• Fed Chair Yellen takes center stage Fed Chair Janet Yellen is scheduled to deliver two important speeches this week. Today, before the Economic club of Washington, she is expected to address the pace of rate increases at which policy will proceed after a possible December liftoff. The following day, Fed’s Yellen is scheduled to testify before Congress’s Joint Economic Committee, where she will deliver a statement and answer questions. Even though she may leave expectations of the rate increase in place, the focus will shift on the pace of the hikes that will follow. Chair Yellen may also address how the policy divergence against other central banks may impact the dollar and how the Fed will manage this outcome. In particular, we expect her to comment on how a possible strengthening of USD, as a result of a rate hike, will hurt US inflation and exports, and what measures the Fed will take to counterbalance this.
• Overnight, the Australian GDP data for Q3 were released. Despite the country’s biggest trading partner, China, being in a slowdown, the Australian GDP managed to beat expectations for Q3. Exports were once again the main growth tool. However, with falling commodity prices, we could see a softer growth print in the upcoming months. The strong GDP could generate some further support for AUD in the near term, but we would sound a note of caution in the medium term, especially against USD.
• Today’s highlights: During the European day, the main event will be the Bank of Canada monetary policy meeting. At their last meeting, Bank officials decided to keep the benchmark rate unchanged as was widely expected, but in the statement accompanying the decision, they warned that lower prices for oil and other commodities will weigh more than expected on Canada’s economy. This has led to a modest downward revision to the Bank’s growth forecast for 2016 and 2017. Having in mind that oil prices have continued trading lower since their last meeting and the disappointing GDP data on Tuesday, I would expect the Bank to lower rates in the foreseeable future to support the economy, if not at this meeting. I expect them to maintain their dovish stance and to repeat that the “the past depreciation of CAD is roughly offsetting disinflationary pressures from economic slack, which has increased this year.” This could add selling pressure to the loonie.
• From Eurozone, the bloc’s preliminary CPI for November is due to be released. Expectations are for the Eurozone inflation to have accelerated from October. Given the encouraging German CPI data on Monday, there is a possibility for strong data here as well. Although this could benefit the common currency, the market reaction could stay muted as investors will most likely remain focused on the ECB meeting the following day. Eurozone’s PPI for October is also coming out.
• In the UK, we get the UK’s construction PMI for November. The figure is expected to have declined to 58.2 from 58.8 in October. Even though this is a moderate decline, given Tuesday’s disappointing manufacturing PMI data, we could see another weak reading. The slowdown in Q3 GDP was mainly attributed to a shrinking of the manufacturing and construction sectors, therefore the disappointment in the manufacturing PMI alongside a weak construction index could add to evidence that the the two sectors still weigh on Q4 growth. This could put the GBP under renewed selling interest.
• From the US, we get the ADP employment report for November, as usual two days ahead of the NFP release. The ADP report is expected to show that the private sector gained 190k jobs, more than it did in the previous month, when the print hit 182k. Although this would still be short of the crucial 200k level, Fed officials have stated recently that now that the labor market is improving, a below 200k reading could still warrant a rate hike. The final Unit Labour Costs Index for Q3 is also coming out and expectations are for the index to have slowed to +1.1% qoq, from its preliminary reading of +1.4% qoq. Although this indicator is usually not a major market mover, we will watch it closely going into the FOMC meeting, given the Fed’s emphasis on the employment data. Also, the Fed releases the Beige Book, which will give the FOMC anecdotal information about the US economy ahead of their policy meeting.
• We have five speakers on Wednesday’s agenda. Atlanta Fed President Dennis Lockhart, Fed Board Governor Daniel Tarullo, San Francisco Fed President John Williams and Fed Chair Janet Yellen who will deliver two speeches during the day. First, she speaks before the National College Fed Challenge Finals, and then she speaks before the Economic club of Washington. I believe that the latter speech will gain more attention, especially if she reiterates that the Fed could raise rates at the upcoming policy meeting.