US DATA: Surprisingly Weak IP Data A Reminder Of Bifurcated Economy
- Industrial production was notably weaker than expected in November, slipping -0.1% M/M (SA, cons 0.3) after a downward revised -0.4% (initial -0.3).
- Utilities were an outsized drag with -1.4% after +1.4% although manufacturing production was still weak, at 0.2% M/M (cons 0.5) after a downward revised -0.7% M/M (initial -0.5).
- After three consecutive M/M declines, the Y/Y has pushed more firmly negative to -0.9% Y/Y (lowest since Jan and before that early 2021) whilst 3M/3M rates for both IP and mfg production pushed lower still at -2.9% annualized.
- Combine with capacity utilization surprisingly falling to 76.8% (cons 77.3, lowest since Apr 2021) after a downward revised 77.0% (initial 77.1) and there are clear signs of the manufacturing sector continuing to struggle whilst service activity grows strongly.
Core durable goods orders do however point to some upside relative to these weak trend growth rates for IP, with the same for the lift off recent lows for the ISM manufacturing survey.
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US OUTLOOK/OPINION: US Macro Weekly: Fed Shifts Hawkish As Disinflation Stalls
Our weekly US Macro publication is out (PDF):
- US “Inflation Week” brought largely in-line results, with sequential core CPI coming in a little lower than expected, and headline CPI and core PPI a little higher than expected.
- But overall the takeaway was that there was relatively little if any disinflationary progress in October, exacerbated by what looks like a small sequential acceleration in the core PCE reading for the month.
- The cumulative effect of surprisingly hawkish Fed commentary combined with the slight upside in core PCE (with a helping hand from solid initial jobless claims among other data demonstrating continued resilience) saw a notable shift in rate cut pricing this week.
- The December FOMC meeting appears to be "live", nearing 50/50 implied probability of a hold at one point Friday morning, versus closer to 20% at the start of the week.
- At the end of this document we highlight two major shifts in FOMC tone this week: one is that a "pause" was introduced as a possibility by a senior FOMC member (Gov Kugler); the other is that there is growing concern over the implications of soaring longer-end rates.
- Neutral rate-talk also dominated, and in a hawkish direction - Dallas Fed's Logan mused that the Fed had already perhaps already reached neutral rates.
- It's probably still the case that the FOMC is still in the "thinking about thinking about slowing rate cuts" stage, which means a December cut is the default. But some of the groundwork for a less dovish rate cut path appears to have been laid since the US election (the potentially hawkish implications of which, FOMC members didn't venture into).
- This week’s heavy data slate gives way to a quieter schedule Nov 18-22, with key macro highlights including flash November PMIs and housing market data, with FOMC speakers also of interest after this week’s shift (including Cleveland Fed Pres Hammack).
US OUTLOOK/OPINION: Atlanta Fed GDPNow Steady, PCE Upgraded Despite Control Miss
The Atlanta Fed's GDPNow estimate for Q4 remained steady at 2.5% Q/Q annualized in the Nov 15 update, reflecting higher personal consumption expenditures (now 2.8% vs 2.7% in the prior day's update), offset by downgrades to equipment/ nonresidential structure investment.
- The stronger PCE figure comes despite a softer-than-expected Retail Sales Control Group figure - we think this is a reflection of the higher revision to September's Control Group, which will statistically carry over into the Q4 growth rate.
USDCAD TECHS: Bull Cycle Extension
- RES 4: 1.4210 2.0% 10-dma envelope
- RES 3: 1.4140 1.500 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4122 3.0% Upper Bollinger Band
- RES 1: 1.4106 High Nov 15
- PRICE: 1.4077 @ 16:54 GMT Nov 15
- SUP 1: 1.3959 High Nov 1 / 6
- SUP 2: 1.3891/22 20-day EMA and a key S/T support / Low Nov 6
- SUP 3: 1.3785 50-day EMA
- SUP 4: 1.3611 Low Oct 8
A strong rally in USDCAD this week reinforces the current bullish condition. The pair has topped 1.3959, the Nov 1 / 6 high. This break confirms a resumption of the uptrend and has also resulted in a breach of 1.3977, the Oct 13 2022 high. 1.4140 marks the next upside level. Initial firm support to watch lies at 1.3891, the 20-day EMA. A short-term pullback would be considered corrective.
