25 Nov 2024: Trump's aggressive stance on dollar dominance (threatening tariffs against BRICS and Mexico/Canada) and the Fed's careful balance of inflation concerns. Meanwhile, gold slips despite geopolitical tensions, and oil markets await OPEC+'s delayed meeting amid Chinese demand concerns. Will Trump's currency protectionism help or hurt the dollar's global status?

Monday:

• At 08:30 GMT, Australia Retail Sales data for October will be released.

• At 09:45 GMT, China Caixin Manufacturing PMI for November will be published.

• At 23:00 GMT, the US ISM Manufacturing PMI for November will be announced.

• At 23:00 GMT, the US ISM Manufacturing Employment Index for November will be released.

Tuesday:

• At 23:00 GMT, US JOLTS Job Openings data for October will be reported.

Wednesday:

• At 06:00 GMT, the Australia Judo Bank Composite PMI for November will be released.

• At 08:30 GMT, Australia Gross Domestic Product (GDP) data for the third quarter will be announced.

• At 09:45 GMT, the China Caixin Services PMI for November will be published.

• At 17:00 GMT, the Eurozone HCOB Composite PMI for November will be released.

• At 18:00 GMT, the Eurozone Producer Price Index (PPI) for October will be reported.

• At 21:15 GMT, the US ADP Employment Change data for November will be released.

• At 23:00 GMT, US Factory Orders data for October will be published.

• At 23:00 GMT, the US ISM Services Employment Index for November will be announced.

• At 23:00 GMT, the US ISM Services PMI for November will be released.

• At 23:00 GMT, the US ISM Services Prices Paid data for November will be reported.

Thursday:

• At 08:30 GMT, Australia Trade Balance data for October will be published.

• At 15:00 GMT, Germany Factory Orders data for October will be released.

• At 16:00 GMT, an OPEC Meeting will take place.

• At 18:00 GMT, Eurozone Retail Sales data for October will be announced.

Friday:

• At 07:30 GMT, Japan Labor Cash Earnings data for October will be reported.

• At 10:00 GMT, Germany Industrial Production data for October will be released.

• At 10:00 GMT, Eurozone Gross Domestic Product (GDP) data for the third quarter will be announced.

• At 21:30 GMT, US Nonfarm Payrolls data for November will be published.

• At 21:30 GMT, the US Unemployment Rate for November will be reported.

Trump’s Tariff Gambit and the Fed’s Balancing Act: Who Will Blink First? 

As the Federal Reserve's final monetary policy meeting of the year approaches, recent economic data from the U.S. has further fueled expectations of a slower pace of policy easing. The figures reveal that the U.S. economy continues to grow robustly, the labor market is moderating yet remains resilient, personal income and spending are persistently growing, and inflation's progress toward the target rate has decelerated.

A report released on Wednesday, ahead of the Thanksgiving holiday in the U.S., showed that the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) price index, increased by 2.8% in October compared to the same period last year.

The slowdown in inflation progress suggests that the Fed's 2024 inflation projection of 2.6%, published in September, may not be achieved. This supports recent comments from Fed officials indicating that they are unlikely to rush into lowering interest rates as long as the labor market remains healthy and the economy continues to expand.

On the other hand, uncertainties surrounding the economic impact of President-elect Donald Trump's initial actions on tariffs are growing. These measures raise questions about their effects on economic growth, inflation, and the central bank’s policy trajectory.

Last week, global markets were rattled after Trump threatened, via a social media post, to impose a 25% tariff on Mexico and Canada. Then, this weekend, he announced plans to demand a commitment from BRICS countries to refrain from taking steps toward creating a new currency as an alternative to the U.S. dollar. He reiterated his threat of imposing a 100% tariff if such actions were pursued.

In 2023, BRICS nations addressed the issue of de-dollarization during a summit, reflecting growing momentum against the dollar's dominance in international trade. However, since March, Trump has explicitly stated that he would not allow countries to distance themselves from the dollar, emphasizing his long-standing commitment to maintaining the U.S. dollar’s status as the world’s reserve currency.

