• Dollar index touched briefly the psychological 100 level The dollar reached a 7 month high against a basket of currencies, underpinned by expectations that the Fed is on track to raise rates in December. With a December Fed rate hike priced around 74%, up from around 70% on Friday, the focus stays on the US data and on Fed speakers going into the meeting. As we continue to see improvement in the US fundamentals, the prospect for a rate hike increases and this could support the greenback further.
• US crude oil trades below USD 43 per barrel Benchmark West Texas Intermediate crude for January delivery and Brent crude oil moved higher on Monday after Saudi Arabia repeated pledge to work with OPEC and other producers towards oil price stability. However, the advance stayed limited as concerns about a global supply glut and signs of rising US stockpiles remained intact. Even though we had similar pledges before, the Saudis and other big OPEC producers have kept output high to maintain market share. As a result, I would prefer to see a real shift in policy at OPEC’s next meeting on December 4 to trust that the output will be indeed restrained. In such case, we could see oil prices moving higher.
• Today’s highlights: During the European day, from Germany, the Ifo survey for November is being released. The forecast is for the current assessment index to decline slightly, while the expectations index to tick up a bit. Both the ZEW indices have recovered as the effects of the Volkswagen scandal started to fade away and therefore, we may see a positive surprise in the Ifo indices as well. This could support EUR a bit. The German final GDP for Q3 confirmed the preliminary estimate and showed that the economy grew at a 0.3% qoq pace in Q3. The reaction in the markets was muted as we didn’t had any huge revision in the GDP figure.
• From the US, we get the 2nd estimate of the Q3 GDP. The forecast is for the growth rate to be revised up to +2.0% qoq from +1.5% qoq. Although this will still point to a slowdown compared to the astonishing print of 3.9% qoq in Q2, given the positive data coming out from the US, we still believe that the economic recovery remains on track. After all, these encouraging data are one of the main reasons the Fed is considering December as an appropriate time for a Fed fund rate hike. The 2nd estimate of the core PCE deflator for Q3, the Fed’s favorite inflation measure, is also due out. The forecast is for the 1.3% qoq growth rate of the first estimate to be confirmed. Additionally, the S & P/Case-Shiller house price index for September is expected to have slightly accelerated from the previous month, which in addition to the positive housing starts and building permits released last week, could signal further improvement in the US housing sector. Finally, the Conference Board consumer confidence index is expected to have increased slightly in November, following October’s moderate decline. This could suggest an improvement in the short-term US outlook and add to USD gains.
• We have three speakers on Tuesday’s agenda. ECB Governing Council members Carlos Costa and Francois Villeroy de Galhau speak, while from the RBA we have Governor Glenn Stevens.