Week Ahead: Highlights include US jobs, ISM, OPEC+, Iran nuke talks, EZ flash CPI

NOTE: Previews are listed in day-order

IRANIAN NUCLEAR NEGOTIATIONS (MON)

Following the postponement of talks in June, Iranian nuclear negotiations are set to resume on November 29th. This would mark the first opportunity for an accord under the new Iranian government, which was sworn in late August. That said, Iran's stance has not changed under the de-facto head – Supreme leader Khamenei. Tehran continues to seek the removal of US sanctions alongside assurances that the US will not withdraw from the deal.

"The assertion that the US must 'change its approach if it wants progress' sets a challenging tone", Citi’s analysts said, and the bank also expects parties to demand full access to Iranian nuclear facilities for verification of compliance.

Further, the IAEA Chief met with Iranian officials earlier in the week; although concrete progress was sparse, the overall tone of the meeting was one of progress.

"We remain of the opinion that additional Iranian supplies are unlikely to reach the market before the second half of 2022 at the earliest," Citi said.

Meanwhile, reports suggested the US and allies have been debating a "Plan B" if talks were to collapse. NBC News – citing European diplomats, former US officials and experts – suggested that options included: 1) a skinny nuclear deal, 2) ramp up sanctions, 3) Launching operations to sabotage Iranian nuclear advances, 4) Military strikes, 5) persuading China to halt Iranian oil imports, albeit Iran and China recently signed a 25yr deal.

CHINESE NBS PMI (TUE)

The official PMIs for November will likely entail the latest COVID outbreak in China, albeit the nation has managed to contain surges in cases with extreme curbs. Manufacturing PMI is expected to ease further to 51.4 (prev. 52.4 in Oct) while non-manufacturing PMI may improve to 49.6 (prev. 49.2 in Oct).

To recap the October metrics, among the five sub-indexes constituting manufacturing PMI: production index, new order index, raw material inventory index, employee index and supplier delivery time index were all below the threshold.

In terms of the breakdown of the services for last month, the business activity indexes of accommodation, catering, telecommunications, radio and television and satellite transmission services, internet software and information technology services, monetary and financial services, ecological protection and environmental governance, culture, sports and entertainment industries were in the “high boom range” according to the NBS, whilst the business activity index of capital market services, insurance, real estate, residential services was below the threshold.

EZ FLASH CPI (TUE)

Expectations are for consumer prices to rise to 4.4% Y/Y in November from 4.1% Y/Y in October, with the core rate (ex-food and energy) seen rising to 2.3% Y/Y from 2.1%.

Nordea, which look for the headline to rise to 4.3%, notes that "more than half of the 4.3% increase is still energy, implying that unchanged energy prices from here would have inflation below the ECB’s target in one year’s time." Its analysts also note that "another key driver is the base effects of the German VAT cut in H2 last year, and hence we expect core inflation to be higher in the last two months of this year, but lower in H1 next year."

The account of the ECB’s October meeting highlighted the potential for upside risks to the ECB's inflation outlook, and since then, rhetoric from the more hawkish elements of the Governing Council has continued to emphasise this point. ECB’s Schnabel this week said that inflation risks were "skewed to the upside" whilst remarking that she sees diminishing returns and increasing side effects from QE.

From a dovish perspective, ECB’s Panetta noted that "until we see tangible evidence that upside risks to medium-term inflation are materialising, we should continue to look through the current inflation spike."

Ultimately, it's hard to tell how much the latest report will be able to dissuade some of the more entrenched members of the ECB ahead of the December meeting from their current stance and therefore traders will likely have a greater bias towards monitoring rhetoric out of the Bank in order to assess the balance of views on the GC. This is particularly likely given the recent resurgence of COVID angst which could present an element of staleness for the November inflation report.

AUSTRALIAN GDP (WED)

Q3 economic activity is expected to have been hit by the lockdowns seen across the states of New South Wales and Victoria. The street sees the Q/Q metric at -2.9% (prev. +0.7%) and the Y/Y at +3.0% (prev. +9.6%).

Analysts at Westpac have a slightly less pessimistic forecast of -2.5% Q/Q and +3.2% Y/Y, backed by their assessment that the activity impact from the lockdowns has been less damaging than originally thought – especially in Victoria.

“The arithmetic of our Q3 GDP forecast is domestic demand -3.0%; total inventories -0.7ppts; and net exports +1.2ppts. Consumer spending is a forecast -5.5%; home building +1.6%; business investment -1.6%; and public demand +1.2%.”, Westpac says, adding that activity is set to rebound in the final months (all things equal).

US ISM MANUFACTURING PMI (WED)

Analysts expect the ISM manufacturing report to rise a little to 61.0 in November from 60.8. The regional Fed surveys have given a mixed read in the month, with the Empire and Philly Fed surveys solid, but the Richmond and Kansas City Fed gauges were soft.

Markit's flash PMI data showed the manufacturing sector output picking up to a two-month high although the data compiler said production continued to be hampered by raw material delays and labour shortages, with vendor performance deteriorating substantially yet again.

