with positive risk sentiment. 

The markets should react positively to the trade war de-escalation. There should be pressure on the Yen if there is a risk-on sentiment. 

Also, keep an eye on Equities and Commodities. Usually, they are a good barometer of possible changes in risk tones. 

Markets are expecting Equities to open positive this week. Just remember risk sentiment can be fickle so manage your risk. 

Wrap Up 

Geopolitics should be a big driver at the start of the week. Above all make sure to evaluate market reactions after the trade was developments. 

In addition, there is also a busy week in terms of data. Watch out for the RBA and BOC rate decisions. 

Also, make sure to prepare for NFP on Friday as well. Moreover, don’t forget to keep track of the slew of Fed speakers. 

This will be the ideal chance for the Fed to make their recent communication clear.


Feel free to leave any questions or comments below. 

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