Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Sep 13 – Sep 17)

US inflation and consumption data coupled with Chinese production and consumption data will be the highlights of the week ahead of us.​

USD

Unemployment benefits have expired on September 6, affecting around 9 million people. This may have adverse impact on the spending. On the other hand, this should lead to rise in participation rate and NFP numbers for September as more and more people return into the work force. JOLTS job openings came in at astonishing 10.934 million, representing a seventh consecutive month of rising job openings, new record number and indicates increasing demand for workers. While jobs are aplenty there seems to be a growing need for the rise in wages in order for slots to be filled. It can then turn the wage-push inflation spiral where companies transfer high labor costs to consumers who in turn then demand still higher wages to stay afloat with rising prices. If this is to happen, then inflation will have a hard time dropping back to 2% as some Fed members suggest.

This week we will have inflation and consumption data.

Important news for USD:

Tuesday:

• CPI

Thursday:

• Retail Sales

EUR

ZEW survey in September saw German current situation improve from 29.3 to 31 while expectations plunged to 26.5 from 40.4 in August. Uncertainty regarding Q4 growth amid Delta concerns and ongoing supply chain disruptions is intensifying as the reading fell for the fourth consecutive month from the high of 84.4. European expectations showed similar drop to the German reading (31.1 from 42.7). Final Q2 GDP reading was improved to 2.2% q/q and 14.3% y/y from the second reading of 2% y/y and 13.6% y/y respectively.

ECB has left key interest rates unchanged as expected. Accompanying statement showed that “the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters.” ECB President Lagarde stated that price increases are largely temporary, due to rising energy costs, reintroduction of German VAT and overall low price levels in the past year because of the pandemic. She stated that economic activity should return at pre-pandemic level by the year-end and labour market showing rapid improvements. Decision on PEPP was unanimous and she characterized it as “re-calibrating”. Growth forecast was boosted to 5% from 4.6% for 2021 and slightly lowered to 4.6% from previously expected 4.7% for 2022. Inflation has been revised upward and is now seen at 2.2% for 2021 vs 1.9% previously. Inflation in 2022 is expected to be at 1.7% vs 1.5% as seen in June and 1.5% in 2023. With inflation expectations below targeted 2% it I reasonable to assume that monetary policy will remain accommodative for a long period. October meeting will be uneventful but more easing should occur at the December meeting.

GBP

BOE Governor Bailey stated that short-term leveling off is seen in the economy. Central view of bank members is that inflation will not be persistent and that it is unlikely that commodity prices will continue to rise. Expectations are for supply chain bottlenecks to resolve themselves. MPC members were split in August 4-4 on whether the minimum conditions were met. Bailey stated that according to him minimum conditions for a rate hike were met, but they are not sufficient to raise interest rates.

UK Prime Minister Boris Johnson introduced a tax rise – to pay for health and social care and thus break a pledge made before the elections by his Conservative Party. He stated that while raising taxes was not mentioned in the election campaign, there was also no mention of Covid and its devastating effect on the economy.

This week we will have employment and inflation data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

AUD

RBA has left both the cash rate and targeted yield on 3-year bonds unchanged at 0.10% as widely expected. Bank members have decided to maintain tapering plans while extending bond purchases of AUD4bn/week until at least February of 2022. They have struck rather optimistic picture about the economy stating that setback is only temporary, virus will only delay the recovery and that economy will continue to grow in Q4 with expectations for return to pre-pandemic growth path somewhere in the H2 of 2022. Conditions necessary for a rate hike will not be met before 2024. It was a dovish leaning message from the RBA indicating that they will wait for health situation to resolve before taking further measures and expecting economy to rebound once restrictions are lifted.

Trade balance surplus from China continued to widen and for the month of August it came in at $58.3bn vs $56.58bn in July. Highlight of the report is imports rising 33.1% y/y from 28.1% y/y in July. Rising imports indicate healthy domestic demand that was not seen in recently reported retail sales from China. Inflation data for the same period saw CPI come in at 0.8% y/y vs 1% in July while PPI rose to a 13-year high with 9.5% y/y, up from 9% y/y the previous month. Economic theory suggests that rising producer prices will eventually be transferred to the consumer, however that transition is still missing in China. Inability to pass rising prices to consumers has led to fall in company profits.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Wednesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

GDT auction in the first full week of September came in at 4%. This is first decent jump in prices since the first auction in March. Additionally, after eighth consecutive auctions of falling prices we now get a second auction in a row with rising prices. Another positive input for the New Zealand economy. RBNZ is expected to hike rates at their first meeting after lockdown is removed.

This week we will have Q2 GDP data.

Important news for NZD:

Thursday:

• GDP

CAD

BOC has left the overnight rate unchanged at 0.25% and let the purchase program continue at a pace of CAD2bn/week. Considering the surprising fall in Q2 GDP and the fact that elections are scheduled for September 20 the bank decided not to take any action but rather strike cautiously optimistic tone. They still expect economy to strengthen in the H2 of 2021 and close the output gap in H2 of 2022. With forward guidance being unchanged we expect BOC to continue with tapering of the purchase program to CAD1bn/week at their October meeting.

Employment report for August showed that the economy added 90.2k jobs vs 67.2k as expected. Majority of the jobs were full-time (68.5k). The highlight of the report was the unemployment rate. It dropped to 7.1% while expectations were for it to come at 7.3%. It was 7.5% in July. The caveat is a small drop in the participation rate to 65.1% from 65.2%. A good employment report that will not make BOC stray from the taper road.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

Average cash earnings in July rose 1% y/y vs 0.8% y/y as expected and with upward revision to June reading to 0.1% y/y this now marks a fifth consecutive month of rising wages. The rise in wages was not fully translated into consumption with household consumption rising 0.7% y/y vs 2.9% y/y as expected. Final Q2 GDP was revised up to 0.5 q/q and 1.9% y/y from 0.3% q/q and 1.3% y/y as preliminary reported. Private consumption, business investment as well as government spending contributed to the upward revision. State of emergency has been extended until September 30. It will last at least until the end of the quarter so we can expect a weak Q3 GDP reading.

CHF

SNB total sight deposits for the week ending September 3 came in at CHF714.9bn vs CHF715.2bn the previous week. The central bank is sitting idly on the side as markets are doing its work, pushing EURCHF toward the 1.09 level.

 

[katetrades]

Forex Major Currencies Outlook (Oct 4 – Oct 8)

RBA and RBNZ meetings as well as NFP on Friday headline the big week ahead of us.​

USD

Consumer confidence as measured by The Conference Board dropped to 109.3 in September from 115.2 in August. This is the lowest reading since February and shows a deterioration in both future expectations and present situations. Labor market assessment by consumers showed that jobs are more “hard to get” than in August. PCE headline number for August ticked up to 4.3% y/y from 4.2% y/y in July while core PCE stayed at 3.6% y/y for the third straight month. Personal spending has gone up while personal income declined when compared to the previous month.

US President Biden has signed a stopgap funding bill thus preventing a government shutdown. The bill secures government funding until December 3. The question of the debt ceiling still lingers as October 18 is the deadline. There are miniscule chances that it will not be raised since it would lead to the US defaulting on its debt, but markets are jittery.

This week we will have ISM Non-Manufacturing PMI and NFP. Headline NFP number is expected to come at 500k, more than double that of August. If the number is reached it will all but seal the November taper. The unemployment rate should tick down to 5.1% with wages also ticking down to 0.4% m/m.

Important news for USD:

Tuesday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Preliminary CPI data for September for the Eurozone show headline number at 3.4% y/y vs 3.3% y/y as expected while core CPI came in at 1.9% y/y as expected. Both numbers came in higher than in August when they were at 3% y/y and 1.6% y/y respectively. Headline inflation is at a 13-year high spurred higher by raging energy prices (17.4% y/y). The trend of high inflation will persist in the coming months with the ongoing supply bottlenecks and no signs of slowdown in energy prices.

Germany has a new Chancellor after 15 years. Olaf Scholz from the SDP party will succeed Angela Merkel. Although SDP has received the most votes it will not be enough to form a new Government. The most probable coalition, named “Traffic light”, should include SDP (Red), FDP (Yellow) and Greens (Green). It will be a central-left government and the presence of business-friendly FDP should be enough for markets to remain calm. The second possible coalition is dubbed “Jamaica”, as it includes CDU/CSU (Black), FDP (Yellow) and Greens (Green) and is considered to be even more market friendly. Until the new Government is formed, Angela Merkel will remain the Chancellor and some analyst see her reign extending until Christmas with a small possibility of her staying at her present position upon entering 2022.

GBP

The pound has suffered a terrible week. GBPUSD pummelled down more than 300 pips, dropping below the 1.35 level, due to rising concerns regarding petrol shortages. Fuel is aplenty, but due to the Brexit related issues with lorry drivers, there is a shortage of drivers available to deliver petrol. The British army is prepared to step in and deliver it to the petrol stations. Meanwhile, lines are forming at the petrol stations with citizens filling their tanks as much as possible. Transport disruptions stemming from the inability to normally tank gases could have a negative impact on the economy. The furlough scheme ended on September 30, so there is a high dose of uncertainty regarding the future employment figures.

AUD

Chinese industrial profits in August rose 10.1% y/y vs 16.4% y/y in July. Rising input costs as well as company’s inability to pass the costs to consumers are putting downward pressures on profits. Evergrande saga continues with Fitch downgrading it to C from CC citing that the company most likely missed interest payment and entered a 30-day grace period. If the company does not settle interest payments within the grace period it will result in a default. Official PMI data for September showed manufacturing drop to 49.6 from 50.1 in August. This is the first time since February 2020 that the reading is in contraction territory - then caused by the pandemic outbreak. Services PMI, on the other hand, returned to expansion with 53.2 reading, thus pushing composite to 51.7. Caixin manufacturing PMI came in at 50 due to growth in new orders. New export orders decreased indicating slowing of global demand while employment index continued with contraction, this time at a faster pace.

This week we will have RBA meeting. No changes in rate are expected and monetary policy should remain on course for a reduction in bond purchases.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

NZD

It was a tough week for Kiwi as USD strength combined with quarter-end portfolio rebalancing pushed the pair down more than 150 pips. A sudden jump in daily covid cases also contributed to Kiwi weakness.

This week we will have RBNZ meeting. We should see and markets are expecting a 25bp rate hike, thus making RBNZ the first major central bank to raise rates. There is a possibility of a dovish hike with New Zealand recently having their biggest daily increase in covid cases.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

Rising energy prices have helped CAD fight off USD strength and the pair was down around 80 pips during the week. WTICrude has made a “double top” matching the highest price of the year that was reached at the beginning of July. Still, the charts point to a possible breakout toward new highs for oil in the coming weeks.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

Ongoing Prime Minister Suga stated that all prefectures will end the state of emergency on September 30. LDP leadership went into a runoff and ended with Fumio Kushida as the new leader and de facto the next Prime Minister. Kishida was Japan's longest serving minister of foreign affairs and is seen as Abe’s successor, so he should not deviate from the Abenomics. He announced a new fiscal stimulus worth around 10 trillion yen to be applied by the end of the year.

CHF

SNB total sight deposits for the week ending September 24 came in at CHF714.5bn vs CHF714.7bn the previous week. The bank is monitoring movements in the markets without interfering.

 

[katetrades]

Forex Major Currencies Outlook (Oct 11 – Oct 15)

US inflation and consumption data will be the highlights of the slow week, from the standpoint of economic news, ahead of us. US markets will be closed on Monday due to Columbus Day so liquidity will be lower than usual.​

USD

The employment report disappointed with the headline NFP number coming in at 194k vs 500k as expected. Previous month’s reading was revised up to 366k. The unemployment rate has dropped to 4.8% from 5.2% in August but participation rate ticked down to 61.6% which is particularly concerning as it shows that more and more people are leaving the work force. Wages showed a 0.6% m/m and 4.6% y/y rise giving some positives to the report. The report now opens the question how will Fed proceed further with the planned taper since the theory of people hurling back to work once the school begins did not materialize. Is the report good enough for them to continue with the planned taper, or will they delay it, prolonging it with smaller monthly amounts, $15 bn vs $20bn as expected? Looking at report's details we see a good deal of positives which leads us to think that taper will proceed as planned.

US Senators have voted 50-48 in favour of new debt bill intended to extend the debt limit until December. With Democrats having a majority in the House, the bill should go unobstructed to President Biden for signing. December is less than two months away, so we will see the similar charade play out in the second part of November.

This week we will have inflation and consumption data. Inflation is expected to remain stable at the elevated levels while retail sales should continue to grow, however at a slower pace.

Important news for USD:

Wednesday:

• CPI

Friday:

• Retail Sales

EUR

Final services PMI for September in the Eurozone were slightly upgraded to 56.4 from 56.2 as preliminary reported. Both German and French readings saw small improvements indicating that demand is slowing at a slower pace than anticipated. Supply shortages are hampering the growth of the economies around Europe. Composite PMI ticked up to 56.2 from 56.1 as preliminary reported. Retail sales in August came in at 0.3% m/m vs 0.8% m/m, thus rebounding less than expected from -2.6% m/m reading in July. August reading leaves concerns about consumption growth in Q3 and with the furlough scheme ending combined with rising energy prices, outlook for consumption in Q4 is less than rosy.

GBP

Chancellor of the Exchequer is expected to announce a new jobs initiative intended to replace the furlough program that ended last month. Pound managed to stop last week’s bleeding and GBPUSD profited more than 50 pips on the week. However, rising energy prices and unresolved Brexit issues could lead to a continuation of the downtrend for the pair.

This week we will have employment data as well as GDP data for the month of August.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• GDP

AUD

RBA meeting was a non-event. The rate was left at 0.10% with targeted yield on 3-year government bond also at 0.10%. QE program will continue at a rate of AUD4bn/week until at least mid-February of 2022. Bank members confirmed that conditions for a rate hike will not be met until 2024. They see virus induced setback to be only temporary and expect growth to pick up in Q4, with many firms seeking to hire workers ahead of the expected reopening in October and November. We should get a confirmation of that next week when the new employment report is published. Australia recorded its largest ever trade surplus of AUD15077m in the month of August. Exports of coal and LNG were the biggest contributors and with energy crisis looming it is likely that we will see a growth in value for these exports.

This week we will have employment data from Australia as well as trade and inflation data from China.

Important news for AUD:

Wednesday:

• Trade Balance (China)

Thursday:

• Employment Change
• Unemployment Rate
• CPI (China)

NZD

RBNZ delivered on its promise and raised the interest rate by 0.25% thus making it the first major central bank to do so. Bank members concluded that it is appropriate to reduce the level of monetary stimulus and that the stimulus will be removed further over time. They see inflation reaching 4% in the near-term but returning toward 2% in the mid-term. Bank’s future moves are contingent on the medium-term outlook for inflation and employment. RBNZ has put itself firmly on the path of a rate hike cycle as many analysts agree that we will see rate hikes at November and most likely February meeting. NZDUSD was propelled up after the announcement but was subsequently dragged down by the overwhelming USD strength. Still, based on the interest rate differential and central bank policies NZD should strengthen in the coming weeks.

CAD

September employment report showed employment reaching pre-pandemic levels. Employment change came in at 157k vs 60k as expected. Internal data paint even brighter picture of the report. The unemployment rate fell to 6.9% from 7.1% in August and it was achieved on the back of surging rise in the participation rate (65.5% from 65.1% in August). All of the jobs added were full-time (193.6k) with part-time jobs showing a decline of -36.5k. CAD was already on the strong foot with WTICrude approaching the $80 level and this report will only underpin that strength. BOC will stay on the course to raise interest rates during the next year.

