Opinions

Wednesday’s FOMC meeting will be the main focus this week amidst a somewhat sparse data docket. We expect the Fed to close out 2025 with a hawkish 25bps cut. The decision will not be unanimous and is likely to feature dissents in both a hawkish and dovish direction. This is likely to be the last cut under Powell’s leadership. We expect two quarterly rate cuts next year, at the June and September meetings under the new Fed chair. Our terminal rate forecast remains unchanged at 3.125%. The dot plot is likely to show even greater “tacit dissent,” with 8-9 officials likely to submit a 2025 dot of 3.875% (signalling they preferred no cut at this meeting). In US macro data this week. we have trade balance, JOLTs for Oct & Sep & Employment cost index for Q3CY25. In UST dated supply this week, we have $58 BN of 3 year notes on Monday, $39 BN of 10 year bonds on Tuesday & $22 BN of 30 year bonds on Thursday. Fed speak is light this week & there are only 2 Fed speakers on Friday post FOMC. In RoW events, we have BoC policy decision on Wednesday which is likely a status quo. Data since October support holding rates, with labor markets recovering and inflation near the top of the BoC’s target range of 1-3%. We believe the next BoC move is more likely to be a hike than a cut. We also have SNB policy decision on Thursday which is likely a status quo. SNB purchased CHF5.1bn of FX in Q2, following limited interventions in 2024, demonstrating that it remains willing to use this policy tool to curb disinflation.

We were earlier of the view that Dec FOMC might be a hold because of lack of data but seeing the New York Fed President Williams comment and current market pricing which Fed might not want to surprise, we accept the possibility of a cut of 25 bps. But we still believe this will be a hawkish 25 bps cut stressing that the inflation gap matters more than the unemployment gap based on financial conditions being “loose” because equities are high and credit spreads are tight. It would stress that neutral is above 3%, that policy is only “modestly” restrictive and that future moves depend on “incoming data” rather than the clear deterioration already visible in labor market readings and credit access. Markets would read that as one-and-done or, at best, a much shallower future path of easing until new leadership/personnel is established. Front-end yields would stay elevated in real terms; the dollar would rally and the risk premium on equities and credit would need to rise to compensate for the Fed being behind the curve on labor markets. We now see a Fed on hold for Q1CY26 and starting cuts once Fed Chair Powell’s tenure ends in May’26. This will also be aided by lower inflation in H2CY26. This will bring 2 more cuts of 25 bps each in H2CY26 bringing the terminal to 3-3.25% by end CY26. In US macro data, we have ISM services and manufacturing, ADP for Nov payrolls & Sept Core PCE data. There is no dated UST supply this week. There is no Fed speak scheduled this week (due to the customary black out period before FOMC) except Fed Chair Powell on 1st Dec which is likely a non-monetary speech. In RoW events, we have Eurozone HICP data due on Tuesday which is expected to come at 2.1% headline and 2.4% for core. Canadian labor data might come stronger for November considering falling trade policy uncertainty.

With the delayed September jobs report in the rearview mirror, market participants will have to digest several high-profile data releases on Tuesday and Wednesday before Thursday’s Thanksgiving holiday. The November employment report will be released on 16 December, along with the Establishment Survey portion of the October employment report. November CPI will be released on 18 December. In US macro data this week, September PPI and retail sales data will be the highlights. From FOMC point of view, it is a divided house currently. The October meeting minutes were hawkish, with a greater number of officials favoring a December pause. There seems to be 2 major points of contention: 1) the udnerlying trend of inflation excluding tariffs 2) the restrictiveness of the current policy stance. In US macro data last week, NFP came higher than any market estimates but unemployment rate inched higher due to higher labor force participation rate. But September’s strong NFP reading is likely more reliable than usual, due to a longer data collection period. The response rate for September was 80.2%, the highest since December 2019, likely reducing the risk of substantial revisions in the upcoming October/November report. In our view, Dec looks like a dovish hold purely due to absence of macro data. Multiple dissents are likely regardless of the outcome, but given the alignment of voters, it appears Powell could forge a larger consensus for a dovish hold. In dated USTs supply this week, we have $69bn of 2yr auction on Monday, $70bn of 5yr auction on Tuesday & $44bn of 7yr auction on Wednesday. In RoW events, UK budget will be closely watched on Wednesday for the assumed fiscal hole and efforts on tax increases. Our own view is total fiscal hole might be around 20 BN GBP with tax increases likely around 5-10 BN GBP. Incremental gilts supply should be 6BN GBP. This should augur well for BOE to cut rates by 25 bps each in Dec & April meetings. Canada has Q3 GDP data on Friday which might come a tad strong at .5%. Tokyo CPI on Friday might stay elevated but wont push BOJ for a 25 bps hike in it's 19th Dec meeting due to Takaichi's expansionary policies. We might soon see JPY testing 160 where we expect MoF to finally intervene.

