Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Oct 6 – Oct 11)

RBNZ meeting, FOMC meeting minutes, inflation from the US and employment data from Canada will highlight the week ahead of us.

USD

ISM manufacturing PMI printed 47.2 in September, same as in August, while expectations were for a 47.5 print. New orders and production components both improved, but are still below the 50 level. Employment and new export orders both dropped further into contraction. Prices paid component fell into contraction from expansion sending strong signals that inflationary pressures are subsiding fast.

ISM services for September surprised to the upside and printed 54.9 vs 51.7 as expected, a big jump from 51.5 in August. Business activity surged to 59.9 with new orders and new export orders both printing deep in expansion, close to a 60 reading. Some concerns can be seen in the prices paid component which rose again and in employment component which fell below the 50 level for the first time since June. Overall, this is a very strong report showing that services sector is healthy and is firmly leading US economy up.

September NFP blew out expectations with headline number printing 254k vs 140k as expected. We also got a positive two-month revision to previous reports. The unemployment rate ticked down to 4.1%, second consecutive month of falling unemployment rate, while participation rate remained stable at 62.7%. If we used third decimal for the unemployment rate it would print 4.0510%, a drop to almost 4%! U6 unemployment rate, it includes people who want to work, but have given up searching and those working part-time because they cannot find full-time employment, recorded a nice drop to 7.7% from 7.9% in August. Average wages rose by 0.4% m/m and 4% y/y, both beating expectations while hours worked ticked down to 34.2. Hospitality, healthcare, government, social care and construction all posted strong gains. Very strong report showing no issues with employment which will prevent Fed from going for another 50bp rate cut in November. USD as well as Treasury yields rallied on the news.

The yield on a 10y Treasury started the week at 3.79%, rose to almost 4% after NFP and finished the week at around 3.98%. The yield on 2y Treasury started the week at 3.62%, reached the high of 3.95%. Spread between 2y and 10y Treasuries started the week at 14bp and finished the week at 5bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 93%, a huge increase after strong NFP report, while probability of a 50bp rate cut is around 7%. Markets are fully pricing in December rate cut.

This week we will get FOMC minutes from September meeting, we will have more details about their reasoning for a 50bp rate cut and we will get inflation data that is expected to continue declining towards the 2% target.

Important news for USD:

Wednesday:​

• FOMC Minutes​

Thursday:​

• CPI​

EUR

Final manufacturing PMI for the month of September was revised up to 45 from 44.8 as preliminary reported on the back of strong reading from Spain as well as positive revisions from Germany and France. Still, 45 is a downgrade from 45.8 print seen in August. German reading is abysmal 40.6 and continues printing lower. New orders and output components saw fastest declines in 2024. The report shows falling demand for manufacturing products coupled with supply chain problems caused by geopolitical tensions. Final services PMI was revised higher to 51.4 so it showed a smaller decline from 52.9 in August. Services were very strong in Spain but French reading, post-Olympic boom, plunged into contraction. Composite was dragged down into contraction with a 49.6 print, after 51 seen in the previous month.

Preliminary September CPI showed headline number at 1.8% y/y as expected, down from 2.2% y/y in August. This is the first time that inflation is below targeted 2% since June of 2021. Core ticked down to 2.7% y/y, as expected, from 2.8% y/y the previous month. Germany printed 1.6% y/y, down from 1.9% y/y in August and showed a bigger decline than 1.7% y/y as expected. Numbers are pointing to disinflationary trend and it is leading to higher expectations for another 25bp rate cut in October.

GBP

Final reading of Q2 GDP was revised to 0.5% q/q and 0.7% y/y from 0.6% q/q and 0.9% y/y as preliminary reported. Services were revised down to 0.6% from 0.8% in the first estimate with production dropping by 0.3% vs 0.1% in the first estimate. There was a positive revision to business investment (1.4% vs -0.1%) while net exports were revised down as exports declined by more than imports.

September manufacturing PMI saw final reading unchanged at 51.5, down from 52.5 in August. Output is still rising but at a slower pace while business confidence plunged. Input prices have increased at a fastest pace in over two years indicating that inflationary pressures are still lingering. Services were revised down to 52.4 from 52.8 and down from 53.7 in August as business activity eases. Composite was at 52.6, down from 53.8 the previous month. BoE Governor Bailey hinted at “a bit more aggressive” rate cutting cycle at the interview published in newspaper Guardian and GBP suffered but managed to recover as the week drew to an end.

