The Fed minutes recognises that the risk of a US recession next year is almost ‘as likely as the base case’. This revelation sent the USD sharply lower on Wednesday and will put acute focus on the US PCE print next week. The week started rather subdued with the lack of any major catalyst expected and going forward the main market focus remains on whether the Fed will pivot or not and, if so, when? In other news, the RBNZ stepped up its fight against inflation significantly raising its terminal rate projections.

Other key events from the past week:

  • USD: US PMIs, Nov 23: US PMIs for services and manufacturing both printed below the market’s minimum expectations showing weakening US sentiment. Will it change the Fed’s mind? Unlikely, but it moved the USD quickly lower.
  • NZD: RBNZ hikes by 75bps, Nov 24: The RBNZ rate hike was as expected, but the committee also discussed a 100bps hike and raising the terminal rate to 5.5% for Q3 2023. This was a decidedly more hawkish tilt from the RBNZ.
  • USD: FOMC Minutes, Nov 24: US Markets paused for US Thanksgiving celebrations on Thursday, but the Wednesday minutes showed the Fed anticipate a US recession next year which led to further USD selling and XAUUSD buying.

Key events for the coming week:

  • USD: Fed’s preferred inflation measure, Dec 01: At 13:30 UK time the core PCE print is released with expectations of a 4.9% y/y print. However, if we see a larger than expected print watch out for potentially sharp falls in US stocks.
  • Stronger seasonals approach for copper: Could improving sentiment for China support copper prices? 
  • S&P500: US Labour data, Dec 02: Will the US Non-Farm Payrolls start to show significant signs of a slowdown in the US jobs market? If the market sees a very disappointing number then watch out for potential further USD weakness.

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