News & analysis

Tweaks to monetary policy have been the theme of what was a quiet week for markets. Both the Fed and European Central Bank minutes alluded to changes in their monetary policy stance at the upcoming meetings, with the ECB likely to alter PEPP and the Fed likely to attach forward guidance to its QE programme while extending the average maturity of its purchases. Meanwhile, in Sweden, the Riksbank embarked on more QE, adding SEK200bn to its overall stock of purchases for end-2021. The central bank theme continues this week with the Reserve Bank of Australia and National Bank of Poland.

Outside of central banks, the story of dollar weakness in markets hasn’t abated – positive economic data has been outweighed by domestic virus concerns and the continuation of risk-on vaccine pricing outside of the dollar.

Questions remain over how much further the dollar decline can go this year as the DXY index approaches its two-year low recorded on September 1st, adding more relevance to the incoming virus data and Friday’s Nonfarm Payroll data.


Monday 30th November

A fresh batch of preliminary inflation data for Eurozone economies in November, with Consumer Price Indices for Germany and Spain released at 08:00 GMT and Italian´s following at 10:00. EU inflation data will ensue the day after. All eyes will be cast on core German inflation, which might have sunk for the first time into negative territory. While soft inflation in the area may be driven by temporary factors such as low energy prices and sales tax cuts, a weak labour market underpins the persistence of ultra-low inflation looking ahead. This is of particular interest for investors as the next ECB policy decision and economic projections fast approach the week after. In Asia, Japanese industrial data will top the calendar, with median expectations pointing at 2.5% MoM growth in October. Strong exports demand from the US, Europe and China likely supported the Japanese industrial recovery for a fifth month in a row, although the sector may have lost steam from previous monthly performances in the face of surging Covid infections. In Canada, the release of the fall budget is scheduled at some point in the day, depicting the true cost of extensive emergency measures far beyond the 16% deficit burden on GDP projected in July. The focus will be on debt consolidation and whether more long-term investment projects are foreseen over the coming year, but a detailed preview can be found below in this document.

Tuesday 1st December

The November outlook for the manufacturing sector will be the theme of the day, with Chinese Caixin PMI and US ISM published at 01:45 and 15:00 GMT respectively. Manufacturing is poised to remain strong despite new waves of coronavirus infections worldwide. China´s official PMI is forecast to expand to 51.9 from 51.4 in October, reflecting the input of more working days and speedy sales towards the end of the year. In the US, where optimism has featured in recent ISM reports as factories adapt to the pandemic operating environment, the November reading may slow down slightly as some productions are hit by new curbs. Inventory growth, however, should offset most of the impact. The Reserve Bank of Australia will announce its latest rate decision along with a statement at 03:30 GMT. November’s meeting saw a substantial loosening in policy from the RBA, which announced a new, $100bn AUD quantitative easing program targeting longer-dated bonds, while also cutting rates. Since then, Australia’s domestic coronavirus situation has remained promising, while the global outlook has also improved due to positive vaccine news. December’s meeting is therefore likely to be a hold from the central bank. Further easing from the RBA is unlikely to be discussed, but remains at least plausible in the event of downside risks materializing. Given the intensifying public and political focus on house prices in New Zealand, the RBA may place some emphasis on the domestic Australian market.

Wednesday 2nd December

Australia will continue in focus as Q3 GDP growth is reported at 00:30, likely recording a moderate expansion of 1.3% QoQ despite the virus surge and the subsequent lockdown in Melbourne. The Australian sequential expansion in the third quarter will put an end to the country´s first technical recession since 1991, although a full recovery to pre-pandemic levels is not expected until 2022. Further easing of containment measures and a recovery in high-frequency data suggests an acceleration in GDP growth towards the end of the year. A strong growth differential compared to other major economies outlines our case for a bullish stance on the aussie dollar. Starting the European session, at 08:00 GMT, the National Bank of Poland will announce its latest policy decision. The most recent commentary from members of the Monetary Policy Council shows one clear outcome: the space for another rate cut is small. Most members see stabilisation of interest rates at the current level for a time being as the optimal scenario for the Polish economy. The NBP’s quantitative easing programme is large compared to other major EM central banks. However, the risks of a national lockdown mean that further asset purchases cannot be ruled out entirely. On Thursday, Prime Minister Mateusz Morwiecki announced that the number of infections began to fall for the first time in two months, but at the same time, Poland reported a record number of cases and deaths on Tuesday. Additionally, political risks are arising from the Hungarian-Polish veto on the EU Budget and recovery fund, and the domestic protests around the near-total ban on abortion. The uncertainty around these political risks in Poland may make any adjustments to the QE programme in the coming meeting premature, but markets should still watch for signs on any stimulus in the meetings thereafter. For now, not much action is expected from this NPB meeting.