AUD

Official PMI data for the month of September from China saw improvement in manufacturing to 49.8 from 49.1 previously but a decline in services as it printed 50 vs 50.3 in August. Caixin numbers were not encouraging as they saw drops across the board. Manufacturing fell into contraction and printed 49.3 while services and composite managed to hang in expansion with a 50.3 print. Stimulus package was unveiled last week and it is taking over in importance over the data.

NZD

Business confidence improved dramatically in Q3 as it printed -1% after abysmal -44% in the second quarter. Firms see much brighter economic conditions in the coming months. Companies also report greater ease in finding skilled labour. September business confidence rose to 60.9 from 50.6 in August with big improvements seen in residential construction and profit expectations. First GDT auction of October printed a 1.2% increase in prices for a second consecutive positive auction.

This week we will get RBNZ meeting. Consensus is for a cut, 25 most likely but increasing number of bank analysts see a full 50bp rate cut.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

CAD has benefited from increase in oil prices on the back of tensions in the Middle East. BoC is set to deliver another 25bp rate cut at their next meeting, but geopolitical tensions are keeping oil and CAD supported.

This week we will have an employment report.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Summary of Opinions from the latest BoJ meeting showed no immediate plans for further rate cuts. BoJ will continue with easing measures but they are prepared to adjust their policy if economic conditions improve. Final manufacturing PMI in September came in at 49.7 with output declining for the second consecutive month. Final services PMI reading was revised down to 53.1 and is now showing decline from 53.7 in August. New orders and business activity increased at a slower pace. Composite was at 52 vs 52.9 the previous month.

CHF

Total sight deposits for the week ending September 27 came in at CHF472.2bn vs CHF465.3bn the previous week. Deposits are moving to the high of the range, to the levels not seen since start of June, as SNB seems to become more active in the markets to keep Swissy strength subdued. SNB incoming Governor Schlegel stated that the main reason for last week’s cut was declining inflationary pressures and added that they are not ruling further rate cuts. September saw further decline in inflation as headline number printed 0.8% y/y vs 1.1% y/y in August. This is a new three-year low as falling electricity prices pushed inflation down. Core printed 1% y/y, tick down from 1.1% y/y the previous month. After surprising drop in inflation the idea of more monetary easing looks increasingly likely.​

 

[katetrades]

Forex Major Currencies Outlook (Oct 13 – Oct 18)

ECB meeting will highlight the packed week ahead of us which will also include inflation data from the UK, New Zealand and Canada as well Q3 GDP from China and employment data from the UK and Australia.

USD

Minutes from the September FOMC meeting showed that "substantial majority" of participants supported a 50bp rate cut. Majority of participants agreed that upside risks to inflation diminished and that downside risks to employment increased. Risks to employment and inflation goals now seen as "roughly in balance". Michelle Bowman dissented, first dissent since 2005 and opted for a 25bp rate cut due to elevated inflation and solid growth. Participants noted that there is no need for further weakening in the labor market to bring inflation down to 2%. There was a mention of upside risks to inflation stemming from the geopolitical situation.

September CPI report saw headline number tick down to 2.4% y/y from 2.5% y/y in August while a 2.3% y/y reading was expected. On the monthly basis CPI printed 0.2% vs 0.1% as expected. Food prices rose 0.4% m/m after 0.1% m/m increase in August. Shelter rose by 0.2% m/m and 4.9% y/y. Services less energy services printed 4.7% y/y. Core reading ticked up to 3.3% y/y from 3.2% y/y the previous month. This is the first time core CPI came higher than previous month in over a year. Among components of core inflation airline fares had the biggest increase of 3.2% with used cars up 0.3% after declining by 1% the previous month. The numbers are coming in hot and showing that Fed should consider keeping rates unchanged in November.