JPY

Headline CPI for the Tokyo area in September came in at 0.3% y/y vs -0.4% y/y the previous month. Rising energy prices have managed to push inflation numbers back into positive territory for the first time after July of 2020, but when we exclude energy and fresh food inflation is still negative (-0.1% y/y) and it is at zero or below zero for the sixth consecutive month. BOJ’s target of 2% is still miles away. Labor cash earnings for August came in at 0.7% y/y vs 0.6% y/y in July while household consumption plunged -3% y/y for the same period.

CHF

SNB total sight deposits continued to decline and came in for the week ending October 1 at CHF714.2bn vs CHF714.5bn the previous week. Inflation data for September showed headline number at 0.9%y/y, same as in August, vs 1.1% y/y as expected and core at 0.5% y/y, up from 0.4% y/y in August. With headline inflation remaining unchanged SNB is not prompted to take any action. Seasonally adjusted unemployment rate for the month of August ticked down to 2.8% from 2.9% in July indicating tightening of the labor market conditions in Q3.

 

[katetrades]

Forex Major Currencies Outlook (Oct 18 – Oct 22)

GDP data from China, inflation data from the UK and Canada as well as preliminary PMI numbers from the EU and the UK will dominate headlines in the week ahead of us.​

USD

September CPI numbers came in line with expectations with headline number at 5.4% y/y and core number at 4% y/y. Rising energy and food prices were the biggest contributor to the headline number. Highlight of the report were real weekly wages which rose 0.8% vs 0.2% in August indicating that inflation is coming from the demand side as well. Fed wants to see rising wages. One concerning thing about the wage rise is that it can also be attributed to low-wage workers being out of the market due to the virus-related issues, think about the food services. So far, markets are acting as the numbers strengthen the case for a November taper.

Retail sales for September came in at 0.7% m/m vs -0.2% m/m as expected. The US consumer is going strong. Control group, used for GDP calculation, came in at 0.8% m/m, same as the ex-autos category while ex-autos, gas came in at 0.7% m/m. Positive inputs for Q3 GDP and strength should continue into Q4 and should keep Fed undeterred from November taper.

EUR

ZEW survey showed a break in the trend of German current situation. It has snapped a streak of seven consecutive months of improvements. The reading came in at 21.6, a big drop from 31.9 in September. Rising energy prices are negatively impacting investors spirits. Expectations survey continued to decline and came in at 22.3, down from 26.5 in September. German investors do not see supply chain disruptions improving in the short-term and survey displays their pessimism. German economic institute has lowered German 2021 GDP to 2.4% from 3.7% as previously expected. They have raised their projection for 2022 GDP to 4.8% from 3.9%.

This week we will get preliminary PMI readings for October. Small drops are expected but readings will stay at elevated levels as we begin getting data from Q4.

Important news for EUR:

Friday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

The employment report showed claimant counts in September continuing to drop coming in at -51.1k. The ILO unemployment rate for August also continued to decline and came in at 4.5% with wages surprising and coming in at 7.2% 3m/m vs 7% 3m/m as expected. The furlough scheme ended in September so these numbers are still influenced by it and we can expect to get a clearer picture of the UK labour market with the next report.

BOE Governor Bailey stated its concern about the rising inflation while MPC member Saunders stated that because of the raging inflation interest rates could be raised before the year-end. Markets are now pricing around 36% chance for a rate hike in November. For the December meeting markets imply a rate hike of 15bp and see further rate hikes incoming in 2022.

This week we will have inflation and consumption data as well as preliminary PMI readings for October. Inflation data from the UK will be closely scrutinized as a hint for the incoming 2022 rate hikes.

Important news for GBP:

Wednesday:

• CPI

Friday:

• Retail Sales
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

The employment report for September showed another month of declines impacted by the lockdown. Employment change came in at -138k. The unemployment rate ticked higher for the first time since October of 2020 and came at 4.6%. However, the biggest concern from the report is that participation dropped to 64.5%. It was at 65.2% in August and 66% in July. Dwindling participation helped the unemployment rate to stay below 5%. All of the jobs lost were part-time (-164.7k) while full-time jobs improved 26.7k. As lockdowns ease we will see better employment figures, but improving the participation will take much longer.

Trade balance data from China showed another surge in trade balance surplus. Trade surplus in September was at $66.73bn, up almost $10bn from August reading ($58.3bn). Exports continued to increase and came in at 28.1% y/y while imports plunged from 33.6% y/y in August to 17.6% y/y in September. Imports are still at elevated levels, however they show signs that domestic demand for foreign products is dwindling, which can have devastating effect on other exporting nations. September inflation data saw CPI at 0.7% y/y while PPI rose on the back of energy prices 10.7% y/y for the biggest rise in almost three decades. The transfer of costs from producers to consumers is still missing.

This week get Q3 GDP reading from China, expected at around 5.2% q/q, along with production and consumption data.

Important news for AUD:

Monday:

• GDP (China)
• Retail Sales (China)
• Industrial Production (China)

NZD

Preliminary ANZ business confidence for the month of October cam in at -8.6, down from -7.2 in September. Inflation expectations were the main reason why the reading came weaker than a month ago as other details show a more encouraging picture. The report notes that most forward-looking activity indicators held up or improved with a decent jump in investment intentions. Capacity utilization, has a positive correlation with GDP, came in higher at 20% vs 17% in September.

CAD

Manufacturing sales in August came in at 0.5% m/m vs -1.2% m/m in July. An increase was led by sales of petroleum and coal, chemicals and primary metals On the other hand, significant declines were seen in wood products motor vehicles and motor vehicle parts. CAD was dominating the week with USDCAD dropping more than 150 pips while CADJPY jumped almost 300 pips and is now at levels not seen since December of 2015.

This week we will have inflation and consumption data

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Core machinery orders, a proxy for CAPEX in six-months time, in August were weaker than expected, coming in at -2.4% m/m vs 1.4% m/m as expected. The weakness came from manufacturers' orders (-13.4% m/m after rising 6.7% m/m the previous month). Supply-chain issues, plaguing the entire world, most likely led to weak steel, vehicles, and production equipment orders. Predominating JPY weakness continues as USDJPY crossed the 1.14 level for the first time since November of 2018.

CHF

SNB total sight deposits for the week ending October 8 came in at CHF714.1bn vs CHF714.2bn the previous week. It is a miniscule drop indicating that SNB wss selling EUR and USD and was quite comfortable with EURCHF averaging 1.0734 during the week.

 

[katetrades]

Forex Major Currencies Outlook (Oct 25 – Oct 29)

ECB, BOC and BOJ meetings as well as preliminary Q3 GDP readings from the US and the EU will highlight a busy week ahead of us.​

USD

Housing starts and building permits declined in September as a combination of high house prices and lack of supplies and workers proved too much. Housing starts came in at 1.555m vs 1.620m as expected while building permits came in at 1.589m vs 1.68m as expected. In August, the numbers were hefty 1.58m for starts and 1.721m for permits. Existing home sales painted a brighter picture and came in at 6.28m vs 6.09m as expected and up from 5.88m in August.

This week we will have GDP and PCE data. Recent stream of data, industrial production is one, led to scaling back of expectations for Q3 GDP. Both headline and core PCE are expected to tick higher to 4.4% and 3.7% respectively.

Important news for USD:

Thursday:

• GDP

Friday:

• PCE

EUR

Preliminary PMI data for Eurozone in October saw declines across the board. Manufacturing slipped to 58.5 vs 58.6 in September. Manufacturing output index fell to a 17-month low for France and a 16-month low for Germany, showing the growing difficulties that firms face due to supply constraints. Indications are that they will continue at least until the end of the year, thus making inflation pressures here to stay. Services reading also slipped to 54.7 from 56.4 in September, due to big drop in German reading, while the French reading improved a bit. Composite was seen at 54.3, down from 56.2 the previous month. Although the numbers are still elevated, they are distorted by the high prices paid index. Details reveal that Q4 started on a weaker note and pronounced weakness will continue in the coming months.

Bundesbank president Jens Weidmann will resign from his post at the end of the year due to personal reasons. Weidmann was president of German Central Bank since 2011. He is a staunch hawk and he will try to persuade ECB to reduce their asset purchase program at the December meeting, his last at the current position.

This will be a huge week for EUR in the terms of economic data as we will have ECB meeting coupled with preliminary October CPI and Q3 GDP readings. No changes in rate or policy are expected at this meeting as we expect bank members to continue with their “transitory inflation” narrative and push EUR lower.

Important news for EUR:

Thursday;

• ECB Interest Rate Decision

Friday:

• CPI
• GDP

GBP

Inflation has eased a bit in September with headline number coming in at 3.1% y/y, down from 3.2% y/y in August. Core inflation came in at 2.9% y/y, also down from 3.1% y/y the previous month. Additionally, expectations were for a bigger rise in price levels. This was a point for “team transitory”, however inflation is still at an elevated level and will not deter BOE from their course. ONS notes that biggest contributor to price rises was transportation while biggest drag were restaurants and hotels. “Eat Out to Help Out” scheme, was introduced in August of 2020, rolled out of the calculation, thus leading to lower price levels at September’s reading. Preliminary October PMIs show a rebound in economic activity as manufacturing broke the streak of four consecutive falling months and came in at 57.7 vs 57.1 in September. Services posted a bigger gain coming in at 58 vs 55.4 the previous month and helped propel composite to 56.8 from 54.9 in September. Manufacturing output fell to 8-month low indicating supply issues, however underlying data show that the economy has entered Q4 on a stronger foot.

BOE Governor Bailey stated: "Monetary policy cannot solve supply-side problems - but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations." Although he is sticking to the “transitory” inflation, his statement is a strong indication of BOE’s readiness to hike rates in the near future. Markets are now seeing November meeting as a 60/40 call in favour of rate hikes. Additionally, they see total of 3 rate hikes by the end of 2022, one 15bp and two 25bp, for a total of 0.75% rate by the year-end.

AUD

China Q3 GDP was a miss, coming in at 0.2% q/q vs 0.5% q/q as expected and 4.9% y/y vs 5.2% y/y. Data from Q2 was much higher as well at 1.2% q/q and 7.9% y/y. A deadly combination of virus resurgence, followed by reimposed lockdowns, supply chain bottlenecks and tighter monetary policy had a detrimental effect on GDP. Industrial production in September came in at 3.1% y/y vs 5.3% y/y in August. This represents the seventh consecutive month of declines with steel production being the main culprit for the decline. On the other hand, retail sales surprised to the upside and came in at 4.4% y/y, thus breaking the trend of six consecutive declining months. Looking into details of the report we see that jewelry and gold spending were the biggest contributor. This is not a typical spending item for the majority of the population, therefore questions about the strength of domestic demand during covid outbreaks remain prevalent.

This week we will have Q3 inflation data from Australia where a slight moderation is expected as well as official PMI data for October from China.

Important news for AUD:

Wednesday:

• CPI

Sunday:

• Manufacturing PMI (China)
• Non-manufacturing PMI (China)
• Composite PMI (China)

NZD

Q3 CPI data showed headline inflation coming in at 2.2% q/q vs 1.4% q/q as expected and 4.9% y/y vs 4.1% y/y. Q2 inflation was at 1.3% q/q and 3.3% y/y. StatsNZ comments that quarterly price rises were widespread with 10 of the 11 main groups in the CPI basket increasing. Main drivers for price increases were housing-related costs. Core CPI, RBNZ targets this number to be in range from 1% y/y 3%, came in at 2.7% y/y. With prices rising this fast and across all groups we can see RBNZ continuing their rate hike cycle which should keep NZD supported. Some analysts speculate that we could even see a full 50bp rate hike at the November meeting.

CAD

Inflation data in September showed the continuation of an uptrend. Headline number came in at 4.4% y/y, up from 4.1% y/y in August and higher than 4.3% y/y as expected. Median and trim core inflation measures also continued to rise, coming in at 2.8% y/y and 3.4% y/y respectively, while common core inflation measure came in unchanged at 1.8% y/y. Heating inflation numbers should push BOC to take a more hawkish stance at their incoming meeting.

This week we will have BOC meeting. There will be no changes to the rate, but QE will be lowered from CAD2bn/week to CAD1bn/week with expectations for it to be completely removed in December. Markets are pricing first rate hike to come in April of 2022 and total of three rate hikes in the 2022. BOC stated that their path is to raise interest rates in H2 of 2022 as they expect output gap to close by mid-2022.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Higher energy prices have managed to push headline inflation in September to 0.2% y/y from -0.4% y/y in August, thus making it first time that inflation is positive since August of 2020 when it was at 0.2%. Ex fresh food category also returned into positive territory with 0.1% y/y, while ex fresh food, energy came in at -0.5% y/y. The readings are still miles away from BOJ’s target of 2%, but when we take into consideration inflation in other countries, Japan’s reading shows how deep disinflationary impulses are entrenched in the economy.

Preliminary October PMI data showed improvements across the readings. Manufacturing climbed to 53 from 51.5 while services breached the 50 level for the first time since January of 2020 by coming in at 50.7. State of emergencies were lifted around the country which pushed sentiment indicating optimism in the services sector. Composite reading also came in at 50.7. It was a tough week for the yen. Japan is a large energy importer and with energy prices rising constantly, it took its toll on the currency. USDJPY has risen to the new four-year highs. General elections will be held on Sunday October 31.

This week we will have a BOJ policy meeting. There will be no changes to rate or policy but cuts to growth and inflation forecasts are expected.

Important news for JPY:

Thursday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending in October 15 came in at CHF714.3bn vs CHF714.1bn the previous week. There is a small increase in the reading as EURCHF dropped below the 1.07 level during the previous week, but it quickly recovered and stayed above that level.

 

[katetrades]

Forex Major Currencies Outlook (Nov 1 – Nov 5)

Another week with three central bank meetings. Fed, BOE and RBA will all meet and all three meetings are considered to be live. Additionally, we will get NFP coupled with employment data from Canada and New Zealand.​

USD

Advance reading of Q3 GDP came in at 2% vs 2.7% as expected. Personal consumption recorded the biggest drop and came in at 1.6%, down from 12% in Q2. However, expectations were for it to come at just 0.9% so it managed to beat them. The mainly culprit for the drop in personal consumption was slowdown in motor vehicle purchases. The biggest contributor to the reading were inventories which added 2.07pp. Investment and net trade were drags on the GDP as well as the auto sector which took 2.7pp from the GDP. Delta variant and supply chain disruptions led to the weak reading, but as Delta is subsiding we can expect a decent rebound in Q4. PCE, Fed’s preferred inflation measure, for October came in at 4.4% y/y, up from 4.2% y/y in September while core reading stayed at 3.6% y/y for the fourth consecutive month.

This week we will have ISM PMI data, Fed meeting and NFP on Friday. Fed should start to taper at a pace of $15bn/month, with $10bn in Treasuries and $5bn in Agency MBS and thus finish tapering in June of 2022. Headline NFP number is expected to come at 300k with the unemployment rate staying unchanged at 4.8%.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI
• Fed Interest Rate Decision

Friday:

• Nonfarm Payrolls
• Unemployment Change

EUR

German Ifo data for October showed business climate continuing to decline for the fourth consecutive month and coming in at 97.7, down from 98.8 in September. Outlook component dropped to 95.4 from 97.3 the previous month indicating that supply chain disruptions and rising energy and commodity prices will be here for a foreseeable future. Ifo economist Klaus Wohlrabe stated that German GDP is expected to grow by about 0.5% in Q4. Potential Q4 GDP is too close to 0 so concerns about stagnation or possible negative reading are mounting.

ECB has left rates unchanged at their October meeting as expected. APP program will continue at €20bn/month while net PEPP purchases are continuing at “moderately lower pace”. ECB President Lagarde stated that recovery after the start of pandemic is continuing, but at a moderate pace. On the inflation front, expectations are for it to continue to rise due to rising energy prices, demand being higher than supply and base effects, namely reintroduction of German VAT, but then to decline in 2022. Economy is expected to exceed pre-pandemic level by the end of the year. Inflation will be staying for bit longer than previously thought, but it is still characterized as transitory. Preliminary inflation for October showed headline number at 4.1% y/y, up from 3.4% y/y in September for a 13-year high reading. Core inflation rose above the 2% level (2.1% y/y vs 1.9% y/y the previous month). December meeting is gaining in importance for potential tapering of asset purchase program amidst rising prices.

