8 min readWeekly recap:
US major stock indices finished the first week of December higher, adding to strong gains the previous week, while the USD fell for a second straight week amid rising expectations of an interest rate cut from the Federal Reserve at its December meeting.
The tech-heavy Nasdaq led the major indices higher, rising 0.9%, while the S&P 500 and the Dow Jones lagged but still posted modest weekly gains of 0.3% and 0.5%, respectively.
On the data front, ADP payrolls were significantly weaker than expected, falling by -32,000, the sharpest decline in 18 months. Challenger job cuts showed that US employers announced 71,000 job cuts in November, the most for the month since 2022, bringing the year-to-date total to 1.17 million, the highest since 2020.
Elsewhere, ISM manufacturing PMI fell to 48.2, down from 48.7. On the other hand, the services activity expanded at a slightly faster pace, rising to 52.6 from 52.4. Although the prices paid index dropped to 65.4, the lowest level since April.
September Core PCE, the Federal Reserve’s preferred gauge of inflation, rose 2.8% YoY, down from 2.9%. The original release was delayed due to the government shutdown.
RBA rate decision (Tuesday)
The RBA is expected to leave interest rates unchanged at 3.6% in its final rate decision of the year. The Australian central bank has cut the cash rate three times this year, but with inflation running hotter than expected, there is also a risk that the next move could be a hike. Data from the Australian Bureau of Statistics showed that consumer price inflation jumped 3.8% in the year to October, higher than expected and well ahead of the top end of the central bank’s 2-3% target.
Q3 growth was also stronger than expected, adding to a picture of solid demand. The Market is starting to consider whether the next move from the RBA will be a rate hike in 2026. A hawkish-sounding RBA could boost AUD/USD.
FOMC rate decision (Wednesday)
The market is increasingly confident that the Federal Reserve will deliver a 25-basis-point interest rate cut on December 11, marking a third straight rate reduction. Expectations have swung wildly in the build-up to this week’s FOMC meeting after Federal Reserve chair Jerome Powell suggested that a rate reduction in December was not a foregone conclusion, far from it, and the minutes to the decision showed many members were leaning away from a December cut, given the lack of official data.
On 19 November, the market was pricing in just 7 basis points worth of cuts in the December meeting. However, weak jobs data have raised some concerns among policymakers, with Governor Chris Waller and NY president John Williams favouring a rate cut. That said, inflation is still sticky. US Core PCE is still above the Fed’s 2% target at 2.8%. The market is pricing in an 87% chance of a rate cut. Attention will be on Fed Chair Powell’s press conference and the summary of projections, with resh growth, inflation, and rate expectations.
In the September projections, the Fed pointed to a median forecast of 3.4% for mid-year 2026, which would be one more cut after this week’s. If the Fed holds that projection, it could give the USD a boost and pull stocks and Gold lower. The market is pricing in 2 more rate cuts and a 50% chance of a third. Meanwhile, a dovish Fed could give Gold and stocks a boost while weighing on the USD. The Fed meeting could be a deciding factor as to whether there is a Santa Rally this year.
The BOC rate decision (Wednesday)
The BoC is expected to leave the terminal rate unchanged at 2.25%. Since the last meeting in October, views and policy direction have changed little. Data showed jobs and inflation were hotter than expected, as they were in September, paving the way for the BoC to pause rate cuts and await the impact of the recent easing. The BoC pointed to a hold in its latest statement. Growth since the October meeting has likely been welcomed by the BoC, with September GDP in line with forecasts and Q3 GDP above projections.
Money markets are pricing in a hold and looking to 2026, the market has shifted hawkish, with just 15 basis points of rate hikes now priced in. A hawkish-sounding BoC could boost the loonie and pull USD/CAD lower.
Chinese inflation (Wednesday)
In the previous report, CPI rose 0.2% year on year in October, with the monthly report also showing a 0.2% gain. However, PPI was -2.1%. The October release showed factory gate deflation easing and consumer prices turning positive for the first time in three months. Expectations are for this trend to continue with CPI rising 0.9% year on year in November amid fading food price declines. The uptick of CPI inflation to an almost three-year high would be notable, but it would not be a threat that would force the PBoC to tighten policy.
The Chinese central bank last month left its one-year lending rate unchanged at 3.45%, signaling a preference for stability. This environment of low but rising inflation and steady policy could support stocks such as the Hang Seng and the yuan.
SNB meeting (Thursday)
After cutting rates by 175 basis points since March 2024, the SNB has shifted to preserving policy. Swiss inflation came in cooler than expected, falling to 0% in November. However, the SNB is unlikely to respond by cutting interest rates, and it is likely to keep rates unchanged through 2026. A reintroduction of negative rates faces a very high hurdle. Still, the Swiss National Bank would be willing to embrace negative rates should they become necessary, according to the institution’s president. Still, a strong Swiss currency remains a wild card. It rose to a decade high against the euro in the wake of a recent trade deal between Switzerland and the US.
However, for now, the SNB appears prepared to live with the stronger currency, instead relying on foreign exchange interventions. A dovish-sounding SNB could lift USD/CHF.
UK GDP (Friday)
UK GDP is expected to pick up to 0.1% MoM, up from a contraction of -0.1% in September. The increase is unlikely to have much bearing on the Bank of England ahead of the December rate decision. The recent inflation prints have come in cooler than expected, and growth forecasts have been downgraded, cementing a December rate cut. October’s PMI pointed to sluggish growth at around 0.1% with firms cautious ahead of the Chancellor’s November budget.
The growth outlook will become a greater focus next year as the Bank of England approaches its terminal rate. Stronger-than-forecast GDP may provide a slight boost to GBP/USD, but any gains could be limited by the BoE decision next week.
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