The yield on a 10y Treasury started the week at 3.96%, rose to 4.10% and finished the week at around 4.08%. The yield on 2y Treasury started the week at 3.93%, reached the high of 4.05%. Spread between 2y and 10y Treasuries started the week at 5bp and finished the week at 13bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 85%, while probability of a no rate cut is around 15%. Markets are fully pricing in December rate cut.

This week we will have retail sales expected to show further strength.

Important news for USD:

Thursday:​

• Retail Sales​

EUR

Minutes from the September ECB meeting showed that members expect inflation to increase by the end of the year and then converge towards the target by the end of 2025. They stated that disinflation process is moving as expected. Incoming data is pointing to a downside risks to growth. Members remain cautions on inflation, particularly core inflation as services inflation continues to come in stronger than projected. We had numerous speaker during the week talking about October rate cut which markets have fully priced in.

This week we will have ECB meeting. Markets have fully priced in a rate cut but there is uncertainty regarding rate cutting path. Investors are expecting December cut as well but ECB may signal that they will pause after October. Most likely they will emphasize “meeting-by-meeting” and “data dependent” approach as we will get two inflation and two PMI reports by December meeting where they will reveal new staff projections.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

After two months of no growth August saw GDP increase by 0.2% m/m. Growth was seen in all main sectors (services, production, construction) with highest seen in the production 0.5% m/m. Waning growth, three of last five monthly GDP prints showed no growth, should nudge BoE towards more aggressive cutting cycle.

This week we will get employment and inflation data.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Wednesday:​

• CPI​

AUD

Minutes from September RBA meeting showed that members were discussing both rate hikes and rate cuts. They did not see any meaningful changes in inflation or labor market since the last meeting, therefore, they decided to leave rate unchanged. Prerequisite for the rate cut would be a weaker than expected economy while a prerequisite for a rate hike is that inflation is not returned to target in an expected time period. Inflation is still too high and risks are skewed to the upside. Board members clarified that RBA policy does not need to move in line with policies of other economies, thus giving these minutes a more hawkish tone.

NDRC, essentially a state planner for the Chinese economy, characterized Chinese economy as largely stable stating that new policies will improve health of economic affairs. They stated that they are fully confident in achieving their 2024 economic goals. No new meaningful stimulus measures were announced at the meeting which caused markets to reevaluate and AUD got sold hard. Later during the week we got some new information indicating that additional Chinese stimulus will be unveiled over the weekend, on Saturday, which will lead to an interesting market open.

This week we will have employment data from Australia as well as Q3 GDP and other activity data from China.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​

Friday:​

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

NZD

RBNZ delivered a 50bp rate cut as expected lowering Official Cash Rate (OCR) to 4.75%, Low import prices have contributed to disinflation and committee asses annual CPI within its 1-3% targeted range. “Business investment and consumer spending have been weak, and employment conditions continue to soften.” Employment is expected to ease further, as economy is now in excess capacity. Minutes from the meeting show that committee assessed both 25 and 50bp rate cuts and opted for latter as it is more in line with their objective of low and stable inflation. OCR at 4.75% is still restrictive enough to help economy battle any near-term surprises. “The Committee agreed that excess capacity has dampened inflation expectations, and price and wage changes are now more consistent with a low-inflation environment.” Further rate adjustments will depend on how the economy evolves.

This week we will get inflation data for third quarter.

Important news for NZD:

Tuesday:​

• CPI​

CAD

September employment report saw economy add 46.7k jobs. The unemployment rate ticked to 6.5% from 6.6% in August while increase to 6.7% was expected. However, this came in part as a result of participants rate declining to 64.9% from 65.1% the previous month. Wage growth has continued to decline, although it is still at healthy 4.5% y/y vs 4.9% y/y in August. Composition of jobs adds more shine to the report as economy added 112k full-time jobs while part-time jobs declined by 65.3k. CAD had a terrible week due to markets pricing in a full 50bp rate cut by BoC. USDCAD has dropped for eight straight days.

This week we will get inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Labor cash earnings in the month of August declined to 3% y/y from 3.6% y/y seen in July. Additionally, this has caused real earnings to print -0.6% y/y, thus returning into negative territory after two months of positive prints. Slow rising wages indicate that inflation cannot be sustained at targeted level and will deter BoJ from faster pace of rate hikes. Household spending printed -1.9% y/y vs -2.6% y/y as expected with base effects being the primary reason for the decline.