Open Market Operations (PLN million)

Thursday 3rd December

Emerging markets will take front page, with Turkey and Brazil in the spotlight. November CPI for Turkey, released at 07:00 GMT, will be heavily scrutinised as a gauge of the dampening effects of derailed FX markets over the last months. Headline inflation is expected to have risen up to 12.7% QoQ in November from 11.9% in October and 10.9% in April. Inflation is set to remain below the main policy rate however, after the newly appointed CBRT governor hiked the repo rate to 15%. With an orderly monetary policy regime re-established in Turkey, real interest yields return to positive territory, but markets have yet to assess the credibility of the new regime and its ultimate impact on the Turkish lira. Later in the day, Brazil will see the release of Q3 GDP data at noon and Purchasing Manager Indices at 13:00 GMT. The Brazilian economy is expected to rebound at an 8.6% QoQ rate, after a double dip recession in the first half of the year. A strong performance in manufacturing should underpin the sustained advance of the Composite PMI in November, while the services sector gradually firms into expansionary territory. Upwards price pressures arising from food don’t seem to be isolated, as higher demand in some services is warning of a rapid buil-up in headline inflation too. The data will be key in assessing whether the BCB will need to take action the week after in its policy meeting.

Friday 4th December

Non-Farm Payrolls are back in the center stage at 13:30 GMT. Non-Farm Payrolls are usually the stand-out feature of any economic data calendar, and have taken on additional significance given the uncertainty surrounding the US labour market in light of the current surge of covid-19 infections. Recent initial jobless claims data has been sending a clear warning about the labour market, with this week’s print rising to 778,000 from 748,000 despite forecasters’ expectations for a decrease. The increase in claims means that re-hiring must do even more work to post an encouraging net non-farms figure. Data from Homebase further confirms the message that the labour market is deteriorating due to the current peak in coronavirus cases in the US and according changes in restrictions and consumer behavior. Last month’s 638,000 gain was the third consecutive month of slower growth, and this trend looks likely to continue, although the blockbuster November Purchasing Managers Indices from Markit do suggest that an upside surprise is at least possible. Competing with NFP attention, CAD labour market data will also be released at 13:30. The net employment figure may slip into red numbers in November as lockdown measures weigh on the services sector. Earlier in the day, the policy statement from the Reserve Bank of India at 06:15 GMT should pass broadly unnoticed as the repo rate stays put. However, investors will be seeking clues on further RBI´s steps, as the bank is expected to resume its easing cycle in Q1.




After what was a light economic data calendar for the loonie this week, next week’s calendar looks to provide enough action to meet the market’s appetite for both weeks combined. The announcement that the newly appointed Finance Minister Chrystia Freeland, who is also acting Vice Prime Minister, is set to deliver the fall budget on November 30th means the theme of active fiscal policy and concerns over debt consolidation will kickstart the loonie’s week. On Tuesday, September’s GDP data is expected to show another bumper month of growth as the economy enjoys its last full month prior to lockdown measures being implemented in Quebec and subsequently across other provinces. Canada’s November manufacturing PMI data is released shortly afterwards, but with the sector still steadily growing and the lockdown measures posing only a limited impact, the data point is unlikely to distract the loonie from its trend going into the release. Finally, the week is wrapped up with November’s labour market data, which may print flat as the service sector suffers another blow in the shape of lockdown measures. All of this data comes at a time when the loonie is testing the 1.30 level on the back of broad USD weakness, while the short-term economic outlook faces increasing challenges with the domestic Covid-19 situation. However, announcements of active and targeted fiscal policy, a strong labour market reading and further positive surprises to lagged GDP data may give currency traders the green light to trade a stronger loonie in the run-up to the Bank of Canada’s meeting on December 9th.


