US non-farm payrolls came in at 227,000, slightly better than forecasts; Consumer Credit looks like it continues to expand, and Consumer Confidence hits an 8-month high. Conversely, inflation forecasts stand at a 5-year high year ahead. Yet investors are still convinced that the FED will ease rates on 19th December. This week, essential inflation data from the US, with both the core rates on a MoM and YoY basis, potentially showing no change. A slight uptick will send traders to the sideline as hopes for the cut will be dashed. Also, on the inflation front, today we saw inflation data from China that suggested the PBoC is managing a meltdown successfully. The MoM and YoY were considerably softer than expected, with YoY rate of 0.2% versus an expected 0.5%. The MoM data showed the pace of disinflation has picked up -0.6% vs an expected -0.2%, which does support a bullish picture for oil. OPEC+ concluded that it would keep production cuts in play until 2026 as the industry supply surplus indicates a potential for an emerging glut as peripheral economies to the US show “stickiness” in wanting to grow. In Australia, we had GDP data last week, which showed a small gain of 0.3%, less than the 0.4% expected. Australia would have been in a technical recession without the continuing growth in government spending, which can’t be all that good for equities, which remain close to record highs. Syria hopefully has a new government, with Russia offering asylum to the beleaguered ruler. It is interesting to see how Russia responds as a democratic Government will put in question the ownership of two crucial Russian Military bases that are pivotal to Russia’s involvement in Africa and the Mediterranean. 

But first to the US.  The U.S. labor market continues to demonstrate resilience, with non-farm payrolls rising by 227,000 in the most recent report, surpassing economists’ expectations. This growth highlights the underlying strength of the American economy, even as it faces headwinds from elevated inflation and slowing global demand. The robust jobs report aligns with expanding consumer credit, suggesting that households remain confident enough to borrow and spend. At the same time, consumer confidence has reached an 8-month high, further underscoring the optimism permeating the U.S. economy.

Despite these positive indicators, the shadow of inflation looms large. Forecasts for future inflation stand at a 5-year high, raising concerns about the Federal Reserve’s monetary policy trajectory. Interestingly, investors remain steadfast in their belief that the Fed will proceed with an interest rate cut on December 19th, betting that economic growth concerns will outweigh inflation risks. However, this outlook could be quickly upended by incoming inflation data.

This week’s inflation data is poised to be a critical determinant of the Fed’s next steps. The report will include both month-over-month (MoM) and year-over-year (YoY) core inflation rates, which are widely expected to show little to no change. However, even a slight uptick could send shockwaves through the market, forcing traders to revise their expectations for a rate cut.

If inflation remains steady or declines, it will reinforce the argument for easing monetary policy to support growth. Conversely, a surprise rise in inflation could dash hopes for a December rate cut, pushing the Fed toward a more cautious stance. This delicate balance underscores the importance of the upcoming data, which will likely set the tone for market sentiment heading into the year’s end.

On the topic of inflation.  China’s inflation data, released earlier this week, offered a glimmer of hope for its struggling economy. The People’s Bank of China (PBoC) appears to be managing the risk of economic meltdown effectively, as both MoM and YoY inflation figures came in softer than expected. The YoY inflation rate stood at just 0.2%, below the forecasted 0.5%, while the MoM figure showed a -0.6% decline, exceeding expectations of a -0.2% decrease.

These numbers suggest that China is successfully navigating a path toward disinflation, reducing the immediate risk of runaway inflation while supporting broader economic stability. The data also bodes well for global commodity markets, particularly oil, as lower inflation in China could boost consumer demand and industrial production.  

In the energy sector, OPEC+ concluded its latest meeting with a commitment to extend production cuts through 2026. This decision reflects the cartel’s cautious approach to managing supply amid concerns about a potential oversupply in the coming years. Peripheral economies outside the U.S. continue to show “stickiness” in their growth aspirations, which has implications for global energy demand… 

The production cuts are expected to lend support to oil prices, particularly as disinflationary trends in key markets like China provide a bullish backdrop. However, the challenge for OPEC+ will be maintaining cohesion among its members, particularly as geopolitical tensions and domestic economic pressures threaten to test the group’s unity. Although we see the potential for the crude market to pick up the fundamentals for the time being are telling us otherwise.

Australia narrowly avoided a technical recession last week, with GDP growth coming in at a modest 0.3% for the quarter, slightly below the expected 0.4%. The economy’s sluggish performance highlights its reliance on government spending, which has been the primary driver of growth amid weak private sector activity.

Without this fiscal support, Australia’s economy would likely have tipped into recession, raising questions about the sustainability of its growth model. Equities remain near record highs, but this disconnect between market performance and economic fundamentals could pose risks in the months ahead. Investors will be closely watching for signs of a broader recovery, particularly in sectors like housing and consumer spending, which have struggled under the weight of rising interest rates. (More on this in Trade of the week)

 Australia’s GDP v Government Spending. A telling sign.

Government Spending (Grey) - GDP % growth (Blue) - (Courtesy - Trading Economics)

In the United States, attention will be on inflation indicators Consumer Price Index, Producer Price Index and export and import prices. Also, central banks in the Euro Area, Australia, Canada, Brazil, and Switzerland will outline their monetary policy directions. Inflation figures from Mexico, Brazil, South Africa, Russia, and India will also be closely monitored. In China, consumer and producer inflation updates, trade data, and New Yuan Loans are awaited. Germany will report on its balance of trade and wholesale prices. In the United Kingdom, the focus is on October's GDP growth and industrial production. In Australia, investors will pay attention to labour reports and NAB business confidence. Finally, Japan will release the Tankan manufacturing index.

On the position front, we are still … out on …, … equity positions (ASX … and SP…). Wheat, we remain … but are still happy to … for a longer time. We have done well out of the gold and silver trades and remain with this trade. We are … AUD, which is not performing.  

Trade Focus:

AUDUSD

Fundamentals:

We remain uncomfortably … the ASX 200 but are happy to … onto positions as we expect some realistic price action to emerge. The broader challenges facing the Australian economy, such as slowing GDP growth, high inflation, and rising interest rates, ironically have seen the Australian equity markets hovering near …

Technical Analysis:

The technical picture looks more encouraging. Although a diverging market is not confirmed, momentum has turned and is pointing ... A break of … suggests a continuing trend ...

Support              …

Resistance         …

Momentum        …