CHF

SNB total sight deposits for the week ending October 4 came in at CHF471.4bn vs CHF472.2bn the previous week. It is a negligible change as SNB does not see the need to fight the market which is buying Swissy on geopolitical tensions.​

 

[katetrades]

Forex Major Currencies Outlook (Oct 20 – Oct 25)

BoC meeting and preliminary PMI data from Eurozone, UK and Japan will dominate the news along with continuation of earnings season.​

USD

Retail sales for September showed increase of 0.4% m/m vs 0.3% m/m as expected. Control group, which excludes volatile categories, jumped by 0.7% m/m vs 0.3% m/m as expected. Ex autos and ex gas and autos components also rose giving more shine to this report. The biggest increase was seen in miscellaneous store retailers which rose 4% m/m followed by clothing & clothing accessories stores 1.5% m/m. The biggest losses were seen in electronic stores -3.3% m/m and gasoline stations -1.6% m/m. It is yet another strong performance by the consumer which will keep GDP print elevated and will allow Fed to take slower path of rate cuts.

The yield on a 10y Treasury started the week at 4.10%, rose to 4.12% and finished the week at around 4.08%. The yield on 2y Treasury started the week at 3.93%, reached the high of 4.05%. Spread between 2y and 10y Treasuries started the week at 14bp and finished the week at 13bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 91%, while probability of a no rate cut is around 9%. Markets are fully pricing in December rate cut.

EUR

Final September CPI reading showed headline number tick down to 1.7% y/y from 1.8% y/y as preliminary reported while core remained at 2.7% y/y. There was a slight drop in French reading 1.1% y/y vs 1.2% y/y preliminary while other readings remained unchanged with Germany at 1.6% y/y, Italian at 0.7% y/y and Spain at 1.5% y/y.

ECB has delivered a widely expected 25bp and stated “...its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission” as main reasons for their action. Inflation is expected to increase in the coming months but then it will fall to the 2% target during 2025. Wages are still rising at an elevated pace but are also expected to gradually come down. ECB will continue their meeting-by-meeting and data dependent approach and it will be based on inflation outlook as well as financial and economic data.

ECB President Lagarde started the press conference by stating that economic activity was somewhat weaker than expected. She emphasized that disinflation process is well on track and clarified that expected increases in inflation are due to energy related base effects. Lagarde cautioned that balance of risks to growth is tilted to the downside. In the Q&A section Lagarde stated that this decision was an example of data dependence and clarified that only 25bp rate cut was on the table and that it was a unanimous decision. Growth was emphasized as the main concern and with the weak incoming PMI data and more weakness to come next week markets are fully pricing in another 25bp rate cut in December.

This week we will have preliminary October PMI data expected to show slight improvement.

Important news for EUR:

Thursday:​

• Manufacturing PMI (Eurozone, Germany, France)​
• Services PMI (Eurozone, Germany, France)​
• Composite PMI (Eurozone, Germany, France)​

GBP

Payrolls fell again in September printing -15k after a -35k print the previous month. August ILO unemployment rate ticked down to 4% with employment change showing increase of 373k vs 250k as expected. Wage growth continued to decline for the fourth straight month printing 3.8% 3m/y for average weekly earnings and 4.9% 3m/y for ex bonus. The report is all over the place due to recent methodology changes in gathering data. BoE will welcome slowdown in wage growth.

September CPI print saw further declines in inflation as headline number printed 1.7% y/y vs 1.9% y/y as expected, down from 2.2% y/y in August. Inflation is finally below 2%, for the first time since April of 2021. Core CPI printed 3.2% y/y vs 3.4% y/y as expected and down from 3.6% y/y the previous month. Services inflation fell to 4.9% y/y while BoE projected it to be at 5.5% y/y. Faster than expected inflation drop increased chances of a 25bp November rate cut to the point that it is almost fully priced in.

This week we will have preliminary October PMI data that are expected to show slight improvement.

