The Week Ahead: Fed minutes; flash PMIs, Thanks Giving Holidays.
The key scheduled economic event this week is Wednesday’s publication of minutes from the US Federal Reserve’s November meeting. Also coming up are the latest flash PMI readings from the UK, France and Germany. Meanwhile, in a subdued week for company earnings as US markets observe Thanksgiving on Thursday.
OUR TOP THREE EVENTS FOR 21-25 NOVEMBER:
Monday-UK flash PMIs (November)
In October the UK’s manufacturing purchasing managers’ index (PMI) slid to a reading of 46.2, its lowest level since May 2020. The index has been below 50 points, signalling contraction, for the last three months. November is unlikely to bring much improvement after chancellor Jeremy Hunt raised taxes on business and workers in his Autumn Statement. Meanwhile, the country’s services PMI also slipped in to contraction territory last month with a reading of 48.8 as higher energy prices constrained spending.
France, Germany flash PMIs (November)
The most recent round of French and German PMI readings were a mixed bag. France’s services activity retained a degree of resilience in October with a PMI reading of 51.7, with the sector buoyed by the French government’s energy subsidy for households. France’s manufacturing PMI dropped to 47.2 last month, partly because French businesses are not covered by the subsidy.
Meanwhile, Germany’s services PMI was 46.5 in October, the fourth successive reading in contraction territory, while its manufacturing PMI fell to 45.1 from 47.8 in September. November is expected to deliver another month of contraction for France and Germany’s manufacturing sectors.
Wednesday – Fed minutes
At its 1-2 November meeting the US Federal Reserve raised interest rates as expected by 0.75 percentage points for the fourth time in a row. The increase lifted the federal funds rate to a target range of 3.75% to 4%.
Markets initially welcomed suggestions that the Fed was aware of the need to slow the pace of rate hikes going forward. However, the post-meeting press conference and Q&A with Fed chair Jay Powell sought to manage expectations. Powell pushed back hard against the idea that the Fed was leaning towards a dovish pivot. While he acknowledged that a slowdown in the size of rate rises was likely, he also asserted that, to get inflation back down to the Fed’s 2% target, interest rates would probably need to go much higher than the 4.5% terminal rate that markets had priced in.
Yields shot higher after the press conference, but fell below pre-Fed meeting levels after the announcement on 10 November that US consumer prices grew a cooler-than-expected 7.7% in the year to October.
Some Fed members appear to be leaning in to the idea that subsequent rate hikes in December and early next year are likely to be smaller than recent 0.75-point increases. The latest set of meeting minutes could shed light on the extent to which the Fed is becoming concerned about “lags” in monetary policy and their impact on the economy. While Powell may be keen to limit the scale of stock market advances, it will be interesting to find out how many of his colleagues share his views.
With the Thanks Giving holidays on Thursday, expect to see low volumes and subdued trade this week as traders square there books ahead of the long weekend in the US. Although, lower volumes can exacerbate volatility and create more opportunities. I’d look at crypto markets this week as the best place to advantage of high beta trades as the asset class continues to deal with the fall out from the FTX bankruptcy and resulting contagion. Expect aggressive two way
trade and keep time frames relatively short with scalping and short term swing trades being preferable strategies.