This week will kick off a data deluge in the wake of Congress’ temporary funding deal last week which ended the record long 43-day federal government shutdown. The main event for this week will be Thursday’s employment report for September. As noted previously, we expect headline (+60k forecast vs. +22k previously) which should keep the unemployment rate unchanged at 4.3%. Average hourly earnings growth likely cooled to 0.2% m-o-m. On Oct & Nov US macro data, our base case is that the Fed will get the September employment report and the establishment survey portion of the October employment report before the December FOMC meeting, but the November report seems unlikely to come out prior to the Fed’s 10 December meeting. On the inflation side, September PPI and import prices (and potentially October PPI) will likely be released in time for the 10 December meeting, but November CPI, which was originally scheduled to come out the same day as the Fed’s rate decision, is unlikely to be available before the meeting. We have the crucial FOMC minutes of Oct meeting on Wednesday. We think that there are three topics dividing the Committee. a. Policymakers have different views on the balance of risks between labor markets and inflation. b. There is a disagreement on how restrictive monetary policy is. c. The implication of the lack of official data due to the government shutdown is important. We believe in absence of US economic data specifically the Nov and Oct NFP data, Oct & Nov CPI, Fed might be on a hold in it’s 10th Dec meeting. Recent Fed speak has been hawkish & it makes sense to drive slow in foggy conditions. Regarding future rate cuts in CY26, we still see 3 cuts of 25 bps each but timing is uncertain for now. Our base case is 25 bps cut each in Jan, March and June in CY26. This will bring the terminal rate to 3.15. In this week's auction of US dated treasuries, we have 16 BN USD supply of 20yr UST on Wednesday & 19 BN USD of 10 Year TIPS on Thursday. In US macro data, we have Univ of Michigan, existing home sales & initial jobless claims. In RoW macro data, we have Canadian Oct CPI on Monday which is expected to come at 2.1% with upside risks. We also have the crucial UK Oct CPI on Wednesday which is likely to show a softer reading of 3.5% on the headline CPI & 4.4% on service inflation. We see BOE cutting rates in Dec'25 and Apr'26. In Japan, we have Q3CY25 GDP data on Monday which is expected to come weak at 2% because of temporal factors. We also have Japanese CPI reading on Friday expected to come sticky at 3%. More important for the Bank of Japan, the core-core CPI, i.e. excluding fresh food and energy probably edged up to 3.1% from 3.0%, as companies adjusted prices at the start of the fiscal year’s second half. The data should strengthen the BOJ’s confidence that inflation is firm enough to justify further paring back stimulus. We expect the BOJ to raise rates by 25 basis points in December, though missing US data and political pressure from Prime Minister Sanae Takaichi’s pro-stimulus administration could push the move to January.

Market focus this week will be on Washington D.C. as Senate talks gather momentum for ending the US government shutdown. The Senate adjourned early Saturday evening, but is expected to reconvene on Sunday. With Thanksgiving approaching on 27th Nov, Trump along with Republicans & Democrats will be under pressure to end the longest shutdown in history. Our base case remains that the shutdown will end this week, but exact timing is highly uncertain. Assuming that the government opens on Monday, we can expect Sep NFP report by Friday. Oct NFP, Nov NFP & Oct CPI might not come before 10th Dec FOMC meet. Our estimate for Sep NFP is at 60k as we have detailed in our earlier report released on 27th Sep. For now, our view is that Dec meeting looks a hold because Fed won’t have data before it meets. We are bullish on S&P500 in short-term expecting a year-end rally due to reopening theme, SCOTUS likely reprieve on IEEPA tariffs and strong earnings. We are bearish on long end USTs now considering the SCOTUS outlook on IEEPA tariffs as well as an expected risk on going into the year end. In dated UST auction supply, we have 58 BN USD of 3yr USTs on Monday, 42 BN USD of 10yr USTs on Wednesday & 25 BN USD of 30yr USTS on Thursday. There is no major US macro data release this week due to US government shutdown. In European macro data, we have Sentix survey & Zew this week. In UK we have the labor wage data on Tuesday. China has a series of economic data points this week across credit, investments, retail sales & industrial production.

Though we have a few private sector data points this week, focus is likely to remain on Fed speak in the wake of Chair Powell’s messaging following last Wednesday’s FOMC meeting. We have a heavy Fed speaker calendar this week which will matter more than any macro data. Since the US government shutdown continues, we have only ISM manufacturing & ISM services data in this week. JOLTS is unlikely to come out due to shutdown. There is no auction supply of dated treasuries this week. On tariff front, we have the important hearing in US Supreme Court on 5th Nov on the legal validity of IEEPA. We believe there is a high probability of it being termed as illegal by the Supreme Court which will pull long end UST yields higher and DXY lower. In RoW events, we have the crucial BOE meet on 7th Nov where we see a 25 bps cut by 5-4 margin (against consensus & current market pricing of only 7 bps). The RBA meet on 4th Nov might see a status quo due to recent hot CPI nos. Canadian employment data is likely to be weaker on 7th Nov. In Eurozone, we now don't see ECB cutting by 25bps after going through last week's ECB meeting discussions. In Eurozone macro data, we have German industrial production & German factory orders this week.