Important news for GBP:

Thursday:​

• Manufacturing PMI​
• Services PMI​
• Composite PMI​

AUD

We had a stellar employment report for the month of September. Employment change came in at 64.1k vs 25k as expected making this a sixth consecutive month of more than 35k jobs added. Details are painting even brighter picture as the unemployment rate ticked down to 4.1% while participation rate ticked up to 67.2%. Majority of jobs (51.6k) were full-time jobs. Labour market remains incredibly tight making RBA stay with higher rates for longer in order to tame the inflation down.

September inflation report saw further declines as CPI came in at 0.4% y/y vs 0.6% y/y in August and PPI printed -2.8% y/y after -1.8% y/y print the previous month. Absence of inflation leaves room for additional monetary and fiscal stimulus from the Chinese authorities but so far they are failing to deliver. Over the weekend new stimulus measures were announced by the Ministry of Finance but they were vague, lacking details and concrete steps.

Trade balance saw lower surplus in September compared to the month before due to lower exports as it printed $81.7bn. Exports rose by 2.4% y/y while imports increased by 0.3% y/y. Ship exports saw the biggest increase followed by auto and semiconductor exports. Imports growth remains sluggish indicating weak domestic demand and in combination with slowdown in exports it gives additional reasons for another round of stimulus.

Q3 GDP data saw growth increases of 0.9% q/q and 4.6% y/y. September economic data, all three major categories beat the expectations, helped push GDP closer to the 5% target. Fixed Asset Investments and industrial production printed 3.4% y/y and 5.4% y/y increases vs 3.3% y/y and 4.6% y/y in August respectively and thus broke a downward trend that was lasting for five months. Industrial production growth was led by semiconductors, computer, communications and electric equipment as well as auto production. Retail sales came in at 3.2% y/y up from 2.5% y/y the previous month with increase in auto sales and especially in household appliances which rose by astounding 20.5% y/y.

NZD

Inflation data for the third quarter saw headline number increase by 0.6% q/q vs 0.7% q/q as expected and 2.2% y/y vs 3.3% y/y in Q2. This is the first time inflation is back in RBNZ’s 1-3% targeted range since Q1 of 2021. Non-tradable inflation remains high at 4.9% y/y but inflation trend is clearly to the downside. Additionally, RBNZ’s preferred inflation measure, their sectoral factor model, rose by 3.4% y/y, lower than 3.6% y/y in the second quarter. RBNZ will stay firm on the rate cutting cycle and could deliver another 50bp rate cut at their next meeting.

CAD

Inflation report for the month of September came in at 1.6% y/y vs 1.8% y/y, down from 2% in August. Inflation returning below the 2% target for the first time since February of 2021. Monthly print was negative at -0.4%. Core numbers were mixed but all three measures printed below 2.5%. BoC will be happy with this reading and we should see another 50bp rate cut at their next week’s meeting. USDCAD has been going straight up with ten days of green candles.

This week we will have BoC meeting. Markets and economists see a 50bp rate cut as base case which may open doors for CAD strength if BoC delivers a 25bp rate cut.​

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

National inflation data for the month of September saw headline number come in at 2.5% y/y as expected, down from 3% y/y in August. Food component saw a 2.4% y/y print vs 2.3% y/y as expected, down from 2.8% y/y the previous month. Ex fresh food, energy component of CPI, the so-called core core, came in at 2.1% y/y, a tick up from 2% y/y in August. Despite drops in headline and ex fresh food inflation, all three numbers remain above BoJ 2% target.

CHF

SNB total sight deposits for the week ending October 11 came in at CHF467.1bn vs CHF471.4bn the previous week. Still within a well-established range that seems to tighten as time passes by.​

 

[katetrades]

Forex Major Currencies Outlook (Oct 28 – Nov 1)

BoJ meeting, NFP, Q3 GDP data from the US and Eurozone, inflation data from the US, Australia and Switzerland as well as Autumn Budget from the UK will lead the jam packed data week ahead of us.

USD

The yield on a 10y Treasury started the week at 4.08%, rose to 4.26% and finished the week at around 4.2444%. The yield on 2y Treasury started the week at 3.97%, reached the high of 4.11%. Spread between 2y and 10y Treasuries started the week at 13bp and finished the week at 14bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 95%, while probability of a no rate cut is around 5%. Markets are fully pricing in December rate cut.

