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CFDs are complex instruments. 70% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Look ahead: China, Australia trade balance; UK house prices; US initial jobless claims

The global economy swings back into focus on Thursday with trade numbers from China and Australia. Ahead of Friday’s jobs report, watch out for US initial jobless claims after ADP data showed signs of a cooling jobs market.

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(Video Transcript)

Australia, China trade surpluses predicted

Hello, my name is Angeline Ong and welcome to IG's look ahead to 7 December 2023.

We start in Australia with trade balance figures expected there. Surpluses seem to widen to $7.5 billion in October. We are also anticipating trade numbers from China as well. We have another surplus forecast, this time widening to $68.1 billion in November.

From the UK, watch out for the Halifax House Price Index. This is an interesting space for house builders, of course, because the UK housing market has been in the doldrums in 2023. With high mortgage rates and also weak demand, it'll be interesting to see whether there's going to be continued weakness in the House Price Index from Halifax.

Euro zone Q3 GDP growth rate due

From the euro zone, we've got third-quarter gross domestic product (GDP) growth rate expected there. This is, of course, the final estimate. With the euro zone, it's all to do with interest rates. It's now the Federal Reserve (Fed) head-to head with the European Central Bank (ECB).

The Fed is expected to move first on rate cuts but, like everyone knows, there's all to play for in the game of interest rates here. Speaking of the Fed, we've got more jobs numbers out the US, this time initial jobless claims and wholesale inventories data as well.

And a few more earnings of notes from the UK. Look out for Frasers Group, BT and also DS Smith out with first-half numbers. From the US, it's Broadcom, fourth-quarter numbers, and Dollar General.

Investors on tenterhooks for jobs data

AO: Let's cross over now to Chris Versace from Tematica, who joins us from Washington. I guess the big set piece that everyone's been waiting for this week is that Friday jobs number.

We have that ADP number, and the US industry is weakened slightly, but not much has to be said. What do you make of the numbers so far, and how is this going to pan out on Friday?

CV: Well, the ADP employment reports for November came in weaker than expected, which is a little bit of a head-scratcher, because most were expecting sequential improvement in the number of jobs added during the month of November, largely because of the settlement of the United Auto Workers (UAW) strikes, people getting back to work.

How solid are the US economy's foundations?

So, this weaker-than-expected print in the ADP report raises a lot of questions about the underlying strength of the economy. And what we started to see is expectations for rate cuts by the Fed start to once again pull forward. In short, Angeline, potentially bad news for the economy is good news for the market.

Now, what do we see for Friday's employment report? Well, currently it continues to show a net gain in jobs month-over-month, about 180,000 up from 150,000 in October.

So, if we see a similar print for Friday's employment report, a weaker than expected number, we're going to see further conviction by the market that the Fed is going to cut rates not only potentially sooner than previously expected, but perhaps they may need to do more as the economy slows more than anyone was thinking.

AO: Do you think we're going to have a sweet spot for equities sort of in the near term?

CV: Actually, if the Fed does continue to cut rates, it might be an indication that actually things are worse than initially thought, and then it might become a negative long term for equities. It's definitely going to be a tightrope that the Fed has to walk between.

Does the data confirm that yes, the Goldilocks narrative, the glide path, if you will, is emerging, or is the data falling faster than previously expected than the consensus thinks, suggesting that just that the economy is sliding?

If that happens, then I think even if the Fed continues to cut rates, maybe a little more than people were thinking, the slower economic pace is going to result in renewed questions not only about valuation, but also about revenue prospects and earnings prospects for 2024.

AO: Thanks very much, Christopher Versace, all the way in Washington for us there from Tematica. For more market-moving news, do join us on beat the street at 1.30pm London time to give you a heads-up to the US trading day.

IG's Angela Barnes will be on at 7.30am to give you a heads-up to the European trading session as well. Follow me on Twitter @AngelineOng. This is IGTV. Have a great day.

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