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[Quick Facts]

1. Markets see ECB cutting rates by 150 basis points through 2024.

2. The Bank of Canada leaves interest rates unchanged.

3. Yellen says thoughtful market expectations can complement Fed's policy.

4. U.S. ADP misses expectations and wage growth hits a two-year low.

5. Algeria says OPEC+ oil cuts may be extended beyond Q1 2024.

[News Details]

Markets see ECB cutting rates by 150 basis points through 2024

Markets are increasing bets on the European Central Bank's (ECB) monetary easing in 2024 as ECB officials hint that the central bank may have tightened monetary policy enough to bring inflation back to target levels. Money markets now expect the ECB to cut rates by 150 basis points next year and cut rates by 25 basis points as early as next March. In addition, markets have been betting that the ECB will lead the world in rate cuts. While policymakers have continued to warn of the threat posed by inflation in the near term, they are also increasingly acknowledging that it may not be necessary to raise interest rates further above 4%.

The Bank of Canada leaves interest rates unchanged

The Bank of Canada held interest rates at 5% at its policy meeting on December 6, while announcing that it would continue to normalize its balance sheet. At the same time, it left the door open for another rate hike, saying it remains concerned about inflation while seeing the slowdown in the economy and the overall decline in prices.

The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed, the Bank of Canada said in a brief five-paragraph statement. The Governing Council wants to see further and sustained easing in core inflation.

The statement dropped words in the previous policy statement that said "Progress toward price stability has been slow and inflation risks have increased."

Yellen says thoughtful market expectations can complement Fed's policy

Economists who predicted that the U.S. would need high unemployment to keep inflation in check are "taking back their words" as the labor market and consumer demand show little weakness in the economy while inflation continues to cool, U.S. Treasury Secretary Janet Yellen said in a speech yesterday.

Consumer demand, a key pillar of the U.S. economy, remains robust. Demand is still strong enough to "propel the economy forward at a trend growth rate." Trend growth rate refers to the long-term growth rate that an economy can achieve without inflation.

In addition, Yellen did not agree with traders' current expectations of the Fed's rate cuts. However, she said that in some ways it is a healthy response for the markets to anticipate future fed moves based on their reading of incoming data. "If markets are thoughtful when reading the data, it can be helpful as a complement to monetary policy," said Yellen.

But she added that the Fed will take whatever action they see fit, and market conditions are one of the factors that contribute to that.

U.S. ADP misses expectations and wage growth hits a two-year low

The latest ADP employment report released on December 6 shows that U.S. ADP employment increased by 103,000 in November, less than the expected 130,000 and the revised data of 106,000 last month. It was the fourth consecutive month of falling short of expectations. The slowdown in employment was accompanied by a further cooling of wage growth. Workers who stayed in their jobs saw a 5.6% pay rise in November from a year earlier. The growth rate has been declining for the 14th consecutive month, falling to the weakest level since September 2021. Job-hoppers saw their pay increase by 8.3%, also the smallest increase since 2021, but the growth rates of two real wages were still well above the inflation target set by the Federal Reserve.

Given that ADP data has deviated too far from the non-farm payrolls many times, there is no need to read too much into Friday's data.

Algeria says OPEC+ oil cuts may be extended beyond Q1 2024

Algerian officials said OPEC+ could extend its latest oil supply restrictions beyond the first quarter of next year, echoing comments made by Saudi Arabia on Monday.

OPEC and its partners announced on Nov. 30 to cut oil outputs by about 900,000 barrels a day, but oil prices fell sharply on concerns about ample supply and slowing fuel consumption growth. Some crude traders are skeptical whether OPEC will fully honor its commitment. Saudi Arabia's energy minister said Monday that the OPEC+ alliance "absolutely" could extend the measures beyond the first quarter of next year, while Russian Deputy Prime Minister Alexander Novak made a similar statement.

[Focus of the Day]

UTC+8 15:45 ECB Governing Council Member Holzmann Speaks

UTC+8 21:30 U.S. Weekly Initial Jobless Claims

UTC+8 23:00 ECB Executive Board Member Elderson Speaks

UTC+8 01:50 Next Day: BOC Economic Development Report