Gold‘s most awaited event has come and gone and the result is that the Swiss voters overwhelmingly rejected the “Save our Swiss gold” initiative. The referendum, which would have forced the Swiss National Bank to hold some 20% of its reserves in gold was rejected by 77% of voters. The precious metal fell as much as 3.3% after the markets were opened. Even though the market was prepared for the “No” side to dominate as shown in polls ahead of the referendum, what came as more of a surprise was the huge gulf between the two sides. This marked the gold issue in Switzerland finished and showed weak appetite among the public for gold as a reserve asset. Now that the Swiss vote is out of the way, gold could weaken further. (see technical below).
Overnight, China’s manufacturing PMI declined in November suggesting that the economy is still losing momentum. Even though the unexpected interest rate cut in late November is yet to be seen in data, in order to maintain annual growth at around 7.5%, the Chinese authorities may need to introduce further stimulus measures to boost their economy.
Today’s activity: In Europe, we get the manufacturing PMI figures for November from several European countries, including the UK, and the final figure for the Eurozone as a whole. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. The UK manufacturing PMI is estimated to slightly decline to 53.0 from 53.2.UK’s mortgage approvals for October are also to be released.
From Canada, the RBC Manufacturing PMI for November is expected. This has only been published for three years and so the market doesn’t pay that much attention to it. No forecast is available.
In the US, the final Markit manufacturing PMI and the ISM manufacturing index both for November are also to be released.
We have one ECB and two Fed speakers on Monday’s agenda: ECB Governing Council member Carlos Costa, New York Fed President William Dudley and Fed Vice Chairman Stanley Fischer speak.
As for the rest of the week, the ECB policy meeting on Thursday and the Friday US employment report will be the focus. In addition, there are several other central bank meetings and data releases that will be closely watched.
On Tuesday, the Reserve Bank of Australia is universally expected to keep policy rates unchanged. Last time, the Bank stopped saying that the exchange rate “remains high by historical standards” and just said that it “remains above most estimates of its fundamental value.” The question is whether the 2% depreciation since their last meeting will cause them to tone down their comments further.
On Wednesday, the final service-sector PMIs for the countries we got the manufacturing figures on Monday are coming out. From Australia we get the Q3 GDP. In the US, we have the ADP employment report as usual two days ahead of the NFP release. The ADP report is expected to show that the number of jobs gained in November decreased a touch from October. The Bank of Canada is expected to keep its benchmark interest rate unchanged. Even though Canadian inflation is rising and the recent batch of data suggest that the economy has strong momentum, declining oil prices are likely to keep BoC on hold for longer than it would otherwise, leaving CAD vulnerable.
On Thursday is the much-awaited ECB meeting. Last week, ECB President Draghi stressed the need to bring inflation up to target without delay. But following the decline in inflation in November, the ECB is facing renewed pressure to fight the threat of deflation.
In addition to the ECB, Bank of England meets to decide on its policy rate. The BoE is unlikely to change policy and therefore the impact on the market as usual should be minimal. The minutes of the meeting however should make interesting reading when they are released on 17th of December.
Finally on Friday, the major event will be the US non-farm payrolls for November. The market consensus is for an increase in payrolls of 225k, up from the unexpectedly low increase of 214k in October. At the same time the unemployment rate is forecast to remain unchanged at 5.8%, while average hourly earnings are expected to accelerate on a yoy basis. Such figures would be consistent with the FOMC view of a gradually improving labor market and could push up Fed funds rate expectations, thereby supporting the dollar.
Canada’s unemployment rate for November is also coming out. The net change in employment is no longer following the switching pattern it did in the recent months.