GBP

New UK budget was presented and general government gross debt equalled 103.6 percent of national GDP. The pound was basically a non mover for the week with GBPUSD posting yet another doji weekly candle as markets are preparing for the BOE decision. Indecision among the investors is palpable with GBPJPY failing to reach new highs.

This week we will have BOE meeting. Markets are giving around 60% chance of a 15bp rate hike which would push interest rate to 0.25%.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Headline inflation for Q3 came in unchanged at 0.8% q/q as expected while yearly figure came a tad softer (3% y/y vs 3.1% y/y as expected and down from 3.8% y/y in Q2). On the other hand, core inflation reading came in at 0.7% q/q vs 0.5% q/q as expected and 2.1% y/y vs 1.8% y/y as expected. Not only did the core reading come above expectations, but it is no within the RBA inflation target range (2-3%). RBA should characterize this jump in core reading as “transitory” and stick to its mantra of inflation not sustainably being within 2-3% range until 2024. One quarterly readings is certainly not enough for any changes in the policy but if Q4 inflation stays within central bank’s range we could see a shift in the monetary policy.

This week we will have RBA meeting and trade balance data from China. This week RBA has left yield on 3-year bond rise above their 0.10% target, it went above 0.50%, so we may see abandoning of yield curve control.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

Sunday:

• Trade Balance (China)

NZD

Trade balance deficit has posted a record high in September by coming in at -NZD2171m. Record high imports show both the impact of high prices and a strong demand for capital goods. RBNZ Governor Orr stated that monetary easing policies have run their course globally and has done as much as it can. He added that we are now entering new environment for rates and inflation.

This week we will have employment data.

Important news for NZD:

Tuesday:

• Employment Change
• Unemployment Rate

CAD

BOC gave markets what they expected and then added some! Expectations were for QE to be reduced from CAD2bn/week to CAD1bn/week but instead they have completely terminated QE program. Additionally, they now see output gap closing in “middle quarters” of 2022, while it was seen at H2 of 2022. This leaves room for earlier rate hikes with March and April meetings looking like the most likely contenders. Inflation for 2022 is now seen at 3.4%, a huge jump from 2.4% seen in July. Governor Macklem expressed his astonishment with how well the economy has rebounded since the start of the pandemic.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

BOJ meeting went on as was widely expected. There were no changes to the rate, yield curve control or monetary policy while growth and inflation projections were revised down. Core CPI is now seen flat for fiscal 2021/22, down from 0.6% in July. Projections for core CPI for fiscal 2022/23 and 2023/24 were unchanged at 0.9% and 1% respectively. GDP for 2021/22 was downgraded to 3.4% while for 2022/23 it was upgraded to 2.9% from 2.7% from July. BOJ Quarterly report shows that economy is in severe state but picking pace with consumption showing signs of improvement along with inflation expectations. Exports and output will slow down temporarily due to supply constraints while the signs of improvement are likely to spread from corporate to household sector. Inflation in October for the Tokyo area started moving toward the BOJ’s projected level coming in at 0.1% y/y vs 0.5% y/y as expected. Ex fresh food category, the core reading, was unchanged at 0.1% y/y.

CHF

Total sight deposits for the week ending in October 22 came in at CHF715.3bn vs CHF714.3bn the previous week. With EURCHF spending the majority of the week below the 1.07 level SNB felt compelled to act in the markets and buy EUR.

 

[katetrades]

Forex Major Currencies Outlook (Nov 8 – Nov 12)

After a hugely eventful week we will gets some rest as the week ahead of us will be a quiet one lead by US inflation and preliminary Q3 GDP data from the UK.​

USD

November Fed meeting did not disappoint. Fed members acknowledged that economy is moving satisfactory along the recover road and proceeded with a taper of $15bn/month ($10bn/month in Treasuries and $5bn/month in Agency MBS). Another round of $15bn/month is announced for December. This means that the Fed is still buying $105bn of securities in November and $90bn in December. Fed left the doors open to further adjustments of taper amount according to the conditions in the economy, they can both increase or decrease the taper amount. Higher inflation or inflation expectations as well as tighter labour market conditions could lead to increases in taper amount. Wording on inflation has been changed to "Inflation is elevated, largely reflecting factors that are expected to be transitory" from "largely reflecting transitory factors" as described in the previous meetings. Chairman Powell stated at the press conference that bottlenecks should ease in 2022 adding that inflation is due to supply issues and a very strong demand. He stated that, according to committee, it is not time to raise interest rates because maximum employment has not been reached yet, while the markets price in above 60% chance of a rate hike in June of 2022.

October nonfarm payrolls came in at 571k vs 423k as expected. Additionally, August reading was upwardly revised to 312k from 194k. The unemployment rate has dropped to 4.6% while participation rate stayed unchanged at 61.6%. Although participation rate is low compared to the pre-pandemic levels it is impressive that the unemployment rate fell and it was not changed. The underemployment rate also dropped to 8.3% indicating that people are more successful at finding jobs that match their skills. On the wages front monthly reading came in as expected at 0.4% m/m, but still down from 0.6% m/m in August. Yearly reading improved to 4.9% y/y. Leisure and hospitality sector was the biggest contributor to the headline reading followed by business services and manufacturing jobs.

This week we will have inflation data which is expected to tick higher and continue the upward trend.

Important news for USD:

Wednesday:

• CPI

EUR

The Eurozone final manufacturing IMP was slightly lower than the preliminary estimate coming in at 58.3, down from 58.5 initially and 58.6. It is a fourth consecutive decline and it was lowered on the back of Germany's manufacturing PMI being lowered to 57.8 from the 58.2 as preliminary reported and 58.4 in September. The French reading was tweaked up to 53.6 from 53.5. Rising supply delivery index, which is inverted so the higher reading means there are bigger supply issues, holds the reading high. Both services and composite PMIs ticked down to 54.6 from 54.7 and to 54.2 from 54.3 respectively.

GBP

BOE has decided to leave the rate unchanged at 0.10% thus surprising the bigger part of markets that included a 15bp raise to 0.25%. Vote was 7-2 with hawks Ramsden and Saunders voting for rate hike. Inflation is expected to dissipate over time. MPC members feel that existing stance of monetary policy is appropriate adding that it will be necessary to increase the rate in the coming months to return inflation toward the 2% rate. At the press conference Governor Bailey stated that it was a close call whether to raise rates adding that they never said they will act at a particular meeting. We expect to see them acting at the December meeting as they will have two post-furlough jobs reports to evaluate thus giving them clearer picture of the economy.

This week we will have a preliminary Q3 GDP reading.

Important news for GBP:

Thursday:

• GDP

AUD

RBA has left its rate unchanged at 0.10%, however they have officially abandoned their targeted yield of 0.10% for 3-year government bond. We say officially because last week the yield climbed over 0.50% and RBA did not fight the market which signalled that abandonment of yield curve control will come at November meeting. They will continue to purchase government securities at a pace of AUD4bn/week until at least mid February 2022. New projections see GDP for 2021 at 3% while 2022 and 2023 are seen at 5.5% and 2.5% respectively. The unemployment rate is expected to decline, reaching 4.5% by the end of 2022 and 4% by the end of 2023. Inflation has picked up and only gradual, pick-up in underlying inflation is expected. The central forecast is for underlying inflation of around 2.25% over 2021 and 2022 and 2.5% over 2023. There was a minor tweak to forward guidance and Governor Lowe stated that rate hikes could be appropriate in late 2023. RBA Statement of Monetary Policy showed that for inflation to sustainably be between 2-3% target it is necessary for wages to be higher. The board added that it will not raise interest rates until these criteria are met and is willing to be patient. AUD has been pushed down on dovish RBA and AUDUSD had a first down week after five weeks up. Wage growth is now a priority for the bank.

Official PMI data for October from China showed manufacturing continue to slump for the seventh month in a row, second in contraction and came in at 49.2 vs 49.6 in September. Energy shortages and supply constraints were main culprits for the decline. Non-manufacturing also declined, but held much better, coming in at 52.4 vs 53.2 the previous month. Government’s deleveraging reform as well as Covid 19 restrictions have led to declines. On the other hand, Caixin manufacturing PMI improved to 50.6 vs 50 as expected and previous month. New orders subindex continued to expand while new export orders subindex continued to decline, illustrating difference between domestic and international demand. Output subindex declined for the third consecutive month due to power outages and rising commodity prices. Caixin services also held better than officially reported, coming in at 53.8 vs 53.4 in September and much better than 50.7 as was expected which slightly lifted composite reading to 51.5 from 51.5 the previous month.

This week we will have employment data from Australia as well as inflation data from China.

Important news for AUD:

Wednesday:

• CPI (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Q3 employment report showed tremendous health of the economy. Employment change came in at 2% q/q, double that of the previous quarter (1% q/q). The stars were the unemployment rate and participation rate. The unemployment rate fell to 3.4%, a record low, from 4% in Q2 and it was achieved on rising participation rate which came in at 71.2%, up from 70.2% in the previous quarter. Wages slightly missed expectations (2.5% y/y vs 2.6% y/y as expected), but are higher than in Q2 and are moving in the right direction. RBNZ will happily continue with their rate hike cycle after such strong labor data. GDT auction posted a rise of 4.3% which will help improve New Zealand’s terms of trade as dairy is their largest export.

CAD

October employment report came short on the headline number with reading printing 31.2k vs 42k as expected. However, underlying data shows a much brighter picture. The unemployment rate slipped to 6.7%, lowest since March of 2020. Additionally, all of the jobs added were full-time jobs (36.4k) while part-time jobs showed a decline (-5.2k). To top the report, wages continued to grow and now show 2.1% y/y increase. With oil falling after the OPEC meeting, good employment reading was necessary to add some strength to CAD.

JPY

Prime Minister Fumio Kishida has secured a majority in the lower house for his incumbent Liberal Democratic Party (LDP). The market expect the LDP to stimulate the economy through fiscal stimulus and it gave Japanese stocks a nice boost. Final services PMI for October came in at 50.7, same as the composite reading. Services sector showed the first rise in business activity, return to expansion territory, in almost two years, since January of 2020. Employment levels are rising as well as business confidence which reached the highest level since 2013.

CHF

SNB total sight deposits for the week ending October 29 came in at CHF717.1bn vs CHF715.3b the previous week. This is the first bigger rise in sight deposits in a long time due to EURCHF falling below the 1.06 level for the first time since May of 2020, thus prompting SNB to buy EUR and USD. October inflation data showed headline number at 1.2% y/y, up from 0.9% y/y in September and core CPI at 0.6% y/y vs 0.5% y/y the previous month. Higher than Japan, but much lower than in the rest of the world. It will not pose a problem for the SNB.

 

[katetrades]

Forex Major Currencies Outlook (Nov 15 – Nov 19)

Consumption data from around the world led by retail sales from the US will dominate the week ahead of us which will start with preliminary Q3 GDP reading from Japan.​

USD

Inflation continues to run rampant in October. Headline CPI number came in at 6.2% y/y vs 5.8% y/y as expected while core CPI came in at 4.6% y/y vs 4.3% y/y as expected. Gasoline and energy were the biggest contributors along with prices of used cars, but other categories also showed increases in prices indicating that inflation pressures are widely spread. Inflation readings are at 30-year highs with no signs of stopping. Some analysts see headline number climbing to 7%. Rampant inflation should see Fed increasing their QE taper starting from January of 2022 with possibility of ending it by the end of Q1 2022. Markets are now pricing in a greater probability of a June 2022 rate hike. San Francisco Federal Reserve Governor, Mary Daly stated that inflation is “eye popping” but still consider it transitory.

This week we will have consumption data, expected to show a modest decline from the September reading.

Important news for USD:

Tuesday:

• Retail Sales

EUR

ZEW survey for November showed a big drop in current conditions for German economy. The reading came at 12.5 vs 18 as expected and down from 21.6 in October. Ongoing supply chain constraints coupled with rising price pressures weighted heavily on the current conditions. On the other hand, expectation category showed a jump to 31.7 from 22.3 in October indicating that German financiers see improvements in the coming months. Eurozone expectations category shared the similar assessment and came in at 25.9, up from 21 the previous month.

European commission went out with new economic projections. They now see 2021 GDP at 5% vs 4.8% previously. Growth for 2022 has been reduced to 4.2% from 4.5% as previously seen while GDP for 2023 is left unchanged at 2.4%. On the inflation front, inflation for 2021 is seen at 2.4%, up from 1.9% previously. For 2022 they see inflation at 2.2%, up from 1.4% previously while inflation for 2023 is unchanged at 1.4%.

This week we will have a second estimate of the Q3 GDP.

Important news for EUR:

Tuesday:

• GDP

GBP

Preliminary Q3 GDP came in at 1.3% q/q vs 1.5% q/q as expected. Private consumption was up 2% in the third quarter while business investment was up 0.4%. The largest contributors were hospitality (30%), arts and recreation (19.6%) and health (3.5%) as parts of the further reopening of the economy.

This week we will have employment, inflation and consumption data. All three will have a significant impact on BOE and their potential decision to hike rate at their December meeting. Employment will show the strength of the labor market post-furlough scheme.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Employment data for October was abysmal. Employment change came in at -46.3k vs 50k as expected. The unemployment rate jumped from 4.6% in September to 5.2%. Only a mild jump to 4.8% was expected. Participation rate rose to 64.7% from 64.5% the previous month but markets were expecting it to go to 64.9%. Full-time employment dropped -40.5k while part-time was at -5.9k. AUD was pummeled on the release but it seems that survey was done before the reopening in the state of Victoria so it failed to take that into account. November report will provide us with a clearer picture of labor market conditions.

October trade data showed China set a new record surplus of $84.5bn. Exports have risen 27.1% y/y while imports came in at 20.6% y/y, weaker than expected but still rising faster than in the previous month. Recent changes in government policies impacted incomes and could lead to further deterioration in demand thus negatively impacting imports. Exports are expected to stay high as incoming holiday season will lead to increase in demand for goods from China. Additionally, rising exports may signal easing of supply chain constraints. Overall we see net exports increasing in Q4 and being a positive contributor to the GDP reading. Both inflation data for the month of October jumped. CPI came in at 1.5% y/y, up from 0.7% y/y in September while PPI came in at 13.5% y/y, up from 10.2% y/y the previous month. Increase in energy and raw material prices led to jump in PPI and we can see those costs spilling over into the CPI. Non-food prices were the biggest contributor to the rise in CPI coming in at 2.4% y/y.

This week we will have production and consumption data.

Important news for AUD:

Monday:

• Industrial Production (China)
• Retail Sales (China)

NZD

Electronic card retail sales, which covers around 70% of retail sales, rebounded in October and came in at 10.1% m/m vs 0.9% m/m in September and -7.6% y/y vs -14.9% y/y the previous month. Data from New Zealand continues to improve as economy is firing on all cylinders and we can expect to see yet another strong quarter with a 25bp rate hike from RBNZ.

CAD

Oil posted a third consecutive week of declining prices. The price is holding above the $80 level but the streak is of little help to CAD. Coupled with USD strength after huge CPI reading and USDCAD rallied hard and the pair is be seen at levels not seen since October 6. With QE being removed and strong economic data from Canada prompting BOC to state that output gap should be closed in middle quarters of 2022, CAD should be buy on dips.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

PPI data for October came in at 1.2% m/m and 8% y/y. The yearly figure represents a 40-year high, highest since January of 1981, for the reading. Rising cost pressures, especially fuel related, in combination with timber goods were the main culprits. Weak JPY also contributed to the rise of prices of imported goods. Transmission of these prices to consumers could have a big impact since wage growth is weak. Newly appointed Prime Minister Kishida announced his plans to deliver a range of cash payouts to households as part of a fresh stimulus package.

