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Weekly macro report: Prepare for a volatile week

In our macro report, we analyze the outcomes from the previous week - ISM, PPI, and US Mich. survey and talk about the potential of the CPI and the FOMC.

Last week was exceptionally rich in terms of data. We got ISM non-manufacturing data, PPI, and fresh new data from the Michigan survey (important for the Fed). Next week, we are heading into inflation (CPI) and the Fed´s decision about further steps.

Firstly, let´s summarize what happened during the last week, both fundamentally and in terms of how the markets reacted, through our table below:

Asset movements, Source: Investro analytics team

While we have previously warned against positioning in stocks in the medium term, we have not changed our minds. Risky assets, followed by Nasdaq, fell the most, while European stocks remained quite strong. Bond yields increased very slightly after a few weeks of deceleration, impacted by stronger economic data.

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The spread between US10Y and US02Y, or between long-term and short-term bonds, remained significantly inverted, or deeply in negative territory, suggesting that the market feels an economic threat and does not believe the Fed´s members will keep rates “higher for longer.”

ISM Non-manufacturing unexpectedly high, PPI as well, US Michigan survey improved

This week, the ISM non-manufacturing November´s figures (or services) came out in the US and were surprisingly higher, ending at 56.5 (the consensus was at 53.3). ISM manufacturing continues to deteriorate at 49, confirming the downtrend in the previous months.

While it reflects the situation in the US economy, the outcome suggests that services are much more resilient to the current macroeconomic cycle impacted by higher inflation and higher rates. It is also confirmed by the spread between the mentioned PMIs (Purchasing Managers’ Index).

In other words, because services are still expanding, demand destruction can be seen primarily in manufacturing. It also shows that companies in the service sector can have much better EPS results than companies in manufacturing related sectors.

US ISM manufacturing vs. non-manufacturing and spread, Source:, Investro analytics team

So, what is the significance of this chart? First and foremost, it is significant for FOMC and rate probability, since higher outcomes would support the view that the economy is robust and can withstand more tightening. According to Fed Funds Futures, the market had priced in an additional 15 basis points through December 2023; however, this trend has been partially reversed until the end of the week, but stronger data caused equities to tumble heavily on Monday. This is also why bond yields, particularly short-term ones such as 2-year bond yields, have climbed modestly.

We have also informed about this in our Market Movers here:

Major US stock indices fell 0.5% as a higher-than-anticipated inflation reading dampened hopes that the Fed would soon ease up on its aggressive tightening policy. The core producer price index (PPI) increased by 0.4% in November from October, beating forecasts for a 0.2% increase.”

While Core PPI climbed significantly (vs. previous month – MoM), it also increased annually by 6.2%. The headline MoM PPI rose by 0.3%, while the YoY growth continued to 7.4%. However, this is a brand-new November reading, which may signal that CPI will continue to rise and the Fed will maintain its stance. As a result, the stocks dropped upon the release of the results and concluded the day in the red.

PPI contributors, Source: Liz Yong Twitter and Bloomberg

In addition, the important message at the end of the week, based on the US Michigan survey, is quite crucial for the Fed. Why? Because it gauges market participant expectations on consumer confidence and inflation. It is the factor that the FOMC considers while formulating policy (many times mentioned in FOMC Minutes). One-year inflation expectations decreased to 4.6% (from 4.9%), while 5-year inflation estimates (based on survey) stayed unchanged at 3.0%. Both remain above the Fed’s inflation objective (nearly 2%).

US Michigan Inflation Exp. Survey (1 and 5 years), Source:, Investro analytics team 

The month’s most crucial week for data is coming up

In terms of data, the upcoming week will be one of the most crucial of the entire month. Inflation data for November will be announced, as will the FOMC’s decision. While both the Core CPI and headline CPI are expected to grow by 0.3% month-over-month, we do not know what the actual outcome will be.

However, we see that there are several leading indicators that are pushing inflation downward, so a lower print would not come as much as a surprise as a higher print. However, nothing is guaranteed due to the presence of a large number of variables with mixed outcomes. The month-over-month increase in hourly wages is substantial, inventories are still not decreasing (significantly), and the PPI was higher than expected.

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On the contrary, oil and natural gas prices experienced a significant decline to new lows, so reducing energy and commodity pressures could cause CPI to decrease further. However, core CPI does not directly reflect oil and energy costs, because they are omitted from the calculation, but it does create a significant reduction in secondary inflationary pressures on the consumer market (i.e. and very briefly, some kinds of products could be cheaper due to lower commodity and energy prices, but not directly affected by the volatility of the commodity – as seen on the gas stations).

CPI expectations, Source: Economic calendar of

The following day, on Thursday, we will see the FOMC decision as well as a highly essential dot-plot forecast and revised FOMC outlook on GDP, inflation, and interest rates – a crucial document. The Fed’s commentary will also be crucial, perhaps even more so than the current rate hike. Probabilities of a rate hike for the upcoming week are as follows:

Fed Target Rate odds, Source:

The market is presently pricing in a 78% probability of a 50 bps hike to a range of 4.25 to 4.50% and a 22% probability of a 75 bps hike to a range of 4.50 to 4.75%. Keep in mind that such probability could change drastically if the inflation data reveals significant upward surprise.

Prepare for a tumultuous week in light of such assumptions. In the event of higher-than-anticipated inflation, risk-assets and bonds (short-term) could experience a large decline due to the increased likelihood of monetary tightening (higher hike). But a lower-than-anticipated inflation reading might result in a bullish rise in both bonds and stocks. However, if we do not observe a significant decline in inflation, we will remain pessimistic on stocks and bullish on bonds.

Disclaimer: The fully covered text is not investment or trading advice. It represents only the author’s point of view and thoughts, and we do not bear responsibility for your potential loss. The article serves only for analytical and marketing purposes.

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