Back in July, Chrystia Freeland’s predecessor, Bill Morneau, deflected calls for the government to drop a fiscal anchor given the fluid nature of the economic environment. Instead, the Canadian government followed through on its commitment to take on the debt of the pandemic instead of the Canadian household, without eluding to any near-term plans for debt consolidation. The government’s extended commitment to supporting the economy has predominantly taken the form of extending the Canadian Economic Wage Subsidy programme until June 2021 and fixing holes in its employment insurance programme to cover those that were previously protected under the Canadian Economic Response Benefit scheme.  The main way of fixing the holes such that there was a smooth transition once CERB expired, the government created the Canada Recovery Benefit programme. Under the CRB, eligible workers can apply for C$500 per week for up to 26 weeks, covering those not eligible for EI. The CRB scheme is also set to last until October 2021.

All of these added expenses are set to appear in both the 2020 and 2021 fiscal projections. The Bank of Canada’s latest QE recalibration was likely in anticipation of another bumper deficit set to be recorded in 2021. By reducing the pace of purchases and recalibrating the average maturity to target more longer-dated parts of the yield curve, the BoC gave its asset purchase programme more longevity and, therefore, optionality heading into 2021 should issuance continue at a rapid pace. While vaccine optimism will reduce the size of the 2021 budget deficit from the post-war records printed this year, emergency spending will persist to some degree while revenues will remain squeezed. Political pressure from the Conservatives will be a given should Freeland avoid any commentary on fiscal consolidation. However, pressure from the opposition will pose less of a concern for markets given the solid working majority the minority Liberal government has found in recent months. Muted political risks does not mean the event may pass without problems though. The market may also share concerns over the lack of consolidation in the government’s fiscal plans, especially after comments from Freeland and Trudeau back in September around the need for wide-sweeping and active fiscal stimulus. That being said, it is unlikely that the details will have been ironed out between provincial governments and the federal government for the fall budget to incorporate the promises outlined in the throne speech in October.


Canada’s estimated fiscal deficit outstrips G10 peers, but discussions of debt consolidation will be needed in the coming quarters

Source: Goldman Sachs



The main problem with GDP data is its timeliness. This has been thrown into the limelight with the outbreak of the pandemic as economic outlooks can be altered substantially in the two months needed to release the official GDP data. This is relevant with Canada’s GDP data for September, which is expected to show the last month of recovery for the economy before lockdown measures began to be implemented. Markets have favoured analysing more timely data points in this environment, but it doesn’t necessarily mean the old school GDP data is completely redundant. There still remains much uncertainty around the path of the economic recoveries. In Canada, the summer recovery for example outstripped all economists expectations – which were derived in part by analysing more timely data points. In this light, September’s GDP data still holds some relevance, and may mark the last month of significant MoM growth in Canada’s economy for 2020. The September data is likely to receive a boost from the fact that lockdown measures in Quebec were announced ahead of time, which may have released a swathe of last minute discretionary spending. This effect likely outweighs the juxtaposing effect of a rise in savings due to increased uncertainty over the future economic climate. In this light, a positive surprise to the GDP reading could provide the loonie with enough stimulus to continue trading below the 1.30 level next week.


We expect to see a continued slowdown in Canada’s labour market recovery, with net employment potentially slipping into negative territory for November. After the economy added 78,000 jobs in October despite lockdown measures implemented in Ontario and Quebec, further growth restrictive policies have been rolled out across Canadian provinces. Additionally, measures in Ontario’s hotspots were tightened, putting further pressure on employment in the high contact service sector. This is best reflected in the contraction of restaurant bookings, which has only gained pace as the month progresses. However, the early timing of the survey may mean that November’s labour market report posts a positive net employment number, but this only solidifies our view that December will see a deterioration in Canada’s employment metrics.


OpenTable restaurant bookings plummet as Covid-19 restrictions bite, weighing on the labour market recovery


Source: OpenTable


Ranko Berich, Head of Market Analysis
Simon Harvey, FX Market Analyst
Olivia Alverez Mendez, FX Market Analyst
Ima Sammani, FX Market Analyst



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