This week we will have a preliminary Q3 GDP reading that is expected to come in negative and induce a further stimulus from the government.

Important news for JPY:

Monday:

• GDP

CHF

Seasonally adjusted unemployment rate for October ticked down to 2.7% from 2.8% in September thus continuing the trend of falling unemployment. Labor market has been tightening every month since July. SNB total sight deposits for the week ending November 5 came in at CHF718.4b vs CHF717.1b the previous week. With EURCHF spending the entire week below the 1.06 level SNB is ramping up its activities in the market, buying EUR, in order to lift the pair to more appropriate levels.

 

[katetrades]

Forex Major Currencies Outlook (Nov 22 – Nov 26)

RBNZ meeting will dominate the week ahead of us with preliminary PMI data from Eurozone, the UK and Japan following suit. Thanksgiving holiday falls on Thursday, stock and bond markets will be closed on that day and close early on Black Friday as well, thus significantly lowering liquidity in the market.​

USD

October retail sales came in at 1.7% m/m vs 0.8% m/m as expected indicating that holiday shopping came early this year. This could be seen in non-store retailers posting a jump of 4% m/m. Additionally, high gasoline prices attributed to the rise in retail sales. Ex-autos category also rose 1.7% m/m. Control group, data from it is used for GDP calculation, came in at 1.6% m/m vs 0.9% m/m as expected, thus pointing to a strong start to Q4 and potential for GDP to reach 6% in the stated quarter. Industrial production snapped a streak of 5 drops in yearly figures and in October came in at 5.1% y/y, up from 4.6% y/y in September. President Biden announced that he will announce his decision regarding next Fed Chairman before Thanksgiving. Current chairman Powell and Lael Brainard are candidates for the spot.

This week we will have second reading of Q3 GDP, Fed’s preferred measure of inflation (PCE) and FOMC minutes from the latest meeting.

Important news for USD:

Wednesday:

• GDP
• PCE
• FOMC Minutes

EUR

Eurozone trade balance in October slumped to €6.1bn from €11.1bn in September. This is the first time that surplus was a single digit number since April of 2020. To further complicate the things and show how supply chain issues are devastating exporting countries the September reading was downgraded to €9.7bn. Q3 GDP second reading came in unchanged from the preliminary reading at 2.2% q/q and 3.7% y/y. Final inflation reading for the month of October showed headline number unchanged at 4.1% while core ticked down to 2% y/y from 2.1% y/y as preliminary reported. ECB sticks with their “transitory inflation” narrative and core staying at their targeted level leaves them with enough room to remain patient.

This week we will have preliminary November PMI readings, expected to point to further declines but still stay safely in the expansion territory.

Important news for EUR:

Tuesday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

October claimant counts came in at -14.9k vs -51.1k in September which led claimant count rate to drop to 5.1% from 5.2% the previous month. The ILO unemployment rate for September dropped to 4.3% from 4.5% in August with employment change showing 247k 3m/3m. Earnings showed a slight declines from the elevated levels seen in the previous months but that is no way detracting from a strong labor market which now shows 32.52m people employed. Additionally, earnings are higher than inflation. The expected rise in the unemployment rate after the furlough scheme ended is missing thus giving another nudge for BOE to go for a hike in December. They will have one more employment report before the meeting.

October inflation figures went through the roof with headline jumping to 4.2% y/y vs 3.9% y/y as expected and up from 3.1% y/y in September. The jump in core was less pronounced as it came at 3.4% y/y vs 3% y/y as expected and up from 2.9% y/y the previous month. Household and household services were the biggest contributor, electricity, gas and other fuels leading the way, while transport and restaurants and hotels also pushed prices higher. The reading should add more credence to the theory that BOE will hike 15bp in December and GBP is gaining strength on the back of it.

AUD

RBA minutes from the November meetings reiterated that the bank is not going to raise interest rates until wage growth and inflation targets are met. According to their central scenario these conditions will not be met until 2024. The bank did leave room open for a potential rate hike in 2023 if the criteria is met. RBA Governor Lowe stated in speech that underlying inflation of 2.5% will warrant a rate hike. He added that inflation needs to persistently stay in their targeted range of 2-3% for the rate hike to occur. Additionally, if the prices start rising sharply it will have different effects on policy, however, transitory spikes in core inflation will be overlooked if they are not followed by the growth in wages. Wage price index for Q3 came in at 0.6% q/q and 2.2% y/y, as was expected, thus confirming wage growth inadequate for a rate hike in 2022. RBA wants to see wages above 3% y/y in order to sustain inflation within the 2-3% targeted range.

Data from China showed improvements. Industrial production snapped a seven-month streak of declines in October and came at 3.5% y/y vs 3.1% y/y in September. Retail sales continued to improve and now we have a two months of improving data. October reading came in at 4.9% y/y, up from 4.4% y/y in September. Digging further into the details we can see mining contributing the most to the rise in industrial production while the beginning of the spending season prompted retail sales higher.

NZD

GDT price index came in at 1.9%, continuing its rise for the third consecutive auction. RBNZ’s Q4 survey of 2-year inflation expectations came in at 2.96% vs 2.27% in Q3. For the 1-year inflation expectation the reading printed 3.7%, up from 3.02% in Q3. The results give near certainty to the new 25bp rate hike at the upcoming RBNZ meeting while a possibility of a 50bp rate hike starts to gain traction.

This week we will have consumption data for Q3 as well as RBNZ meeting. All of the incoming data was uplifting so we expect RBNZ to continue down the rate hike path and hike by 25bp.

Important news for NZD:

Monday:

• Retail Sales

Wednesday:

• RBNZ Interest Rate Decision

CAD

Headline inflation in October continued to rise according to the trend from around the world. The reading printed 4.7% y/y, up from 4.4% y/y in September and it is now at the highest level since February of 2003. All of the inflation components rose with the biggest rise seen in transport category. Its rise was spurred by the exploding energy prices, gasoline primarily. Core readings were unchanged with median, common and trim readings coming in at 2.9% y/y, 1.8% y/y and 3.3% y/y respectively.

JPY

Q3 GDP data came in at -0.8% q/q vs -0.2% q/q and -3% y/y vs -0.8% y/y as expected. Household consumption fell -1.1% q/q while business investment fell by -3.8% q/q. Exports were down -2.1% q/q and it represents the first fall in 5 quarters. GDP deflator, measurement of inflation, came in at -1.1% q/q, continuing to decline making it a third consecutive declining quarter. Abysmal data was led by declines in autos (both investment and consumption) as well as household electronic consumption. Q3 was heavily impacted by the states of emergencies and other covid induced movement restrictions. Since they are now behind us we may expect to see a bounce back in Q4.

The government has revealed its stimulus package over the weekend and it is said to be north of JPY40 trillion. There will be JPY100k handouts in cash and vouchers for underage children as well as for students facing financial difficulties. The stimulus will also include aid of up to JPY2.5m per business for businesses suffering from virus caused issues. Japanese cabinet has approved the package and total size will be JPY55.7 trillion.

CHF

SNB total sight deposits for the week ending November 12 came in at CHF719.2bn vs CHF718.4bn the previous week. With EURCHF persistently below the 1.06 level, hovering around 1.0540, the SNB sees the need to increase their intervention in the markets by buying EUR and thus attempting to lift up the pair. During the week EURCHF pair has dropped below the psychological 1.05 level so total sight deposits in the coming weeks will show SNB’s resolution to fight the Swissy strength.

This week we will have Q3 GDP data.

Important news for CHF:

Friday:

• GDP

 

[katetrades]

Forex Major Currencies Outlook (Nov 29 – Dec 3)

As we enter into the final month of the year we will have NFP and Canadian employment report coupled with Q3 GDP data from Australia and Canada as well as PMI data from China.​

USD

PCE data for the month of October continue to show price pressures mounting in the US. Headline number came in at 5% y/y vs 4.6% y/y as expected and up from 4.4% y/y in October. Core PCE number came in at 4.1% y/y as expected, up from 3.7% y/y the previous month. The biggest contributor to price rises was energy goods and services category which jumped astonishing 30.2% y/y. Food prices notched a jump of 4.8% y/y. Personal income rose 0.5% while personal spending jumped 1.3% as Americans started their holiday shopping early.

The White House has re-nominated Jerome Powell to a new four-year mandate as a Fed Chairman. Lael Brainard was nominated to be a vice-chairman in the Fed Board of Governors, thus replacing Richard Clarida. This outcome ensures that monetary policy will stay on its course with QE tapering. Markets are pricing in two full rate hikes in 2022, most likely at September and December meetings. San Francisco Fed President Mary Daly, considered a dove, stated that the case for speeding up the taper can be seen. When a well-known dove comments in a hawkish way markets listen. Her comments should keep USD supported.

This week we will have ISM PMI data as well as NFP on Friday. Headline number is expected to come around 550k with the unemployment rate slipping to 4.5%.

Important news for USD:

Wednesday:

• ISM Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings
• ISM Non-Manufacturing PMI

EUR

Eurozone preliminary PMI data for the month of November surprised to the upside. Manufacturing came in at 58.6 vs 57.3 as expected and up from 58.3 in October. Services came in at 56.6 vs 53.5 as expected and up from 54.6 the previous month which pushed composite to 55.8 vs 53.2 as expected and up from 54.2 in October. Both German and French readings were showed improvements from last month with new orders subindex expanding further. Supply chain disruptions are still causing issues for the manufacturing sector and Markit notes that potential new lockdowns across the continent may hurt rebound seen in services sector. Costs component in PMI data continued to increase and it dovetails nicely with the comment from ECB’s Executive Board member Isabel Schnabel, given in a Bloomberg interview, that “the risks to inflation are skewed to the upside”. Her remark may be indicating that ECB is preparing to gradually remove loose monetary policy stance and that we can expect confirmation of PEPP program ending in March of 2022 at the December meeting.

German Ifo business climate for the month of November came in at 96.5 as expected, down from 97.7 in October. Current conditions and outlook came in line with expectations (99 and 94.2 respectively), but were both down from the previous month (100.1 and 95.4 respectively). Business climate and outlook are falling for the fifth consecutive month while current conditions notched three consecutive months of declines. Ifo economist Klaus Wohlrabe stated that falls in Ifo indexes give cause for concern adding that supply bottlenecks are still ongoing and putting pressures on companies. Increasing number of companies plans to transfer price pressures to consumers. Finally, he sees Q4 GDP stagnating.

This week we will have a preliminary November inflation reading, expected to continue rising.

Important news for EUR:

Tuesday:

• CPI

GBP

Preliminary November PMI data was mixed compared to the previous month, but all of the readings beat the expectations. Manufacturing PMI improved to 58.2 from 57.8 in October while services slipped to 58.6 from 59.1 the previous month. Composite also slipped down to 57.7 from 57.8 in October. According to Markit, output continued to grow in both services and manufacturing with new businesses accelerating growth indicating a strong December as well. Supply chain issues persist and price pressures continue to mount as we get closer to the year-end.

AUD

Q3 Capex slumped -2.2% q/q vs -2% q/q as expected. Q2 reading was revised down from 4.4% q/q to 3.4% q/q. Australia experienced heavy lockdowns during Q3 and it reflected on investment, particularly in equipment, plant and machinery which showed a decline of -4.1% q/q vs 2.7 q/q in Q2 as well as in building and structures which came in at -0.2% q/q vs 4.2% the previous quarter. Preliminary retail sales for the month of October showed a high jump to 4.9% m/m vs 2.2% m/m as expected and up from 1.3% m/m in September showing that consumer will guide economic rebound in Q4 after the lockdown impacted Q3.

This week we will have Q3 GDP data from Australia and both official and Caixin PMI data from China.

Important news for AUD:

Tuesday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Wednesday:

• GDP
• Caixin Manufacturing PMI (China)

Friday:

• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

RBNZ has raised the official cash rate (OCR) by 25bps as was widely expected. The rate now stands at 0.75% and board members noted that it is appropriate to continue with reducing monetary stimulus in order to keep inflation low and achieve maximum sustainable employment. The bank has put out new projections which see OCR at 0.94% in March of 2022 vs 0.86% previously and at 2.14% in December of 2022 vs 1.62% previously indicating that they are firmly on the rate hike path. Inflation is seen at 3.3% by the end of 2022, it was 2.2% in previous projection and assessment is that inflation will peak at 5.7% in Q1 of 2022 before returning toward 2% in the next couple of years. Governor Orr stated in a press conference that the 25bp rate hike gives them more options and that due to a high debt load, the bank needs to be cautious. Retail sales for Q3 came in at -8.1% q/q vs -10.5% q/q as expected. New Zealand was under lockdown during Q3 and it reflected in retail sales numbers. Still the reading managed to beat expectations showing additional strength of the economy and consumer.

CAD

Canadian dollar had another slow week with USDCAD falling for the fifth straight week and moving closer to the 1.28 level. The decline was exacerbated with a discovery of new covid strain, named Omicron, which sent oil prices dropping below $70 and dragging CAD down.

This week we will have Q3 GDP data as well as November employment report.

Important news for CAD:

Tuesday:

• GDP

Friday:

• Employment Change
• Unemployment Rate

JPY

Preliminary November PMI data showed improvements across the board. Manufacturing climbed to 53.5 from 53.2 in October while services went deeper into expansion and posted a second consecutive month above the 50-level coming in at 52.1. Composite was thus pushed up to 52.5 from 50.7 the previous month. Output and new orders components showed stronger growth while new orders mostly pointed to growth. Input prices point to a stronger inflation while employment slowed down and outright declined in the service sector. Markit notes that "private sector companies were strongly optimistic that business activity would rise in the year ahead. Positive sentiment was the strongest on record".

Inflation for Tokyo area in November improved to 0.5% y/y vs 0.1% the previous month on the back of rising energy prices. Both ex fresh food category and ex fresh food, energy came in at 0.3% y/y. With inflation running rampant around the world even Japan managed to post increase in overall prices. JPY gained strength as the new covid variant, called Omicron by the WHO, originating in South Africa. It is thought to have the most mutations off all of the existing variants. It has brought a risk-off environment in the markets and JPY was the biggest benefactor of it with thin liquidity market conditions adding to the magnitude of moves.

CHF

SNB total sight deposits for the week ending November 19 came in at CHF719.3bn vs CHF719.2bn the previous week. This is a rather surprising data point since EURCHF dropped below the 1.05 level in the previous week and SNB did not intervene. Q3 GDP data show that economy grew by 1.7% q/q vs 2% q/q as expected and 4.1% y/y vs upwardly revised 8.6% y/y in the previous quarter. The details of the report show accommodation and food category doubling from Q2 while big growth was also seen in arts, entertainment and recreation.

 

[katetrades]

Forex Major Currencies Outlook (Dec 6 – Dec 10)

RBA and BOC meetings will highlight the week coupled with inflation data from the US as we get closer to the year-end.​

USD

Fed Chairman Powell dropped a bomb onto the markets in his testimony in front of the Congress. He stated that it is time to retire “transitory” for inflation and added that it is appropriate to speed up the pace of tapering at the incoming meeting. USD reacted positively to his hawkish remarks and gained more than 100 pips against most currencies during Powell’s testimony. Markets have interpreted that inflation will stay for a longer period of time and that faster taper adds more to the credibility of two rate hikes in 2022 and even open up a possibility of a rate hike in May. Regarding the impact of Omicron variant Powell stated that there is not enough information at the moment and that they will know more in 5-10 days.

ISM manufacturing PMI for the month of November continued to improve and came in at 61.1, up from 60.8 the previous month. Production and new orders indexes are above the 60-level indicating a very healthy and strong sector. Backlog of orders is also above the 60-level while customer inventories continue to drop suggesting pricing power for producers and that demand will keep the sector strong well into 2022 and will give a big push to Q4 GDP.