But Markit noted that inflows of new orders supported the headline rise. And difficulties in sourcing inputs and finding affordable transportation saw input costs rise at a series record pace in November, and it said that in an effort to pass on higher costs to customers, firms increased selling prices at the second-steepest pace in over 14-and-a-half years of data collection.

Looking ahead, the survey found that output expectations had strengthened to the highest in three months amid hopes of increased stability across labour markets and supply chains.

OPEC+ MEETING (THU)

Heading into the December 2nd meeting, the case for a pause in the planned monthly +400k BPD/m has been strengthening. There have been major supply and demand developments since the prior meeting.

Global oil demand will likely be impacted by the recent COVID surge, which has prompted restrictions in parts of Europe, where officials are likely to activate their ‘emergency air brake’.

The latest South African variant also poses risks to the demand side, already prompting the UK, Singapore, and Israel to expand travel red lists to include some African nations. Japan also imposed tighter border restrictions, and China’s Shanghai city sees flights impacted by its own outbreak.

On the supply side, the US and others including China, India, Japan, South Korea, and the UK announced coordinated release of strategic oil reserves; the announcement disappointed the oil bears given the widely telegraphed nature of the announcement coupled with relatively small contributions from members.

Desks have also highlighted that the reserves will need to be replenished at some time in the future, and thus, analysts have judged the effects from the SPR release are likely to be temporary, although many caution that if the desired impact is not achieved, further action cannot be ruled out; a temporary export ban still on the table, though some desks have suggested that taking barrels off international markets may in fact provide bullish catalysts.

Meanwhile, Riyadh-based International Energy Forum (IEF) suggested oil prices will probably decline for the rest of the year, and OPEC+ will be cautious in reacting to the SPR oil release. The IEF Secretary-General said, that "in light of current IEA, OPEC and EIA forecasts for a surplus in the first quarter next year, I anticipate OPEC-plus energy ministers will maintain their current plan of adding more supplies to the market gradually," though he added that "certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions."

It is unclear what OPEC+ may opt to do, but it is clear the COVID situation in Europe could give the group and its partners cover to avoid further friction with oil consumers. Some energy journalists, citing their contacts, have suggested that the decision will likely hinge on the price of oil.

Analysts at ING also believe that oil price will be the deciding factor: "If prices remain near current levels, the group will likely continue with its plan to increase output by 400Mbbls/d per month." But ING adds that if prices move towards the low USD 70s ahead of the meeting, the group may very well judge that a pause is necessary.

US LABOUR MARKET REPORT (FRI)

The US economy is likely to have seen 563k nonfarm payrolls added in November, analysts predict, with the unemployment rate easing by one-tenth to 4.5%; average hourly earnings are seen rising to 5.0% Y/Y from 4.9%, with the monthly rate matching last month's reading at +0.4% M/M.

As always, traders will be closely watching the measures of slack to see how much progress the labour market is making vs pre-pandemic levels; in the last jobs report, the employment-population ratio picked up by one-tenth of a percent to 58.8% (vs 61.1% pre-pandemic), the U6 measure of underemployment fell by two-tenths to 8.3% (vs 7.0% in February 2020), while the labour force participation rate was unchanged at 61.6% (vs 63.6% in February 2020), all highlighting that there is still progress to be made.

In terms of the policy response, it is worth noting that Fed officials appear to be a little more focused on the inflation part of their mandate vs the employment part, on account of the recent surge higher in prices, which has seen officials in November discussing hastening the pace of its asset purchase tapering, although many US officials on the Fed and the Treasury have expressed the view that the economy could return to full employment by the end of 2022.

The Fed is due to update forecasts at the December 14-15th FOMC meeting; in its September projections, the central bank forecast the jobless rate will ease to 4.8% by the end of the year (we're already below that level), before easing to 3.8% by the end of next year, and 3.5% by the end of 2023.

CANADIAN LABOUR MARKET REPORT (FRI)

Analysts will be looking to the data to see if the previous month's cooling of employment growth is persisting. Last month's cooler pace was to be expected given how close the labour market already is to a full recovery, CIBC said, and the bank says that perhaps more important than the modest gain in jobs and the dip in unemployment rate, is that the continuing slant in the job gains towards full-time rather than part-time work, driving a recovery in hours worked, which the bank says shows that wider labour market slack is continuing to narrow.

"While that hasn't yet resulted in any meaningful acceleration of wages, it does support the notion that there is less slack in the economy than previously believed and the Bank of Canada's assertion that the output gap could be closed by the middle of next year."

US ISM SERVICES PMI (FRI)

The ISM services gauge is seen paring back to 65.2 in November from 66.7. As a proxy, the Markit flash services PMI for November eased to 57.0 from 58.7; analysts were expecting a rise to 59.0. Nevertheless, Markit said that the US Economy continues to run hot, despite the slower rate of expansion, with economic growth remaining above the long-run pre-pandemic average as companies continue to focus on boosting capacity to meet rising demand.

However, Markit warned that the slowdown highlights how much the economy is struggling amid supply chain disruptions.

"Although supplier delivery delays eased to the lowest for six months, the lengthening of lead times remains far greater than anything seen prior to the pandemic, restricting output relative to demand and once again causing prices to rise sharply," as input prices hit another survey high in the month, which piles on the pressure for firms to pass these costs on to consumers to protect margins.