A big week for central banks

Bashar al-Assad's regime fell over the weekend, Korean lawmakers prepare another impeachment attempt against their President who narrowly avoided removal after briefly imposing martial law last week, and France remains without a new presidential nominee.  

As such, the US Dollar is stronger on safety demand and crude Oil is better bid on renewed political uncertainty in the Middle East. But the Syrian news will unlikely reverse the bearish oil trend. Although the Syrian uncertainty could temporarily hit their oil exports, the country exports less than 100K barrels per day, down from 600K in 2011. Therefore, developments in Syria would more likely than not bring more barrels to the market and add to the global supply in the coming months.

Data and central bank decisions

The latest economic data from China has failed to impress, as consumer deflation deepened last month. While the pace of deflation in producer prices slowed, it was not enough to draw conclusions about the effectiveness of China's recent stimulus measures.

Consequently, the data boosts the expectation that the Chinese government would announce more fiscal support this week when the officials meet at the Central Economic Work Conference. But given the government’s unwillingness to announce a massive fiscal stimulus package, the arm wrestle between the authorities—who speak of a big stimulus but fall short of naming a figure—and investors, who are determined to hear one, will continue. The CSI 300 is downbeat this Monday.

In the FX, the US dollar is better bid this morning, probably due to a certain appetite for safety in the middle of a global political jungle, but fundamentally, the Federal Reserve (Fed) news are soothing – and supportive of a softer US dollar if we filter out the safety inflows. Released last Friday, the US official jobs data sat near the sweetest possible spot for the Fed watchers. The NFP printed a strong 227K new nonfarm job additions last month, but was widely disregarded due to the disruptions from hurricanes and strikes of the month before. All eyes were on the unemployment number that came in slightly higher than expected. The data would be just perfect if the wages growth didn’t print a higher than expected number. The US dollar first fell than rebounded on the data but the Fed doves remained in a mood to bet for a Xmas rate cut from the Fed and buy more of the S&P500 and Nasdaq stocks. The US 2-year yield extended a decline, the S&P500 printed its 57th record high this week – meaning that the S&P500 printed a record high every four trading days so far this year – and Nasdaq 100 closed at a fresh record high as well. The Dow Jones continued to diverge negatively from its tech-heavy peers. The probability of a 25bp cut from the Fed in December shot up to 83% from around 70%.

This week’s CPI data will be the last piece of the puzzle before the Fed meets next week. The CPI number is expected to print a small uptick in November, but should not compromise a December Fed cut. January however will probably be a close call.

Elsewhere, the week will be packed with central bank decision. The European Central Bank (ECB), the Bank of Canada (BoC), the Reserve Bank of Australia (RBA) and the Swiss National Bank (SNB) will announce their latest policy verdict throughout this week and all – except the RBA – are expected to lower their rates. The BoC is expected to cut by 50bp while the SNB and the ECB are expected to announce a 25bp cut. Some investors are convinced that the ECB could announce more than a 25bp cut. Either it could go bigger with a 50bp cut, or cut by 25bp but shift their focus from inflation to economic growth. I believe that the second option is more plausible. If that’s the case, we should not see a significant selloff in the euro post-decision.