Headline NFP number in November printed just 210k when it was expected to show 550k. The unemployment rate dropped to 4.2% from 4.6% in October while participation rate rose to 61.8% from 61.6% the previous month. Wages, on the other hand, slipped to 0.3% m/m and 4.8% y/y from 0.4% m/m and 4.9% y/y in October. It was a mixed report that had something for everyone. More people returned to the work force, however wages slid and that is deflationary. Fed should continue to speed up taper as planned at their December meeting.

This week we will have inflation data. The readings are expected to continue their rise.

Important news for USD:

Friday:

• CPI

EUR

Preliminary November CPI data shows prices spiralling upwards with headline number coming in at 4.9% y/y vs 4.5% y/y as expected and up from 4.1% y/y in October. Core CPI also jumped, it came in at 2.6% y/y vs 2.3% y/y and up from 2% y/y the previous month indicating that price pressures are increasing across different categories. Headline number is now at a 30-year high while core reading posted a new record high! Energy prices are the main culprit, rising 27% y/y with goods prices also adding pressures to inflation. EUR was bid on the hopes that high inflation reading will push ECB to raise rates faster than expected. ECB stance is that inflation is transitory and that it will slow down going into 2022, German VAT will step out of the calculation in January, and return to their 2% target in H2 of 2022.

GBP

Final PMI reports saw a downside revisions to preliminary reading, however manufacturing PMI still managed to improve from October reading and came in at 58.1 vs 57.8 the previous month. Services slipped to 58.5 while composite was at 57.6. The readings show a healthy economy in the Q4 with mounting price pressures posing a cause for concern. BOE policymaker Michael Saunders stated that they will look at economic impact of omicron, making it a key consideration at the December meeting. He added that omicron could significantly impact the economic outlook, however a delay of rate hikes could be very costly in the future.

This week we will have October GDP data giving us another data point for Q4.

Important news for GBP:

Friday:

• GDP

AUD

Q3 GDP data surprised to the upside and showed that Australian economy posted a -1.9% q/q decline vs -2.7% q/q as was expected. The country spent great majority of third quarter under strict lockdowns and it reflected on household consumption which fell -4.8% q/q. Net exports were a positive contributor with exports rising 1.2% q/q while imports fell -4% q/q. Government consumption was also a positive input, rising 3.6% q/q.

Official PMI data from China for the month of November showed manufacturing returning to expansion territory after two months of sub-50 readings. The number came in at 50.1 vs 49.6, matching the previous August reading. Services PMI slipped to 52.3 from 52.4 in October which was enough to keep the composite reading at 52.2, up from 50.8 the previous month. Caixin manufacturing reading, on the other hand, fell to 49.9 from 50.6 in October. Services PMI also declined and came in at 52.1, down from 53.8 the previous month which dragged composite reading to 51.2 from 51.5 in October.

This week we will have RBA meeting from Australia as well as trade balance and inflation data from China. RBA may announce it plans to finish the bond-buying program in February. Omicron is uncertainty that will be addressed in the statement.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision
• Trade Balance (China)

Thursday:

• CPI (China)

NZD

Final business confidence data for November showed improvement from preliminary reading (-16.4 vs -18.1), however it was down from -13.4 in October. ANZ notes that “Business confidence, export intentions, and investment intentions were all a little higher, but own activity, and capacity utilisation dipped. Overall, the theme continues to be gradually easing activity indicators but cost and inflation pressures remain extreme.”

CAD

Q3 GDP data blew up expectations and came in at 5.4% q/q vs 2.5% q/q as expected and up from downwardly revised -3.2% q/q in the second quarter of 2021. Household consumption was the biggest contributor with exports following in the second place. Gross fixed capital formation and inventories were the biggest drag on the reading.

November employment report was stellar. Employment change came in at 153.7k vs 35k as expected. The unemployment rate fell to 6% from 6.7% in October while the participation rate stayed unchanged at 65.3%. Wages rose 3% y/y vs 2.1% y/y the previous month indicating signs of wage pull inflation. Jobs were evenly distributed with full-time jobs gaining 79.9k and part-time jobs adding 73.8k. The strength and tightness of labor market in Canada is impressive.

This week we will have a BOC meeting. The drop in oil prices has negatively impacted CAD, but we expect them to stay on their tightening course, especially after magnificent employment report. Omicron is uncertainty that will be addressed in the statement.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Retail sales for the month of October came in at 1.1% m/m and 0.9% y/y. After state of emergency was lifted consumers returned to spending with clothing and food leading the way with a surge of 9.2%. Out of all the categories measured auto sales was the only category that showed a decline. Final manufacturing PMI improved to 54.5 and now represents a four-year high. Services PMI also improved to 53 and pushed composite to 53.3 indicating a much healthier economy in Q4 than the one of Q3.

This week we will have a final Q3 GDP reading.

Important news for JPY:

Wednesday:

• GDP

CHF

SNB total sight deposits for the week ending November 26 came in at CHF719.4bn vs CHF719.3bn the previous week. The EURCHF pair spent the whole week below the 1.05 level and even going below the 1.045 level but SNB has not intervened. They are most likely waiting for the right opportunity to strike in order to achieve the most with as little intervention as possible. Headline inflation for the month of November came in at 1.5% y/y, up from 1.2% y/y in October while core reading rose to 0.7% y/y from 0.6% y/y the previous month. Small increases in inflation, particularly in core reading, will not pose any concerns for the SNB, especially when it is compared to the rest of the world, excluding Japan.

 

[katetrades]

Forex Major Currencies Outlook (Dec 13 – Dec 17)

We are in for a huge week. No less than 5 central banks (Fed, ECB, BOE, BOJ and SNB) will have their final meetings for the year. Additionally, we will have preliminary PMI data for the Eurozone coupled with inflation data from Canada and the UK.​

USD

November inflation report came in line with expectations. Headline came in at 6.8% y/y, up from 6.2% y/y in October and core reading came in at 4.9% y/y, up from 4.6% y/y the previous month. Headline inflation is at the highest level since March of 1982 while core is at the highest level since October of 1984, going way back in time. Fed will not be detracted by the reading and will continue on their course with increased tapering.

This week we will have consumption data as well as the final Fed meeting for the 2021. With inflation running red hot we can expect to see hawkish messages from the members. The speed of the taper should be increased so it finishes by the end of Q1 of 2022. The dot plot should point to at least two rate hikes in 2022.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision
• Retail Sales

EUR

German ZEW survey for the month of December showed assessment of current situation plunge into negative territory with -7.4, down from 12.5 in November. The uncertainty relating to the omicron variant and its possible negative impact on the economy is breaking investors spirit. On the other hand, expectations category just slightly slipped to 29.9 from 31.7 the previous month indicating that investors still hold a positive outlook for the future. Eurozone expectations improved to 26.8 from 25.9 in November. Final Q3 GDP reading for the Eurozone came in unchanged at 2.2% q/q and slightly improved to 3.9% y/y vs 3.7% y/y as reported in the second reading. Olaf Scholtz has been officially elected as a Chancellor and thus succeeds Angela Merkel after her 16-year reign.

This week we will have preliminary PMI readings for the month of December as well as the ECB meeting. Next round of macroeconomic projections will be put forward at the meeting. PEPP program will conclude in March of 2022 so the meeting can bring an increase, temporary most likely, in APP to ease the effects of removing PEPP. Additionally, this will be the last meeting for the outgoing Bundesbank president Jens Weidmann.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision
• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

October GDP number came in at 0.1% m/m vs 0.4% m/m as expected. It shows that the economy is still expanding in Q4, however at a much slower pace. Prime Minister Boris Johnson stated that Omicron is growing at much higher rate than the previous variant and it is time to move to so-called “Plan B”. Reintroduction of stay and work from home guidance with facemask requirement further extended to most public venues. Health Minister Javid stated that main purpose of “Plan B” is to slow down spread of Omicron and help to avoid action later.

This week we will have employment, inflation and consumption data along side the BOE meeting. The chances of a rate hike at the meeting are growing slimmer. MPC member Broadbent stated that he is still unsure about the way he will vote at the meeting. Omicron poses a big uncertainty while MPC member Saunders said he wants further information on the Omicron before deciding how to vote. We expect that first rate hike will come in Q1 of 2022, most likely at the February meeting.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Thursday:

• BOE Interest Rate Decision

Friday:

• Retail Sales

AUD

RBA has kept its cash rate at 0.10% as was widely expected. The statement shows concern regarding potential effect of omicron on the economy. They still expect economy to return to its pre-Delta path in H1 of 2022. The purchase of government securities will continue at the pace of AUD4bn/week until at least mid-February and will be evaluated at February meeting. Incoming data from leading indicators is very encouraging as it points to a strong recovery in the labor market. Bank members expect a further pickup in wage growth. The central forecast for underlying inflation is to reach 2.5% over 2023. Housing prices have increased strongly but the rate of increase has eased. They have reiterated their stance that there will be no increase in the cash rate until actual inflation is sustainably within 2-3% target range.

PBOC has decided to cut the RRR (Reserve Requirement Ratio) by 50bp (0.5%). The decision will take effect from December 15. PBOC has stated that they will continue with prudent monetary policy and will keep liquidity at reasonable levels. With inflation stabili\ing and at low levels the bank has decided that pumping additional liquidity will support the economy as well as push short and long-term interest rates lower. Later during the week they have increased foreign reserve ratio from 7% to 9. This is the first increase in 15 years. November trade balance data showed first decline in surplus since March. The reading came in at $71.72bn, down from $84.5bn in October. Exports have risen 22% y/y while imports jumped 31.7% y/y vs 19.5% y/y as expected. The jump in imports may indicate strong domestic demand which is a positive sign for the global economy. Inflation data for the month of November show CPI at 2.3% y/y, up from 1.5% y/y in October but lower than 2.5% y/y as expected. PPI data came in at 12.9% y/y, still very elevated, but down from 13.5% y/y printed the previous month.

This week we will have employment data from Australia as well as consumption and production data from China.

Important news for AUD:

Wednesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

NZD had a weak week, falling against all of the pairs but the drop was not great as RBNZ is still on the path of rate hikes which keeps the currency supported.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday:

• GDP

CAD

BOC has left rate unchanged at 0.25% as was widely expected. The statement showed that after strong GDP growth in Q3 it is now about 1.5% below the pre-pandemic level. Recent economic indicators suggest the economy had considerable momentum into the fourth quarter. Inflation will stay elevated but it should return to the 2% level in H2 of 2022. Bank members reiterated that slack in the economy should be absorbed “sometime in the middle quarters of 2022”. Finally, they have acknowledged that Omicron has introduced some uncertainty which could “weigh in on growth by compounding supply chain disruptions and reducing demand for some services”. Employment is back above the pre-pandemic level, incomes are rising and in combination with savings made during the pandemic it points to a strong demand and healthy economy. All of this should prompt BOC to start hiking rates in late Q1 or early Q2 of 2022.

This week we will have inflation data which is expected to continue rising.

Important news for CAD:

Wednesday:

• CPI

JPY

Final reading of Q3 GDP saw it reduced to -0.9% q/q from -0.8% q/q as preliminary reported. Household consumption came in at -1.4% vs -1.2% while business investment improved to -2.3% from -3.8% as preliminary reported. Net exports did not have any contribution with exports falling -0.9% and imports declining -1%. The country went through state of emergencies through the Q3 which negatively impacted household consumption, but data from the start of Q4 imply that rebound is in the making. Additionally, improvement in business investment bodes well for the future.

This week we will have BOJ meeting. No changes to rate or monetary policy are expected.

Important news for JPY:

Friday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposit for the week ending December 3 came in at CHF720.3bn vs CHF719.4bn the previous week. The bank has increased its activities in the markets, however with a strong risk off mood prevailing, leading to EURCHF falling below the 1.04 level, they have decided to act slowly, looking for a better opportunity to fight the Swissy strength. Tightness of the labor market in Switzerland continues to impress. Latest data show seasonally adjusted unemployment rate for November sliding to 2.5% from 2.7% in October.

This week we will have SNB meeting. No changes to rate are expected, however talks about recent Swissy strength are expected which could lead to more intervention in the market.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

 

[katetrades]

Forex Major Currencies Outlook (Jan 10 – Jan 14)

We are up for a quiet week from the economic data standpoint. US and China inflation data and US retail sales will be the highlights of the week.​

USD

ISM manufacturing PMI came in at 58.7 vs 60 as expected and down from 61.1 in November. Still, when we go down into the details of the report there are many positives. Employment index improved from the last month, backlog of orders increased to almost 63 while prices paid component dropped to 68.2 from 82.4 the previous month. A drop in prices paid component indicates that fewer companies are reporting rises in input costs. Additionally, there was a drop in supplier delivery times index indicating that supply bottlenecks are easing. New orders and production component declined slightly but are still at a very healthy levers, above 60 or close to it.

Similarly to the manufacturing reading, ISM services PMI fell more than expected. It came in at 62 vs 66.9 as expected. The drop was caused by the Omicron disruptions, but still there is a lot to like in the reading. Employment index improved, new export orders jumped and supplier deliveries eased. Prices paid component rose at the slower pace while new orders are still holding above the 60 level.

NFP report for December provided us with another miss on the headline number which came in at 199k vs 410k as expected. USD weakened on the release, but when we dig deeper into the report we find some encouraging signs. The unemployment rate dropped to 3.9% from 4.2% in November with participation rate staying unchanged at 61.9%. The most impressive reading was a rise in the average hourly figures which came in at 0.6% m/m vs 0.4% m/m the previous month. Fed will take a look at this data and may come to conclusion that wage inflation is picking up thus spurring them to act faster and raise interest rates sooner. USD has gained strength on that assumption after the initial drop on the headline number.

FOMC minutes from the December meeting were loaded with hawkish sentiment. They were leaning toward a faster normalization path that will lead to a reduction in the Fed’s balance sheet after the first rate hike. Fed funds futures are now pricing around 80% chance for a rate hike in March. Voting member Bullard stated that he sees three rate hikes this year with first one probably coming at the March meeting.

This week we will have inflation and consumption data. Headline inflation is expected to rise above 7% while core should cross the 5% threshold.

Important news for USD:

Wednesday:

• CPI

Friday:

• Retail Sales

EUR

Final manufacturing PMI reading for the month of December was unchanged at 58, down from 58.4 the previous month. French reading improved compared to the preliminary reading, however German reading was downgraded, thus ensuring that Eurozone reading stayed the same. Markit noted that supply chain disruptions seem to ease a bit which also led to input prices rising at the slowest rate since April of 2021. Services reading, on the other hand, declined to 53.1 from 53.4 as preliminary reported. The decline was caused by the rising number of Omicron cases and restrictions along the continent which hit particularly hard Germany whose reading fell to 48.7. On the composite front, December reading came in at 53.3 while German reading fell into contraction territory, coming in at 49.9.

Preliminary CPI data for the Eurozone in the month of December saw headline reading coming in at 5% y/y, up from 4.9% y/y in November while core reading came in unchanged at 2.6% y/y. Energy prices rose astonishing 26% y/y while food, alcohol and tobacco rose 3.2% y/y. If we exclude energy prices inflation would be 2.8% y/y. Retail sales for November came in at 1% m/m vs 0.5% m/m as expected and 7.8% y/y showing that demand was improving prior to the Omicron outbreak. Alternatively, high reading may be caused by the front-running of the holiday season shopping.