This week we will have preliminary Q3 GDP reading, Fed’s preferred inflation metric PCE and NFP data on Friday. Headline NFP number is seen coming at around 140k, but the number may be very distorted by the impact of hurricane. The unemployment rate is seen ticking up to 4.2%.

Important news for USD:

Wednesday:​

• GDP​

Thursday:​

• PCE​

Friday:​

• NFP​
• Unemployment Rate​
• ISM Manufacturing PMI​

EUR

Preliminary PMI data for the month of October showed manufacturing improve to 45.9 from 48 in September on the back of improvement in German reading. Services ticked down to 51.2 from 51.4 the previous month while composite ticked to 49.7 from 49.6 in September. The report shows declines in new orders for both manufacturing and services and increase in price pressures in the services sector which will keep services inflation elevated. While all three German readings improved France is in a post-Olympic blues as all three of their readings declined on the month. This report indicates week growth potential and is consistent with another 25bp rate cut in December.

Majority of ECB members that spoke at the IMF annual meeting suggested that further rate cuts are warranted to fight declining growth figures and markets are now pricing even a 50bp rate cut in December. Doves in the ECB think that policy rate should go below neutral. Hawks, on the other hand, do not feel the need for a 50bp rate cut if the economy does not deteriorate significantly.

This week we will have preliminary Q3 GDP and preliminary October CPI data. Good data from July and August may cause upside surprise to growth while inflation is expected to stay unchanged.

Important news for EUR:

Wednesday:​

• GDP​

Thursday:​

• CPI​

GBP

PMI data for the month of October showed misses on expectations and further deterioration of the economy. Still, all three readings were above 50 with manufacturing at 50.3 vs 51.5 in September, services with 51.8 vs 52.4 the previous month and composite at 51.7 vs 52.4 in September. The report shows that numbers are indicating weak growth in Q4 as business activity, spending and demand decline across both manufacturing and services sectors.

AUD

PBoC has delivered 25bp cuts to both their 1-year and 5-year Loan Prime Rates (LPR). The new 1-year LPR is at 3.10% while new 5-year LPR is at 3.60%. New measures aimed at relaxing of credit conditions are intended to stimulate the economy through credit creation.

This week we will have Q3 inflation data from Australia expected to show further declines and we will have official PMI data from China.

Important news for AUD:

Wednesday:​

• CPI​

Thursday:​

• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​

NZD

Trade balance improved in September showing smaller deficit as exports increased while imports decreased. This was a hard week for the Kiwi as broad USD strength, due to proximity of NFP, elections and FOMC meeting, led to more risk off mood in the markets which caused NZD to weaken.

CAD

BoC has delivered a 50bp rate cut as was widely expected and brought rate down to 3.75%. GDP is expected to grow by 1.75% in the H2 of 2024, it will be supported by lower rates. Consumption, business investment, particularly residential investment and exports are all expected to continue growing. GDP is seen at 1.2% for 2024, 2.1% for 2025 and 2.3% for 2026. Wage growth outpacing the productivity growth as economy finds itself in excess supply. Inflation has come down significantly with shelter inflation remaining elevated but starting to ease. Excess supply is helping inflation down as well as drop in oil prices. Labour market has been characterized as soft. The statement shows that Ii the economy evolves broadly in line with our latest forecast, members expect to reduce the policy rate further and concludes with “...the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook. We will take decisions one meeting at a time.”

BoC Governor Macklem stated in an opening statement that expectations are for further cuts to the rate and that risks to inflation outlook are more broadly balanced. During the press conference Macklem clarified that 50bp was a “clear consensus”. BoC is focused on bringing inflation down to the target and sticking to the landing. Markets are pricing another 50bp rate cut at the December meeting.

JPY

Preliminary October PMI showed declines across the board. Manufacturing PMI dropped deeper into contraction with a 49 print vs 49.7 in September. Much deeper fall was seen in services which descended into contraction for the second time this year and after three months of nice expansionary prints. Services printed 49.3 after 53.1 print the previous month and thus dragged composite also into contraction with a 49.4 print after 52 in September. Weak domestic and demand from abroad caused both new orders and new export orders to decline. All three numbers for the October Tokyo area CPI printed 1.8% y/y, below the targeted 2%, with headline and ex fresh food inflation declining while ex fresh food, energy component jumped from 1.2% y/y in September.

