Ahead Today
G3: US Non-Farm Payrolls, US Retail Sales
Asia: HSBC India PMI Composite
Market Highlights
The S&P 500 slipped by -0.16% overnight to 6,816.51, while Treasuries were mixed as the market awaited key US jobs data coming out later today. The absence of October’s unemployment rate and CPI has thus far removed critical context for assessing labor market momentum and inflation trends. While October nonfarm payrolls will be released with November's figures, we will only get a single report for November for the unemployment rate (which comes from the household survey), with the distortion from the departure of 150,000 federal employee who took deferred buyouts also complicating the underlying health of the labour market. For the Fed, this means navigating policy decisions with incomplete visibility. Powell’s recent emphasis on labor market weakness as a driver for rate cuts makes next week’s NFP release is as such pivotal. If November payrolls disappoint and unemployment ticks higher, it reinforces the dovish tilt and could accelerate dollar selling into year-end. Issues with data quality is by no means confined to payrolls, with collection of data for November CPI also somewhat constrained. Markets should brace for volatility in rates and FX as traders recalibrate expectations based on imperfect data. We should expect continued sensitivity to any labour market surprises at the forefront of policymaker concerns.
China issued a 11-point policy package to boost consumer spending after yesterday's disappointing retail sales release (1.3% Actual vs 2.9% Est.). The plan aims to boost household expansion by expanding access to credit and promote new forms of consumption - Channeling consumer lending and credit towards areas like green, health, digital, and "AI Plus" Consumption and encouraging local government to use digital yuan "red packets" to increase consumption effectiveness. President Xi is pushing to continue transforming the economy and shift towards domestic demand, and it is likely that we will get more details on policy support next year, with government focus shifting towards service-sector spending rather than big-ticket goods. On the property side of things, China Vanke said UOB agreed to extend an existing HK$1.05billion ($135million) guaranteed loan to its Intense Sunshine unit for another year.
Meanwhile, India released its trade numbers for November, which showed a meaningful narrowing in the trade deficit to US$24.5bn from US$41.6bn the previous month. The details were quite impressive in the context of the 50% tariffs that India has right now, with exports both to the US and outside the US rising, and overall exports rising more than 19%yoy. Of course, some of this is helped by existing electronics exemptions with both electronics and machinery exports doing well, but the broader point about resilience in India’s exports at least so far still stands. On the import side, we saw a sharp decline in gold imports but with underlying imports still holding up due to the lagged impact of GST rate cuts. Meanwhile, services exports were still quite robust at 11%yoy. These better numbers are also occurring in the broader context of USD/INR rising sharply above the 90 levels in November, and raises questions about the underlying flow weighing on FX. We think it has partly to do with rising FDI repatriation, and driven by strong IPO flows with existing investors taking profit on their investments. The path of least resistance is still for USD/INR to rise from here given uncertainty around tariffs, but we are hesitant to chase USD/INR higher at these elevated levels.