Macroeconomics: The Day Ahead for 04 December

The day’s schedule of data is somewhat short on highlights, with the stronger than expected Australian Household Spending adding to speculation that the RBA may have to reverse course on rates in the early part of 2026, though the RBA will probably set a high bar for such a policy reversal, if the pick-up in CPI proves to be transitory. By contrast, a BoJ rate hike this month now looks to be a fait accompli, given Finance Minister Katayama’s tacit approval, which also asserts her authority on the fiscal and monetary policy mix of the Takaichi coalition. There will be some rather more academic interest in the UK Construction PMI, with the US weekly jobless claims and Challenger Layoffs likely to send conflicting signals on the state of the labour markets: Layoffs likely to post quite a sharp rise, but contrast with Initial  Claims remaining low at 222K, though slightly higher than the 7 month low of 216K reported last week. Even with the weaker than expected ADP report yesterday, the labour demand-related case for a further 25 bps Fed rate cut next week is anything but clear cut, and certainly not likely to alter divisions of opinion on the FOMC, regardless of ongoing political pressures. There are also a good number of ECB and BoE speakers, with Fed’s Bowman speaking on banking regulation and supervision. 

The overarching themes around AI and geopolitical and national political trends remain dominant, with the UK PM and the Chancellor of the Exchequer facing an existential crisis, France’s 2026 budget still in ‘impasse’, and Germany’s fragile ‘grand coalition’ on the brink of collapse over the passage of a pensions related bill, which as with UK PM Starmer suggests Merz has no real authority. US efforts to broker a peace deal between Russia and Ukraine are clearly foundering as all other efforts have done on the huge differences between both sides, such that even if some form of truce were achieved, this would likely be ‘in name only’. In respect of the AI ‘bubble’ debate, it is interesting to see that yesterday’s news of Microsoft reducing targets for AI related product sales has revived discussion about the commerciality of many AI projects, i.e. how much will and can actually be monetised, particularly given the vast scale of what is being invested. Market sentiment remains fickle, even if hopes for a loose US monetary and fiscal stance continue to support a buy-the-dip mentality, but the array of other political challenges and above all the prospect of higher JPY rates advises caution.