General election will be held on October 27 and polls suggest that ruling LDP party will not manage to win majority and will thus need to go into coalition in order to form the government. There are rumors among analysts that BoJ may intervene to strengthen the currency if JPY weakens post election.

This week we will have BoJ meeting. Markets are pricing no change to the rate as they are seeing BoJ hiking in December. We will also get quarterly outlook that will provide more information regarding BoJ’s thinking.

Important news for JPY:

Thursday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending October 18 came in at CHF462.3bn vs CHF467.1bn the previous week. Still within a well-established rage that has narrowed to around 21bn in the last three months.

This week we will have inflation data that is expected to remain unchanged.

Important news for CHF:

Friday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Nov 4 – Nov 8)

We are in for a biggest week of the year that will have US Presidential Election, FOMC, BOE and RBA meetings as well as employment data from New Zealand and Canada.

USD

Advanced reading of Q3 GDP came in at 2.8% vs 3% annualized as expected. Details show a much better picture as personal consumption added 2.46pp, up from 1.9pp in Q2. Government spending was also higher than in previous quarter (0.85pp vs 0.52pp) with net international demand showing smaller decline (-0.56pp vs -0.90pp in Q2). One concerning factor is big drop in investment as it contributed with only 0.07pp compared to 1.47pp in the previous quarter.

October PCE declined further and printed 2.1% y/y while core PCE remained unchanged at 2.7% y/y. When taking unrounded monthly readings we get 0.175% for headline number and 0.254% for the core reading. Personal income increased by 0.3% m/m while personal spending rose by 0.5% m/m. The economy is still on disinflationary path and data shows healthy spending coming from the consumer. Employment Cost Index rose by 0.8% q/q in Q3 vs 0.9% q/q as expected and as was in Q2 indicating that wage pressures on prices are decreasing and increases chances of inflation being sustainably on path to 2%.

October employment report saw economy add only 12k jobs vs 115k as expected. Disruptions caused by hurricane and strikes took a much bigger toll than expected. Underlying measures still point to a strong labor market. The unemployment rate remained at 4.1% while participation rate ticked down to 62.6%. Underemployment and average wages also all remained unchanged at 7.7% 0.4% m/m and 4% y/y respectively.

ISM manufacturing for the month of October printed 46.5 vs 47.6 as expected and down from 47.2 in September. All of the major components showed either miniscule improvements or miniscule deterioration except for the prices paid component. Prices paid component jumped back into expansion and printed at the highest level since May. It will not have influence on next week’s decision but it will prompt Fed to monitor prices in manufacturing sector for a sign of returning inflation.

The yield on a 10y Treasury started the week at 4.25%, rose to 4.38% and finished the week at around 4.37%. The yield on 2y Treasury started the week at 4.12%, reached the high of 4.26%. Spread between 2y and 10y Treasuries started the week at 13bp and finished the week at 16bp as curve steepened further. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 99%, while probability of a 50bp rate cut is around 1%. Markets are pricing around 83% of additional cut in December.

This week we will have Presidential Elections, ISM services and FOMC meeting. Polls are favouring Trump win with a decent chance of a “Red Sweep” (Republicans having majority in both the Senate and the House). Markets have fully priced in a 25bp rate cut is fully at the FOMC meeting.

Important news for USD:

Tuesday:​

• Presidential Election​
• ISM Services PMI​

Thursday:​

• Fed Interest Rate Decision​

EUR

Eurozone Q3 GDP came in at 0.4% q/q vs 0.2% q/q as expected. German Q3 GDP came in at 0.2% q/q vs -0.1% q/q as expected thus helping Germany to escape technical recession. French GDP came in at 0.4% q/q vs 0.3% q/q as expected on the strong rebound in household consumption. Olympic Games had positive influence on the reading with government spending also positively contributing. Spain GDP printed 0.8% q/q vs 0.6% q/q as expected.