GBP

A small improvement to the December manufacturing PMI (57.9 vs 57.6 as preliminary reported). Markit notes that production rose at the quickest pace in the previous four months and that there appear to be signs that supply chains are stabilizing “with vendor delivery times lengthening to the weakest extent for a year in December.” Services reading improved to 53.6 from 53.2 as preliminary reported and recorded a smaller decline from 58.5 in November. The reading was heavily impacted by the virus-curbing restrictions, however Markit sees brighter future noting that: “Around 55% of the survey panel anticipate a rise in output during 2022 as a whole, while only 10% expect a decline.” Composite reading also came in at 53.6. BOE has conducted a survey and its results show that firms are planning to raise prices in the next 12 months to the tune of around 5%. The companies justify their intention by saying that it is necessary in order to cover rising costs. This is a classical example of costs being transferred from producers to consumers and it will attribute to the inflation pressures.

AUD

Caixin manufacturing PMI returned into expansion territory in December by coming in at 50.9 vs 50 as expected. It printed 49.9 in November. Government measures, mainly a cut of 5bp in 1 year Loan Prime Rate, managed to assist SME companies and the reading reflects it. The report shows that supply was strong and that demand rebounded. Input costs rose at a slower pace while employment index was still in the negative territory as firms remain cautious about hiring amid uncertainties relating to the virus. Services followed suit and improved to 53.1 from 52.1 in November despite concerns regarding Omicron. Composite was thus increased to 53 from 51.2 the previous month.

This week we will have inflation data from China, expected to show a modest tick up.

Important news for AUD:

Wednesday:

• CPI (China)

NZD

First dairy auction of the year showed GDT index rise 0.3% after falling -1.5% at the mid-December auction. This puts it at 9 auctions with rising prices out of the last 10 auctions. A rise in prices of New Zealand’s biggest export is a great boost to the economy.

CAD

December employment report provided us with another strong data point for the Canadian economy. Headline number saw 54.7k jobs added vs 24.5 as expected. The unemployment rate ticked down to 5.9% while participation rate remained at 65.3%. All of the jobs added were full-time jobs (123k) while part-time jobs declined (-68k). A small dent to the stellar report was brought by the average hourly earnings which rose at a pace of 2.7% y/y compared to 3% y/y rise in November. BOC will happily stay on its course for the Q2 rate hike after the report showed tight labor market conditions.

JPY

Final manufacturing PMI for December was slightly improved to 54.3 from 54.2 as preliminary reported. Markit notes that "firms continued to note moderate growth in both production and new orders" while "Delivery delays and material shortages remained a dampener on production and sales." Services reading was upgraded to 52.1 from 51.1 as preliminary reported which lifted composite reading to 52.5 from 51.8 as preliminary reported. Tokyo headline CPI for the month of December came in at 0.8% y/y thus making it the highest reading in almost two years. Rising energy prices were the main culprit for the rise in the reading as ex-fresh food, energy category stayed at -0.3% y/y.

CHF

SNB total sight deposits for the week ending December 31 came in at CHF722.8bn vs CHF722.3bn the previous week. EURCHF has spent almost the entire week below the 1.04 level, however SNB concluded that time to fight Swissy strength is not now. They are saving their ammo and biding their time so that when they do make a bigger intervention in the market it will yield desired results. Inflation for December stayed unchanged at 1.5% y/y while core CPI ticked up to 0.8% y/y from 0.7% y/y the previous month. SNB will stay firmly on its course after the latest inflation reading.

 

[katetrades]

Forex Major Currencies Outlook (Jan 17 – Jan 21)

This week we will have a BOJ meeting, followed by inflation data from the UK and Canada as well as employment data from the UK and Australia, coupled with Q4 GDP data from China.​

USD

World Bank came out with 2022 projections of global GDP growth and shrank it to 4.1% from 4.3%. US GDP for 2022 was downgraded to 3.7% from 4.2% previously. They project global GDP for 2023 to rise at 3.2%. Possible surge in Omicron cases that leads to the overwhelming of health systems could shave off additional 0.7pp from projected numbers.

Fed Chairman Powell made testimony in front of the Senate and reiterated the Fed’s stance. Asset purchases will finish in March and rate hike cycle will begin around that time. Powell added that the Fed may begin reducing the size of the balance sheet near the end of the year if the economy continues accelerating as expected and it will be done "sooner and faster" than last time. On the inflation front, chairman stated that Fed will fight to defend price stability adding that inflation may stay elevated through the H1.

Inflation report for December showed headline number at 7% y/y as expected. The last time it was at 7% Volcker was Fed chairman and yield on UD10y was 14%! It was back in 1982. In comparison, current yield on US10y is around 1.75%. Core inflation reading came in at 5.5% y/y vs 5.4% y/y as expected. Used car prices rose 3.5% y/y with a jump in clothing prices of 1.7% y/y. Housing and food categories also contributed to price increases while decreases were seen in the fuel category. The headline figure suggests that Fed will need to step up and proceed with faster tightening. St. Louis Fed president Bullard was talking about 4 rate hikes after the report while Cleveland Fed president Mester, both are well known hawks, called for faster tightening policy.

Retail sales for December showed a decline across the categories. Headline number showed a drop of -1.9% m/m vs 0% m/m as expected. Control group, the reading used for GDP calculation, dropped even deeper as it came in at -3.1% m/m. Omicron fears contributed to the miserable result. There is also a possibility that surging inflation led to the fall in disposable income, therefore reflecting in lower spending.

EUR

Industrial production in the Eurozone for the month of December rose 2.3% m/m vs 0.5% m/m as expected and dropped -1.5% y/y vs 0.6% y/y as expected. Previous month’s readings were heavily downgraded, thus making the headline numbers look less impressive. German and French reading dipped slightly while the Spanish and Dutch readings improved. However, there are positives in the reading, mainly production and backlog of orders continue to rise. This indicates that the issue is on the supply side, that is supply chain disruptions and labour shortages due to restrictions. Germany reported GDP for the entire 2021 at 2.7%. There are still concerns that Q4 GDP has dropped.

GBP

November GDP surprised positively by coming in at 0.9% m/m vs 0.4% m/m as expected. Additionally, October reading was revised up to 0.2% m/m from 0.1% m/m. The UK is on the path for another quarter of GDP growth and GDP has now surpassed pre-pandemic levels. The reading has increased chances of BOE rate hike in February with implied probability of hike hovering around 75%. Services output advanced 0.7%, industrial production rose 1% while construction output jumped 3.5%. Prime minister Johnson is facing growing discontent within the UK voters for the way he handles covid situation as well as for the growing number of scandals. Latest scandal included party in Downing Street during the lockdown in May of 2020. He has apologized for his transgression but his popularity took another hit. Labour Party leader characterized Prime minister’s excuse as was "ridiculous" and "offensive."

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Australian trade balance for November came in at AUD9.42bn, down from AUD10.78bn the previous month. Although global demand subsided due to emergence of Omicron variant, exports still managed to increase 2%. Lifting of restrictions led to increase in domestic demand which contributed to imports rising 6%. Inflation data from China for the month of December showed CPI at 1.5% y/y vs 1.8% y/y as expected and down from 2.3% y/y in November. PPI recorded a second consecutive month of prices rising at slower pace and came in at 10.3% y/y vs 12.9% y/y in the previous month. December trade balance data from China showed surplus rising to $94.6bn due to a plunge in imports (19.5% vs 31,7% in November). Exports were stable at 20.9% vs 22% the previous month. 2021 was a great year for China's trade as trade surplus widened to a new record high of $ 676.4bn on the back of exports rising almost 30%.

This week we will have employment data from Australia as well as GDP, production and consumption data from China.

Important news for AUD:

Monday:

• GDP (China)
• Industrial Production (China)
• Retail Sales (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Kiwi had a decent week thanks to the weak data coming from the US and subsequently weak USD, so NZDUSD rallied around 90 pips. Concerns regarding potential China shutdown due to the omicron outbreak caused it to be much weaker against the safe haven JPY and NZDJPY dropped almost 150 pips for the week.

CAD

CAD has enjoyed a tremendous week. Helped by rising oil and lumber prices as well as weak USD it has rallied more than 150 pips against the USD during the week and more than 250 pips from the highs of the week. USDCAD pair has ticked its monthly low, however further falls cannot be excluded.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

BOJ survey showed that 78.8% of households expect prices to rise in the year ahead while 80.8% expect prices to rise 5 years ahead. The survey may influence BOJ decision next week and we could see a drop of reference to downside inflation risks. BOJ has raised its assessment for all 9 regions compared to October of 2021 as economic activity picks up across the country followed by the removal of restrictions.

This week we will have BOJ meeting. There will be no changes to the rate or yield curve control, however we may see changes to the inflation expectations.

Important news for JPY:

Tuesday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending January 7 came in at CHF724.6bn vs CHF722.8bn the previous week. Increase in SNBs activity probably led to EURCHF climbing over the 1.04 level and staying there.

 

[katetrades]

Forex Major Currencies Outlook (Jan 24 – Jan 28)

FOMC and BOC meetings will dominate the week which will also see a preliminary PMI data from the EU, the UK and Japan as well as preliminary Q4 GDP data from the US and inflation data from the US, Australia and New Zealand.​

USD

Building permits in December came in at 1.873m vs 1.71m as expected and 1.717m in November for almost a 10% monthly rise! Housing starts came in at 1.702m vs 1.678m the previous month adding to the strength of the housing sector. The yield on 10y treasuries touched the 1.9% level during the week, the first time it went that high since 2019. Calls are being made for 2% in the short-term and 2.25% by the end of the year. Market probability of a March hike now stands at 88.2%

This week we will have preliminary Q4 GDP reading, Fed’s preferred inflation metric PCE and FOMC meeting. There is a possibility that FOMC members decide to end QE program and thus prepare ground for a March hike.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision

Thursday:

• GDP

Friday:

• PCE

EUR

The first data of the year is ZEW survey which showed German current conditions fall to -10.2 from -7.4 at the end of 2021. Uncertainty around the current German economy is mounting, however the outlook component jumped to 51.7 from 29.9 back in December. The jump indicates that investors are seeing brighter conditions for the economy in H2. Similar situation is with the Eurozone expectations reading which came in at 49.4, up from 26.8 the previous month. German PPI reading rose 5% m/m, thus making it the biggest rise since the end of World War II. In response to the mounting price pressures yield on 10y German bonds reached 0% for the first time since 2019.

Final inflation data for Eurozone in the month of December was unchanged from preliminary reading with headline at 5% y/y and core at 2.6% y/y. ECB meeting minutes revealed increased importance of wage growth in forming a monetary policy. ECB President Lagarde stated that ECB is not forced to follow Fed.

This week we will have preliminary PMI data for January.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Employment report for the month of December showed claimant count change drop by -43.3k. ILO unemployment rate slid to 4,1% from 4.2% in November. Wages continued to slide as well penning this as a mixed report. Labor market getting tighter, the fall in the unemployment rate increases chances of a February hike, however wage pressures slowly subsiding and falling below inflation numbers indicating that BOE will not raise interest rates at the pace that markets are pricing in.

Inflation data for December showed headline number climbing to 5.4% y/y from 5.1% y/y in November with core coming in at 4.2% y/y vs 4% y/y the previous month. Another data point speaking in favor of February rate hike. Retail sales dropped -3.7% m/m and -0.9% y/y with ex-fuel category dropping -3.6% m/m and -3% y/y. All of the readings were in healthy positive territory the previous month although they were revised down. The reading indicates devastating effect of inflation on consumer spending combined with impact of Omicron and post-Christmas shopping. BOE will stay on a hiking track to fight inflation.

The swap market is pricing in around 90% chance of a hike at the February meeting with four rate hikes expected this year. If BOE decides to hike rates in February it would lift the base rate to 0.50%, which is the threshold necessary for allowing a reduction of the balance sheet.

This week we will have preliminary PMI data for January.

Important news for GBP:

Monday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

December employment report showed employment change at 68.4k vs 30k as expected. The unemployment rate dropped to 4.2% from 4.6% the previous month for the lowest reading since 2008. Participation rate stayed the same at 66.1% which enhances the impressiveness of the drop in the unemployment rate. Full-time jobs contributed with 41.5k with part-time jobs adding additional 23.3k. Some banks suggest that with such a tight labor market RBA may act and hike rates in August of 2022, however Governor Lowe explicitly stated numerous times that they wish to see wage growth above 3% before acting on rate hikes.

Q4 GDP came in at 1.6% q/q and 4% y/y, thus beating the expectations of 1.1% q/q and 3.6% y/y. This puts overall 2021 GDP at 8.1%. The reading is elevated due to the low base in 2020 which saw GDP rise only 2.2%. Industrial production in December came in at 4.3% y/y for the third consecutive month of faster rises putting the reading for the entire 2021 at 9.6% y/y. The biggest contributors were industries for “new energy” cars and industrial robots while on the service side it was activities in telecommunications. Retail sales grew measly 1.7% y/y in December, dragged down by the slumping car sales. In 2021 retail sales grew impressive 12.5% y/y.

PBOC has cut its MLF (Medium-Term Lending Facility) by 10bp from 2.95% to 2.85%. Additionally, they cunt 7-days reverse repo rate, also by 10bp. Later during the week further cuts have been made. 1-year LPR (Loan Prime Rate) was cut by 10bp from 3.8% to 3.7% while 5-year LPR was cut by 5bp from 4.65% to 4.6%. All of the moves are intended to stimulate the lending and thus the economy. Lowering of rates cannot force banks to increase lending as they still see risks looming in the credit market so PBOC may be forced to ease more in the future.

This week we will have a Q4 inflation data.

Important news for AUD:

Tuesday:

• CPI

NZD

Second GDT auction in January brought a 4.6% rise in dairy prices. Whole milk prices rose 5.6% followed by butter prices with 5% rise. The reading will additionally improve New Zealand’s terms of trade.

This week we will have a Q4 inflation data.

Important news for NZD:

Wednesday:

• CPI

CAD

December CPI reading showed headline number ticking up to 4.8% y/y for the highest reading since 1991! The biggest contributors were “homeowners” home and mortgage insurance with 9.3% rise, passenger vehicles with 7.2% and food with 5.2% price rise. All three core measures increased as well with median and trimmed now at or above 3% while common is at 2.1% y/y. The report will increase chances of the rate hike at the incoming meeting.

This week we will have a BOC meeting. Markets are now pricing over 85% chance of a rate hike and with BOC quarterly business survey reaching record high level in Q4 the hike is crossing to almost certain.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Core machinery orders, a leading indicator of capital spending, 6-9 months in the future, surged 3.4% m/m and 11.6% y/y in November vs 1.5% m/m and 6.1% y/y as expected. The reading shows a positive sign that private firms are spending which in turn should lead to faster recovery for the economy.

BOJ has left the interest rate unchanged at -0.10% as well as targeted yield on 10y JGB at around 0% as was widely expected. They see risks for price outlook broadly balanced and for economic activity skewed to the downside. Inflation projections for 2022 and 2023 have been revised up to 1.1%. GDP for 2022 has also been revised up to 3.8% from 2.9% previously. BOJ governor Kuroda reiterated stance that the bank will no hesitate to ease further, adding that weak yen is not a bad thing for the economy. He also added: “We're expecting long and short-term policy rates to remain at the current levels or fall even lower...Raising rates is unthinkable."

Prime Minister Kishida announced new restrictions for 13 prefectures, including Tokyo and its surrounding area. Restrictions will start on January 21 and will last all the way through February 13. The area under restrictions is responsible for almost 50% of GDP. There is also a possibility that even greater part of the country will be put under restrictive measures thus making even bigger blow to the economy.

CHF

SNB total sight deposits for the week ending January 14 came in at CHF724.5bn vs CHF724.6bn the previous week. Virtually no change in the reading as investors have pushed EURCHF above the 1.05 level.

