In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.

RBC Capital Markets

Week ahead: US December payrolls, and the equivalent data in Canada (see CAD), dominate a week which is otherwise quite light on data. RBC economists look for a notable downshift to 150K in US payrolls in December, following an outsized 266,000 print last month that was boosted markedly by returning GM employees. While employment growth has averaged 180,000 in the eleven months of 2019, there are some important undercurrents to consider that are likely to conspire to bring employment growth down significantly over the course of the next 12‐18 months. Our economists note, however, that labour supply is likely to slow sharply also, driven by a stalling in the rise in labour market reentry. So slower trend employment growth in 2020 should not be seen as a negative development.

Outside the US, CPI data are the highlight of the Eurozone releases and the AU retail sales report is potentially important. Political events still dominate the UK agenda, though this week’s Commons vote should be a formality (see GBP) and the Labour leadership election is unlikely to move GBP.

GBP: The Commons returns from the Christmas recess tomorrow and will spend three days debating the Brexit bill. The bill will include the clause that rules out any extension of the transition period beyond December 2020 and leaves out some of the earlier commitments on maintaining standards on workers’ rights. With the 80 seat majority secured in last month’s election, passage of the bill is little more than a formality and none of the potential amendments (many already tabled) will pass.

Today’s December services PMI is expected to be unrevised from the provisional reading. The provisional PMIs for January (out Jan 24) will be more interesting as they will shed some light on the potential for a rebound in activity early in 2020 as political uncertainty cleared following the election. Labour’s executive committee meets today to set a timetable for the election of a new leader. The final result is expected some time in March and Starmer is emerging as clear favourite (55% probability with the bookies ahead of second‐placed Long Bailey at 20%).

CAD: RBC economists expect a 10K increase in employment in December (Friday) after a 71.2K decline in November. This implicitly views the latter as a make‐up for earlier strength rather than necessitating an offset. Still, job gains remain elevated in 2019 (25.9K/month through 11 months) and wage growth in this report has been above 4% y/y for several months. The latter has been flattered by easy base effects that should not be the case going forward, though we are tracking the BoC’s broader wage‐common measure at a solid 3.1% in Q3. Despite the large employment decline, the biggest surprise in the November report was a 0.4pp rise in the unemployment rate to 5.9% (biggest increase in a decade). We see this partially retracing to 5.8% in December. November trade data are due tomorrow and BoC Governor Poloz speaks on Thursday.

AUD: November retail sales (Friday) are expected to be boosted by the increasing importance of sales around black Friday after consumer spending started Q4 on a very weak footing. Our economists expect of 0.5% m/m rise in sales, but note that this may well be given back in the December data.

EUR: Our economists expect core inflation to reverse November’s rise when the December data are released tomorrow. German November factory orders and IP are the other key releases this week (Wednesday and Thursday).

Danske Bank

Scandies and USD/JPY have taken quite a tumble in the past few days, as geopolitics and slightly worse than expected US ISM numbers took markets by surprise. Price action should not least be seen in light of momentum over the past months and the substantial fixed income rally at the end of last week (for USD/JPY). In a similar vein, we would expect notably ZAR, TRY and AUD to see some headwind in the coming days, whereas EUR/PLN, EUR/HUF and EUR/CZK will probably be less affected, as optimism in these crosses has been much less pronounced. Looking ahead 3-6M, we continue to hold the view that USD/JPY is moving higher and depending on how these new risks unfold, this may happen sooner rather than later. The data calendar is thin in Scandi space today, leaving both SEK and NOK in the hands of global risk appetite.

The December FOMC minutes released on Friday shed light on important issues facing the USD money market and EUR/USD FX forwards the coming months: (1) Fed could scale back active repo operations from the update of repo schedule on 14 January, (2) However, Fed expects to stay vigilant with respect to liquidity provision over the 15 April tax date, (3) Fed could adjust IOER rate and ON RRP rate higher to help push the Effective Fed Funds rate back in the middle of the target range (it is currently at 1.55% versus 1.625% mid-point) and (4) The rate of the foreign repo pool will be revised lower. All of this means the short-term USD rates and EUR/USD FX forwards could go some 5-6bp higher the coming months (Fed Funds futures are pricing 1-2bp hike in January), but the risk of a new round of stress around Q1 turn and April’s tax payment should be contained.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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