WEEK AHEAD: A Festive Start To December


*Can forward volatility edge higher on a busy week?
*Will US NFP data continue to outperform and grow USD longs?
*Don't expect too many surprises from RBA and BoC



Volatility on the horizon

In our Week Ahead preview, we flag a busy calendar scheduled with key US data releases (global PMIs, NFPs) and several central bank meetings (RBA, BoC). Broader themes in US-China trade tensions, UK election politics and the OPEC Summit should also be mixed into the equation. This suggests volatility, which currently sits at or near all-time lows, could see more upside risk or at least come back into frame in a festive start to December. And therefore, as a consequence, equity markets might be hesitant to surge ahead unabated depending on the result. 
 

Major calendar risks

AEDT Event Product Impact Comments
11.30am
Mon 2/12
Oct. Building Approvals  AUD Med Est. 0.4%; Prior 7.6%. Potentially overshadowed by Tuesday's RBA meet but worth a watch.
11.30am
Mon
2/12
Q3 Company  Profits AUD Low Est. 2.0%; Prior 4.5%.
12.45pm
Mon
2/12
Nov. Caixin Mfg PMI CNH, AUD, NZD Med NBS PMI beat expectations. Markets will be looking for confirmation here that a soft landing narrative is taking place in China growth.
1am
Tue
3/12
ECB Lagarde speaks EUR, HUF,
PLN,
CZK
Med Is the ECB turning will remain the key question. Likely to reinforce themes in her last speech about "balanced policy mix".
2am
Tue
3/12
ISM Mfg PMI USD Med Est. 49.2; Prior 48.3.
2.30pm
Tue
3/12
RBA cash rate AUD High Market pricing suggests 91% likelihood of no change. Highly unlikely we see anything else.
11.30am
Wed
4/12
Q3 Real GDP AUD Med Est. 1.7%; Prior 1.4%. A miss here and expect rate cut pricing to strengthen and AUD to fall.
12.15am
Thu
5/12
Nov. ADP NFP USD Med Precursor to Sat's key NFP. Est. 140k; Prior 125k.
2am
Thu
5/12
BoC overnight rate CAD High BoC likely to stay on hold. We think Poloz maintains narrative that "monetary conditions are about right given the situation".
2am
Thu
5/12
Nov. ISM Non-mfg PMI USD High Est. 54.5; Prior 54.7. 
11.30am
Thu

5/12
Oct. Retail Sales AUD Med Est. 0.3%; Prior 0.2%. RBA to take stock of the evidence.
All day
Thu

5/12
OPEC meetings Crude High Markets will be looking for insight into whether OPEC+ will cut, and if so, at current or deeper levels.
12.30am
Sat

7/12
Employment CAD Med Est. 10k, Prior -1.8k. Tends to be a volatile series. BoC meeting takes precedent.
12.30am
Sat

7/12
Non-farm Payrolls,
Average Hourly Earnings,
Unemployment rate
USD High Est. 180k; Prior 128k.
Est. 3%; Prior 3%.
Est. 3.6%; Prior 3.6%.
Continued US data outperformance here sees US-RoW growth differentials widen and long convictions pile on.
 

G10 Implied volatility 

The below chart shows 1w implied volatility across major FX currencies. Essentially what we can see is that as of Friday last week, only CAD forward volatility (red) seems to step up ahead of the BoC rate announcement. AUD forward volatility (green) lacks any uptick likely the result of a widely expected hold come Tuesday. With US Non-farm payrolls due Saturday, we might have to wait until Tuesday for market pricing to reflect volatility from those scheduled risks. Overall, implied volatility remains at or near all-time lows.

2019_12_02-G10-Implied-vol.PNG
GBP (orange). AUD (green). NZD (blue). CAD (red). JPY (purple). EUR (yellow). Source: Eikon.
 



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