 

[katetrades]

Forex Major Currencies Outlook (Jan 31 – Feb 4)

RBA, BOE and ECB are all meeting in huge week ahead of that will also see NFP on Friday coupled with employment data from Canada. Additionally, we will get preliminary Q4 GDP and January CPI data along with Q4 employment data from New Zealand.​

USD

Fed has left rates unchanged at their January meeting as was widely expected. There was no speeding up of taper, it will end in early March. With inflation running at well above 2% and strong labor market committee members stated that it will be appropriate to start raising interest rates at the coming meetings. Fed funds rate remains primary tool for the tightening of monetary policy. Chairman Powell did not rule out hiking at every meeting adding that "Quite a bit of room to raise rates without hurting jobs". He added that discussion about balance sheet reduction will be held at the next two meetings. Separately published document regarding balance sheet it was stated that "reducing the size of the Federal Reserve's balance sheet will commence after the process of increasing the target range for the federal funds rate has begun". Markets are now pricing in a rate hike in March at around 80%.

Advance reading of Q4 GDP came in at 6.9% vs 5.5% as expected. Personal consumption rose 3.3% vs 2% in Q3 and thus contributed 2.25bp to the reading. The biggest contributor was gross private domestic investment with 5.15bp. Inventories surprised with a 4.9bp contribution to the Q4 GDP. December PCE headline number ticked up to 5.8% y/y from 5.7% y/y in November while core PCE came in at 4.9% y/y vs 4.7% y/y the previous month. The IMF downgraded forecast for global GDP in 2022 to 4.4% from 4.9% projected in October. The virus, higher inflation, and high debt levels were key considerations. Failure to pass Build Back Better infrastructure project also contributed to the downgrade.

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected to come at around 240k with the unemployment rate staying at 3.9% while earnings are expected to come above 5% y/y.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Preliminary PMI data from Eurozone were influenced by improvements in German readings and drops in French readings. Manufacturing managed to climb to 59 from 58 in December thanks to German reading coming in at 60.7. Services reading fell to 51.2 which is the lowest level since April of last year. The drop was influenced by Omicron outbreak but as Markit notes the fact that reading is still above 50 indicates that impact of the virus on the economy should not be severe. Composite reading came in at 52.4 assisted by German reading returning to expansion with a healthy 54.3. Markit notes that “prices for goods and services are rising at a joint-record rate as increasing wages and energy costs offset the easing in producers’ raw material prices, dashing hopes of any imminent cooling of inflationary pressures.” Business have reported that input prices are rising at a much slower pace, slowest since April, which should ease inflation pressures.

German Ifo survey showed a break in the six-month downtrend for business climate and expectations categories. They came in at 95.7 and 95.2, up from 94.8 and 92.7 in December respectively. Current situation category continued to deteriorate and came up at 96.1, down from 96.9 the previous month. Bright spots are on the horizon, as Ifo economist notices, same as in the preliminary PMI reports, that there is easing in supply shortages in both industrial sector and in raw materials.

This week we will have preliminary Q4 GDP and January CPI data as well as ECB meeting. No changes in rate and policy are expected but wording will be monitored for information on how the bank plans to navigate stimulating the economy with fighting the inflation.

Important news for EUR:

Monday:

• GDP

Wednesday:

• CPI

Thursday:

• ECB Interest Rate Decision

GBP

UK preliminary PMI data showed manufacturing drop to 56.9 from 57.9 the previous month and services slide to 53.3 from 53.6 in December. Markit noted that "Business confidence in the outlook also picked up, driving sustained solid jobs growth. With inflationary pressures remaining elevated at near-record levels, this all adds to the likelihood of the Bank of England hiking interest rates again at its upcoming meeting.” Similar to the Eurozone reading there are signs of supply chain issues resolving which should lead to lower input costs for business and lower costs for consumers (lower inflation).

This week we will have a BOE meeting. A 25bp rate hike is expected which will lift bank rate to 0.50%. The BoE said they will stop reinvestments of maturing bonds (QE) when the Bank rate hits 0.5%, thus we see quantitative tightening starting from this meeting.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Inflation data for Q4 showed headline CPI rising 1.3% q/q and 3.5% y/y vs 0.1% q/q and 3.2% y/y as expected. Trimmed mean reading, it is a core inflation readings which RBA targets to be in 2-3% y/y range, came in at 1% q/q and 2.6% y/y vs 0.7% q/q and 2.4% y/y. The numbers are elevated but still well within RBA’s range, therefore they will not have impact on the incoming monetary policy meeting. Additionally, RBA’s main concern is wage growth. Data for Q4 wages will not be available until the end of February.

This week we will have a RBA meeting and later on a Statement on Monetary Policy. The meeting will bring and end to bond purchases, planned to go through at least mid-February.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

NZD

Q4 inflation data printed 1.4% q/q and 5.9% y/y. Both came in higher than expected with yearly figure now at a 31-year high. RBNZ will not be deterred from its rate hike path. Some analysts call for at least 7 rate hikes while others scream for a 50bp hike at the February 23 meeting.

This week we will have Q4 employment data.

Important news for NZD:

Tuesday:

• Employment Change
• Unemployment Rate

CAD

BOC delivered a mild surprise for investors by keeping the rate unchanged at 0.25%. Although there was a reduced chance of a rate hike since we wrote our call for a rate hike, markets were still giving it around 70% chance. Bank members now see that overall economic slack is absorbed and have removed exceptional forward guidance on interest rate. They see Omicron as a threat to the activity in Q1 but expect economy to continue strongly and see GDP for 2022 at 4%. Inflation is expected to reach 5% in H1 of 2022 due to supply constraints. Governor Macklem stated that BOC will need to raise interest rates in order to fight inflation and that they will go on a path of rate hikes. It seems that they are waiting to see how Fed will act and take clues from them. March 2 is the next meeting and we expect BOC to deliver a rate hike.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

Preliminary PMI data for January show manufacturing improving to 56.6 from 56.3 the previous month on the back of stronger growth seen in output, new orders (export orders as well) and backlog of orders. Output prices see stronger inflation, while input prices show weaker inflation as input costs are starting to subside. Services PMI, on the other hand, recorded a sharp drop to 46.6 from 52.1 in December. The drop was caused by the Omicron outbreak and all components of the reading are declining. Composite was dragged to 48.8 by the drop in services reading and only bright spot are new export orders which point to a stronger growth.

CHF

SNB total sight deposits for the week ending January 21 came in at CHF724.8bn vs CHF724.5bn the previous week. It is a bit surprising that SNB is standing on the sidelines when EURCHF has breached the multi-year lows. Most likely they are biding their time waiting to strike when they will be able to make the most with the least amount of intervention.

 

[katetrades]

Forex Major Currencies Outlook (Feb 7 – Feb 11)

After two highly eventful weeks full of central bank meetings, we will have a quiet week ahead of us dominated by inflation data from the US and Q4 GDP data from the UK, thus leaving investors time to contemplate recent events and formulate their strategies.​

USD

Atlanta Fed president Raphael Bostic stated in an interview with Yahoo Finance that 50bp rate increase in March is not preferred policy action. He still sees 3 rate hikes in 2022. Kansas City Fed president Esther George, a voting member in 2022, stated that current very accommodative stance of monetary policy is out of sync with the economic outlook, adding that it could be appropriate to more earlier on balance sheet reduction. She is a well known hawk.

NFP headline number in January surprised to the upside coming in at 476k vs 150k as expected. Participation rate increased to 62.2% from 61.9% in December which caused the unemployment rate to tick up to 4% from 3.9% the previous month. Wages were the highlights of the show as they rose 0.7% m/m and 5.7% y/y. This will add more to the demand-pull inflation and it will show up in the next week’s reading. Additionally, this data point cements Fed rate hike in March. A question about a 50bp will start popping up again. Probability of a 25bp rate hike at March meeting according to FedWatch Tool is at 80.8% while a 50bp rate hike probability rose to 19.2%.

This week we will have inflation data. Both readings are expected to continue rising with headline number printing 7.2% y/y and core number printing 5.9% y/y.

Important news for USD:

Thursday:

• CPI

EUR

Preliminary Q4 GDP reading showed the Eurozone economy expanding by 0.3% q/q and 4.6% y/y. The impact of the Omicron did not derail the economy as much as feared and proved that Europeans are learning to live with the virus. Growth was seen in France, Italy and Spain, while German economy contracted and negatively impacted overall GDP. According to seasonally adjusted data GDP growth for 2021 was at 5.2%.

German retail sales for December fell -5.5% m/m. A combination of post-holiday shopping and increasing inflation weighs on consumers and we may expect similar results from other EU countries. Stark contrast in inflation data saw German reading fall to 4.9% y/y from 5.3% y/y in December due to the reversal of VAT base effects from the calculation, reminder VAT was scrapped when pandemic began and then reintroduced in January of 2021. Expectations were for a bigger drop in inflation, 4.3% y/y. On the other hand, French reading ticked up to 2.9% y/y from 2.8% y/y the previous month, however still well below the German reading. Finally, preliminary EU inflation data for January came in at 5.1% y/y vs 4.4% y/y as expected and up from 5% y/y in December. The main culprit for the record high reading were energy prices which rose 28.6% y/y. Core inflation, on the other hand, came in at 2.3% y/y vs 1.9% y/y as expected, down from 2.6% y/y in December. Core numbers indicate that there is not muc spillover effect from the surging energy prices.

ECB left rates unchanged and came out with a virtually unchanged statement. The only difference from December’s statement was that Governing Council is now prepared to adjust its instruments “in either direction”. PEPP will end in March and APP purchases will end shortly before the rate hikes begin. Q1 growth will be slower due to restrictions caused by Omicron, particularly services sector. Later year growth will increase on the back of domestic demand. Then a true hawkish shift came in at the press conference. ECB president Lagarde started by saying that inflation will be elevated for longer than expected adding that it may be significantly higher than expected this year. She did not exclude a possibility of a rate hike later in the year. EURUSD rose almost 100 pips on her comments and continued to rise as market participants see rate hikes incoming by the year-end. March meeting is seen as a turning point for the monetary policy with some analysts calling for ending of APP program in June and first hikes in September. Others even see a hike in December following the one from September or just one in December.

GBP

BOE has delivered what all of the investors were expecting and raised interest rates by 25bp to 0.50%. The vote for rate hikes was split 5-4 but the 4 members voted for a 50bp interest rate hike to 0.75%. Members stated that rate hike is necessary due to the tightness of labor market and signs of greater persistence of domestic cost pressures. Inflation peak is now seen at around 7.25% in April. With the rate now at 0.50% BOE will start the first phase of balance sheet reduction, which consists of not reinvesting proceeds from matured bonds. A very hawkish BOE that will continue to raise rates at the March meeting. Governor Bailey has added at the conference that impact of Omicron will be short-lived. He also had an interesting remark that basically comes down to workers should not be pushing for higher wages right now. He meant it as a way to curb inflation but his comments came out as very insensitive. Later on her added: "I am not saying don't give your staff a pay rise, this is about the size of it".

This week we will have a preliminary Q4 GDP reading.

Important news for GBP:

Friday:

• GDP

AUD

RBA February meeting saw cash rate remain at 0.10% and an end to their QE program as we stated previous week. Bond purchases (QE) will conclude on February 10. The accompanying statement said “The Omicron outbreak has affected the economy, but it has not derailed the economic recovery.” Board members recognized that inflation has increased recently, however they think it is too early to conclude that it is sustainably within the target band of 2-3% for core CPI. Additionally they pose the question persistent the pick-up in inflation will be once problems on the supply-side get resolved. Members have reiterated their stance that “will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range". They added that wage growth is modest and that they expect a gradual rise in wages. As a reminder, governor Lowe stated repeatedly that they wish to see wages rise north of 3% before considering increasing rates. Regarding the balance sheet reduction statement says “The Board will consider the issue of the reinvestment of the proceeds of future bond maturities at its meeting in May.”

Both official and Caixin manufacturing PMI data showed that sector is struggling at the beginning of the year. Data in January came in at 50.1 and 49.1 respectively, falling from 50.3 and 50.9 in December. Growing covid cases and China’s zero-covid policy are putting pressure on the sector with Caixin reading returning into contraction and printing the lowest number since February of 2020.

NZD

Employment data for the Q4 were mixed. The unemployment rate slipped to 3.2% from 3.4% in Q3 and it is now at the lowest level since 1986. Digging into the details we can see that participation rate slipped down to 71.1% from 71.2% in the previous quarter. Wages continued to rise with average hourly wages increasing 3.8% q/q and private wages going up by 2.8% q/q. However, employment change stalled as it grew by 0.1% q/q and 3.7% y/y in Q4 compared to 2% q/q and 4.2% y/y in Q3. This reading will strengthen the chance of a rate hike by RBNZ at their meeting on February 23. There was another strong global dairy auction that saw GDT Price Index rise 4.1%. This makes a second consecutive auction of rises over 4% improving New Zealand’s terms of trade at a fast pace.

CAD

Employment report for January presented us with a picture of economy heavily impacted by Omicron. Restrictions in most provinces led to employment change coming in at -200k vs -125k as expected. Other data are not encouraging as well with participation rate dropping to 65% from 65.4% in December and the unemployment rate jumping to 6.5% from 6% the previous month. Wages also declined coming in at 2.4% y/y vs 2.7% at the end of the last year. Now that the restrictions have been lifted we will see improvement in February reading which will strengthen BOCs determination to raise rates at March meeting. November GDP figure came in at 0.6% m/m vs 0.4% m/m as expected. October reading was at 0.8% m/m.

JPY

Industrial data from Japan showed a slowdown in December by coming in at -1% m/m, however projections for the new year are much brighter. Retail sales also slumped by -1% m/m in December but with potential for another state of emergency around the country looming, chances of it getting stronger are low.

CHF

SNB chairman Jordan stated that some of the inflation is transitory and that bank expects it to come down in the coming months, however central banks must make sure that it does not become permanent which requires a careful monitoring of the situation. He added that strong Swissy is limiting inflation and that he sees no signs of wage price cycle. Retail sales in December fell -2% m/m and -0.4% y/y. November y/y reading was at 5.3%. A combination of post-holiday shopping and increasing inflation weighs on consumers.

 

[katetrades]

Forex Major Currencies Outlook (Feb 14 – Feb 18)

Retail sales from the US and the UK, coupled with inflation data from the UK, China, Canada and Japan along with employment data from the UK and Australia will be the high points of the week.​

USD

Inflation numbers for the start of the year saw headline number jump to 7.5% y/y for a 40-year high. Additionally disturbing is that on a monthly basis inflation continued to increase (0.6% m/m vs 0.5% m/m in December). Core reading now rose to 6% y/y while a nasty surprise was seen in the real weekly earnings which came in at -0.5%, after last month’s reading was revised down to -0.3% from 0.1% as previously reported. All categories except for lodging away from home and gasoline saw increases in prices. This report will put pressure on Fed to hike by 50bp at March meeting and probability of a 50bp rate hike at March meeting according to FedWatch Tool jumped to 44.3%, rose to almost 95% and finished the week at around 65%. Yield on a 10y treasury bond briefly touched 2% after the inflation report came out. St Louis Fed president Bullard, most hawkish member, stated that Fed should hike by 100bp at the next three meetings and teased with the idea that rate hikes can come in between meetings. Late on Friday report came out that Russia will attack Ukraine within 48 hours which brought risk off mood in the markets and caused USD to rally. Oil, gold and VIX also rallied but the biggest winner was JPY.

This week we will have consumption data.

Important news for USD:

Wednesday:

• Retail Sales

EUR

Dutch central bank president and member of the ECB Governing Council Klaus Knot said in an interview that he expects first rate hikes in Q4 of 2022. That would mean an end to bond purchases by September. He is a well known hawk and currently they are having an upper hand in the ECB. ECB president Lagarde stated that inflation will remain high in the short term, but current price pressures will likely subside before becoming entrenched. She added "any adjustment to our policy will be gradual." Her comments were assessed as “damage control” after market interpreted her press conference last week as very hawkish.