Trump and his economic advisors are exploring ways to penalize countries seeking to engage in bilateral trade using currencies other than the US dollar. According to a report published by Bloomberg News, potential measures include export controls, currency manipulation charges, and tariffs, with all possible options under consideration.

Since Trump’s election victory, the US dollar has appreciated by approximately 2%, and economists continue to project further gains for the currency should tariffs be implemented.

However, historical data shows that dollar sales typically increase toward year-end as traders rebalance their portfolios, shifting funds into riskier assets like equities. Indeed, last week, the S&P 500 Index hit a new record high, while the small-cap Russell 2000 Index nearly doubled the S&P 500's performance over the past two weeks.

That said, market dynamics are more complex this year due to the "Trump effect." A measure of implied volatility for the Bloomberg Dollar Spot Index over the next six months has reached its strongest level in 18 months. This suggests that traders are likely to see more pronounced fluctuations in the dollar as they analyze headlines and economic data.

This week, markets will focus on the last payroll growth figures to be released ahead of the Fed’s December 18 meeting. According to a Bloomberg survey of economists, non-farm payrolls are expected to have increased by 200,000 in November, marking a significant rebound after hurricanes and labor strikes had dampened growth in the previous report.

Another key data point to be released on Friday is the unemployment rate, which is projected to remain steady at 4.1%. These figures are expected to support the narrative that the labor market remains healthy but continues to cool gradually.

Swap market data indicates a 67% probability that the Fed will cut rates by a quarter point on December 18. However, any deviation in upcoming data from expectations could recalibrate these rate-cut forecasts, heightening volatility in global markets, particularly for the US dollar. 

Gold Slips as Dollar Dominates: Is the Safe Haven Losing Its Shine?

Gold started the new week on a decline, trading below $2,630 per ounce after dropping approximately 2.5% last week. The strengthening U.S. dollar has made gold more expensive for buyers using other currencies. Meanwhile, persistently high U.S. Treasury yields continue to keep the opportunity cost of holding non-yielding gold elevated.

Last week, a ceasefire agreement between Israel and Hezbollah reduced safe-haven demand, adding downward pressure on precious metals. However, concerns about escalating tensions between Russia and Ukraine remain, keeping the decline in safe-haven demand somewhat limited.

Gold has surged by approximately 30% this year, driven primarily by central bank purchases, rising geopolitical and economic risks, and the Federal Reserve’s shift toward an easing cycle. Looking ahead, key factors expected to influence gold market movements include the policies anticipated under newly elected President Donald Trump and expectations surrounding the Fed’s policy direction.

If Trump imposes higher tariffs, it could lead the Fed to pause rate cuts. However, increased U.S. inflation would both reduce real yields and drive demand for gold as a hedge against inflation. Still, until Trump assumes office and unveils his policies, a stronger U.S. dollar may continue to pressure precious metals.

Traders are also looking ahead to U.S. employment data set to be released on Friday. These figures could support precious metals to some extent if they justify the Fed’s recent rate cut this month.

Oil in Limbo: Weak Chinese Data and OPEC+ Talks Shape Market Sentiment 

Oil prices, which dropped approximately 2.5% last week following a ceasefire decision from the Middle East, are holding steady as traders await this week’s OPEC+ meeting.

OPEC members are set to meet on Thursday after a four-day delay. While the group is expected to postpone a production increase decision for the third time, market watchers are looking for clues about future policies. Analysts highlight significant uncertainty surrounding the meeting, but it is clear that the market does not need additional supply next year. The challenge lies in supporting the market without losing market share.

Meanwhile, concerns about Chinese demand persist, though recent data pointing to a slow recovery is offering some hope. The manufacturing Purchasing Managers’ Index, released earlier today, showed factory activity in China expanding for a second consecutive month in November, lending support to oil prices.

On the flip side, China’s November home sales dropped 16.6%, reversing the recovery seen a month earlier. The data underscores the uneven nature of China’s economic recovery and highlights the need for more policy support to sustain growth.

International Monetary Fund Managing Director Kristalina Georgieva warns that without reforms to boost domestic consumption, China’s annual growth could fall well below 4%. This fuels concerns about the world’s largest oil importer, adding a headwind to oil market volatility. 

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