European Commission published latest forecasts and they project inflation to be at 3.5% in 2022 vs 2.2% as projected before, however they see 2023 inflation to fall to 1.7%, below their target of 2%. Inflation is expected to reach its peak at 5% in Q1 and the fall from there, it will stay above 3% until Q4. Growth was reduced to 4% from 4.3% for 2022, but it is expected to rise to 2.7% in 2023 from 2.4% as previously expected.

GBP

Preliminary Q4 GDP data came in at 1% q/q same as the downward revised Q3 reading and 6.5% y/y vs 7% y/y in the previous quarter. Personal consumption rose 1.2% q/q, business investment improved and rose 0.9% q/q vs -0.8% q/q in Q3. Government spending was also a big contributor to the reading by rising 1.9% q/q. Finally, net exports also contributed to the Q4 reading. UK’s economy finished the year on a down note as December’s GDP slipped -0.2% m/m due to the Omicron related constraints. A bigger drop was expected but it was mitigated by the higher health spending.

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Retail sales data for the Q4 showed a record high of 8.2% q/q rise. Lifting of covid restrictions in two biggest states coupled with holiday shopping sent the reading to new record levels. RBA governor Lowe continued to preach patience. He stated that they need to wait and see how data develops while acknowledging the a risk to waiting, to which he added the counter risk of acting to soon. GDP is estimated to be around 4.25% in 2022 and 2% in 2023. Gradual pick up in wages is expected. It is acceptable to have inflation running above 3% for some time and it is plausible to have rate hikes later in the year if the data supports it. So far their main concern was wage growth and it continues to be. Wages will need to move north of 3% in order for rate hikes to occur.

Caixin services PMI for the month of January came in at 51.4, down from 53 in December. The report shows slower increases in business activity as well as new orders while export sales fell at quickest rate for 15 months. Additionally, inflation pressures were up compared to the previous month. Composite reading came in at 50.1, barely in the expansion territory as Omicron related restrictions led to drops in production, transportation and sales of goods.

This week we will have employment data from Australia as well as inflation data from China.

Important news for AUD:

Wednesday:

• CPI (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales in January showed an improvement to 3% m/m and 5.7% y/y from 0.4% m/m and 4.2% y/y the previous month. RBNZ inflation expectation data showed inflation in one-year ahead rising to 4.4% which would be a 31-year high. Expectations in the previous quarter were for them to be at 3.7%. RBNZ target for inflation is 1-3% and new inflation projection moved further away from their target. Rate hike on February 23 is imminent and priced in and from a technical standpoint NZDUSD is posed to go down due to the USD strength.

CAD

BOCanada Governor Macklem reiterated that they are on the rate hike path. He sounded hawkishly stating that the policy rate may need to go to neutral level (2.25%) in order to address the price pressures.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

December wages and spending data were a downer. Real wages fell -2.2% y/y for the highest drop in 18 months. Nominal wages came in at -0.2% y/y, thus falling for the first time since January of 2021. Household consumption was down -0.2% y/y thus making it a fifth consecutive month of falling personal consumption. Declines were led by fuel, light and water charges while there was an increase in consumption of education. BOJ has decided to keep the yields on 10y JGB capped at 0.25%. Starting February 14 they will buy unlimited amount of bonds at fixed rate of 0.25%.

This week we will have a preliminary Q4 GDP reading. Expectations are for it to go into contraction of almost 1%.

Important news for JPY:

Tuesday:

• GDP

CHF

SNB total sight deposits for the week ending February 4 came in at CHF725bn vs CHF724.9bn the previous week. With ECB president Lagarde sounding so hawkish at the press conference SNB did not need to do anything. They just let the markets drag EURCHF pair toward the 1.06 level. Labour market continues to tighten even further with the unemployment rate in January slipping down to 2.3% from 2.4% in December. Inflation data in January showed a small tick in headline number (1.6% y/y vs 1.5% y/y in December) while core reading stayed unchanged at 0.8% y/y.

 

[katetrades]

Forex Major Currencies Outlook (Feb 21 – Feb 25)

RBNZ meeting, preliminary PMI data from the EU and the UK coupled with wages data from Australia will dominate the week ahead of us. Monday is a holiday in the US so banks will be closed and liquidity will be thinner.​

USD

Retail sales had a strong start to a new year. They came in at 3.8% m/m vs 2.5% m/m as expected. Control group, it is used for GDP calculation, came in at 4.8% m/m. It is important though to note that retail sales are not adjusted for inflation, so when prices of goods rise if people buy the same amount of goods as previous month, retail sales will print a higher number. Non-store retailers, online, showed the biggest rise followed by furniture stores and auto dealers. On the other hand, sales declined at gasoline stations and for sporting goods. After the FOMC minutes showed that there was no serious talk about a 50bp rate hike in March CME’s FedWatch Tool now puts a probability of a 25bp rate hike at 71.2%.

This week we will have second estimate of Q4 GDP as well as Fed’s preferred PCE inflation data.

Important news for USD:

Thursday:

• GDP

Friday:

• PCE

EUR

February ZEW survey showed improvement in German current conditions as well as expectations reflecting the excitement about leaving the pandemic restrictions behind and indicating growing optimism among the investors. EU expectations, on the other hand, slipped for the first time in three months. Second reading of EU Q4 GDP was unchanged at 0.3% q/q and 4.6% y/y.

This week we will have preliminary PMI data for February.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Employment report showed claimant counts dropping by -31.9k in January. The ILO unemployment rate for December held steady at 4.1% while the 3-month employment change, up until December, came in at 38k indicating tight labour market conditions. Average weekly earnings ticked up to 4.3% from 4.2% the previous month. Inflation in January ticked up to 5.5% y/y from 5.4% y/y in December, a new 30-year high, with core rising a bit higher to 4.4% y/y vs 4.2% y/y the previous month. Month-over-month figure was -0.1% m/m which may indicate that price pressures will slowly start to ease. BOE has said that April will represent peak in inflation, at above 7%. They will continue with the rate hike in March after these reports.

This week we will have preliminary PMI data for February.

Important news for GBP:

Monday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

RBA meeting minutes from the February meeting showed board’s willingness to be patient and monitor how the various factors impact inflation. They acknowledged that inflation had picked up more quickly than expected, but it was too early to conclude that it was sustainably within the target band. They still see inflation moderating when supply issues get resolved. Employment report for January showed employment change at 12.9k vs 0k as expected. The unemployment rate remained at 4.2% while participation rate ticked up to 66.2% from 66.1% in December giving additional strength to the report. Full-time employment fell -17k and it will take away some shine from the report while part-time employment rose 29.9k. Markets were completely unfazed by the report as Russia-Ukraine tensions were dominating.

PBOC has injected 300bn yuan via a 1 year Medium-term Lending Facility (MLF) and left rate unchanged at 2.85% as was widely expected. 1 year and 5 year Loan Prime Rates (LPR) will be set on February 20. Inflation data for January saw CPI drop to 0.9% y/y from 1.5% y/y in December and PPI continue to decline and come in at 9.1% y/y, down from 10.3% y/y the previous month. The government effects of fighting high input costs are yielding results as PPI returned to the levels last seen in July of 2021.

This week we will have wages data. RBA wants to see them north from 3% in order to start raising interest rates.

Important news for AUD:

Wednesday:

• Wage Price Index

NZD

The second February auction saw dairy prices rise by 4.2%. This is a third consecutive auction where dairy prices are rising by more than 4%. Terms of trade keep on improving. PPI for Q4 came below expectations, potentially signalling easing of inflation pressures. Input PPI came in at 1.1% q/q vs 1.6% q/q as expected and in Q3 while output PPI came in at 1.4% q/q vs 2.3% q/q as expected. It was at 1.8% q/q in the previous quarter.

This week we will have RBNZ meeting as well as Q4 retail sales. Rate hike of 25bp to 1% is fully priced in.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

Thursday:

• Retails Sales

CAD

Inflation data in January set a new record held by December’s reading which indicates how fast and far inflation is moving. Headline CPI came in at 5.1% y/y vs 4.8% y/y the previous month. All core readings returned new highs with common at 2.3% y/y, median at 3.3% y/y and trimmed at 4% y/y. BOC stated that it is ready to raise interest rates and with inflation running rampant we can pencil in March meeting as certain. Now the question arises if it will be a 25bp raise or a 50bp raise.

JPY

Preliminary Q4 GDP reading came in a bit weaker than expected at 1.3% q/q vs 1.4% q/q and 5.4% y/y vs 5.8% y/y as expected. Both of the previous readings were revised higher so that can explain small misses to the estimates. Private consumption improved to 2.7% q/q from -0.9% q/q in Q3 and was higher than 2.2% q/q as expected. Business investment also improved to 0.4% q/q from -2.4% q/q the previous quarter. Net exports contributed to GDP reading with 0.2pp. GDP deflator, an indication of inflation, fell to -1.3% from -1.2% in Q3 thus showing well known deflationary pressures. Inflation will increase in the coming months due to base effects, but it is still very well below levels seen in other economies around the globe. Inflation is moving in the opposite direction from the rest of the world. January CPI came in at 0.5% y/y, down from 0.8% y/y in December while ex fresh food and energy category dropped to -1.1% y/y, a new decade low. High energy prices are the only thing keeping the headline number in positive territory.

CHF

SNB total sight deposits for the week ending February 11 came in at CHF725.1bn vs CHF725bn the previous week. Virtually unchanged as markets expect two rate hikes this week from ECB and thus pushed EURCHF toward the 1.06 level during the wee. The announcement of imminent Russian invasion of Ukraine on last Friday lead to Swissy strength, as safe haven. If the situation escalates it may lead to unwanted Swissy strength so SNB will be pressed to act.

 

[katetrades]

Forex Major Currencies Outlook (Feb 28 – Mar 4)

RBA and BOC meetings are in play with BOC almost certainly raising rates in the week ahead of that will also see preliminary CPI reading from the EU for February. It will all be capped by the NFP on Friday.​

USD

Geopolitical action saw Russian President Vladimir Putin recognize independence of two separatist entities in south east Ukraine, Donetsk and Lugansk People's Republics (DLPR). The US, EU, UK, and Canada have reacted by widening the sanctions. The Nord Stream 2 pipeline project, which is designed to transmit Russian gas directly to Germany, was targeted first. Foreign participation in Russia’s sovereign debt issued after 1 March was banned as well as Russia’s two financial institutions, were blocked with financial sanctions. Additionally, new sanctions were applied to a number of high ranking individuals. This was considered to be just the first part of actions against Russia. On the early Thursday morning, during the Asia trading session, Russia’s has started military operations in Ukraine. This has led to jumps in gold and oil with Brent crossing the $100 mark and WTICrude reaching the $100 milestone later in the day. Natural gas prices exploded as well. Stock markets were down across the globe and yield on the 10 y US treasury fell to 1.85% as risk off mood gripped the markets and flight to safety ensued. The probability of a 25bp rate hike at the March meeting, according to the CME FedWatch Tool, is at 82.8%.

This week we will have ISM PMI data as well as the NFP on Friday. Headline number is expected to be around 350k with the unemployment rate staying the same and wages rising 0.5% m/m.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Preliminary PMI data showed strong improvements in the services sector across the Europe. Eurozone services PMI came in at 55.8 vs 51.1 in January on the back of strong readings from both Germany and France. It managed to lift composite reading also to 55.8 level. Manufacturing reading stalled a bit and came in at 58.4, down from 58.7 the previous month and it is at an elevated level. A drop in German reading lead to the drop in the Eurozone reading, however French reading improved to 57.6 from 55.5 the previous month. A rise in services reading is a very welcoming sign, indicating that Europe has weathered the Omicron crisis, however as Markit notes: “service sector input cost inflation accelerated to a record high reflecting rising wages and soaring energy costs. The resulting overall rate of input cost inflation seen across both sectors rose to the second-highest on record”, mounting price pressures are set to keep inflation elevated in the coming months. The report will bring some upward revisions to Q1 GDP and should cause ECB to take a more hawkish stance. ECB member and governor of Central Bank of Austria Holzman, a well known hawk, stated that ECB should take more cautious approach and keep the stimulus for longer now that Russia’s military action occurred.

This week we will have preliminary CPI reading for the month of February. Preliminary French reading surprised to the upside and came in at 3.6% y/y so we may get higher number than 5.2% y/y as expected.

Important news for EUR:

Wednesday:

• CPI

GBP

February PMI data (preliminary) showed that consumers left Omicron scare behind them and increased their spending on leisure, travel and entertainment. Services reading came in at a very high 60.8 vs 55.2 as expected and up from 54.1 in January. This has helped push composite up to 60.2 from 54.2 the previous month. Markit warns about growing price pressures seen in the economy. Manufacturing PMI was unchanged at 57.3.

AUD

Wage growth index for Q4 came in at 0.7% q/q as expected and slightly missed on yearly figure (2.3% vs 2.4%). Wage growth is a closely watched indicator by RBA as they want to see it north of 3% y/y before considering raising interest rates. The reasoning is that wage growth is necessary for inflation to be sustained. Q4 inflation was 3.5% y/y which puts real wages (nominal – inflation) into negative territory.

This week we will have RBA meeting and a Q4 GDP reading. RBA will acknowledge that wages are rising but since they are still below their target they will not signal that they are in a hurry to raise interest rates.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

Wednesday:

• GDP

NZD

RBNZ stayed through to its word and delivered a 25bp rate hike thus lifting the Official Cash Rate to 1%. In addition to a rate hike they have sounded very hawkishly in their statement stating that more tightening is needed as well as reduction of monetary stimulus. They have agreed to commence gradual reduction of their bond holdings accumulated during the Large Asset Scale Program (LASP). This will be done both passively, by stopping the reinvestment of proceeds from maturing bonds as well as actively, by outright selling the bonds. Bond sales will commence in July.

New projections see official cash rate at 2.57% in March 2023 vs 2.3% previously. Inflation is seen at 3.2% by March 2023 vs 2.9% previously with it reaching maximum of 6.6% q/q in Q1 of 2022. OCR is seen at 3.35% in March 2025, much higher than previous peak of 2.6% back in November. They stated that employment is now above its maximum sustainable level and that when discussing whether to move the OCR up by 25 or 50 basis points. “many members saw this as a finely balanced decision” Governor Orr added that rate hikes of 50bp cannot be ruled out in the future as rate needs to go up significantly. Message was as hawkish as it gets and NZD is now buy-on-dips.

CAD

The escalation of crisis in Ukraine brought concerns regarding availability of Russia’s oil supply which in turn raised oil prices, however CAD did not profit much from it. USDCAD was propelled up on the money flows into USD, acting as a safe haven. CAD profited against EUR and finally broke under the support of 1.4377.

This week we will have a Q4 GDP reading and BOC meeting. BOC is set to start its interest rate hiking path at the March meeting and deliver a 25bp increase.

Important news for CAD:

Tuesday:

• GDP

Wednesday:

• BOC Interest Rate Decision

JPY

Preliminary PMI data for the month of February showed serious declines in Japanese economy. Manufacturing dropped to 52.9 from 55.4 in January, services plunged to 42.7 from 47.6 the previous month and pulled with it composite to 44.6, down from 49.9 at the beginning of the year. This is the lowest services reading since May of 2020, it shows Japan’s struggles in containing the Omicron wave as new restrictions have been reimposed. Employment index showed weaker decline while business outlook declined, although still at a very healthy level. The report cites supply chain constraints and rising input costs for the drop to a 5-months low for the manufacturing reading. February inflation data for the Tokyo area saw headline number rise to 1% y/y from 0.5% y/y in January. This is the highest it is been since December of 2019. The main culprit for the rise were surging energy costs as ex-fresh food, energy component of the inflation improved slightly to -0.6% y/y from -0.7% y/y the previous month, but it is still deeply deflationary.

CHF

SNB total sight deposits for the week ending February 18 came in at CHF725.2bn vs CHF725.1bn the week before. A miniscule increase indicating that SNB is happy with EURCHF being at the current levels.