Preliminary Eurozone CPI for the month of October increased to 2% y/y from 1.7% y/y in September while core remained at 2.7% y/y with expectations being for it to tick down to 2.6% y/y. Food and energy prices were the biggest contributors to increase in inflation. ECB has previously signaled that inflation will be higher into the year end. German CPI came in at 2% y/y vs 1.8% y/y as expected and up from 1.6% y/y in September on the back of 0.4% m/m increase. France CPI at 1.2% y/y vs 1.1% y/y as expected and as was in September. Spain CPI 1.8% y/y as expected. Combination of higher GDP and inflation should decimate chances of a 50bp rate cut in December.

GBP

Chancellor of Exchequer Reeves revealed new UK budget which will see increases in capital gains tax to 18% for lower rate and to 24% from 20% for higher rate. This tax is expected to raise £2.5bn. There will also be increases in tax on private equity carried interest and energy windfall tax. Overall, tax increases are expected to bring additional £40bn per year. However, the Budget also sees higher spending by around £36bn per year. Budget sees higher GDP for 2024 and 2025 and then lower in the following years. Inflation is seen higher for all years starting from 2024 and is expected to come down to 2% target only in 2029 (it will be below 2.6% until then). Later during the week Chancellor Reeves stated that government has more plans to bolster economic growth indicating that there will be no need for further borrowing. As a result of Budged, on Thursday yields on 10y gilts have jumped higher causing GBP to weaken across the board.

Final manufacturing PMI for the month of October fell into contraction for the first time since April with a 49.9 reading. Decline in new orders and output were main culprits and there was also a significant decline in input prices which will be very welcomed by the BoE as it indicates that inflationary pressures are subsiding. Additionally, there was also a drop in selling prices which indicates troublesome demand.

This week we will have a BoE meeting where a 25bp rate cut will be delivered. Markets are pricing out a December cut so investors will focus on hints from the statement.

Important news for GBP:

Thursday:​

• BoE Interest Rate Decision​

AUD

Official manufacturing PMI from China for the month of October returned into expansion for the first time since April with a 50.1 reading. Production component increased into expansion but new export orders continued to decline indicating weak external demand. The question is will the stimulus be enough to increase domestic demand for new products. Services ticked up to 50.2 from 50 the previous month which pushed composite to 50.8 from 50.4 in September.

China officials are expected to announce a 10tln yuan stimulus next week. The stimulus should amount to $1.4tn which is around 8% of GDP and represents a very strong commitment to support the economy. The details of stimulus package are less satisfying as the entire stimulus will be spread over 3 years ending in 2026. Additionally, 60% of the amount will be given to local governments to help with their debt while remaining 40% will be used to help property purchases within next five years.

This week we will have RBA meeting. This meeting will mark one year of rates staying at 4.35% and they will not be changed in 2024.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

NZD

Business confidence for the month of October printed 65.7, up from 60.9 in September. This is the fourth consecutive month of rising business confidence and it marks a new 10-year high! Investment and employment intentions posted highest readings since 2021 while export intentions rose to highest since 2018. Big increase was seen in commercial construction with profit intentions and ease of credit also rising. Inflation expectations are continuing to decline but pricing intentions rose again for the fourth consecutive month casting some shadow on a rather stellar report.

This week we will have Q3 employment data.

Important news for NZD:

Tuesday:​

• Employment Change​
• Unemployment Rate​

CAD

BoC Governor Macklem spoke about raising productivity as a key factor for raising living standards in Canada. Canada has been struggling with declining productivity for decades. Macklem added that there is no known neutral rate and that neutral rate will be discovered on the rate cutting path. Later during the week he stated that more rate cuts will come if the economy evolves as envisioned. Main role of the rates will be to stimulate demand. GDP for the month of August came in flat as expected with first estimates seeing a healthy 0.3% m/m growth increase in September.

This week we will have employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Election results showed ruling coalition led by LDP losing majority getting 209 votes while 233 is needed for a majority to govern. LDP will have to accept new coalition partners in order to secure majority. Political instability has reflected hard on JPY, weakening it, as USDJPY, pushed by rise in yields also, climbed to almost 154.

BoJ has left short term interest rate target at 0.25% as was widely expected. Inflation and growth forecasts were virtually unchanged from July as inflation is seen running at around 2% through 2026. Members acknowledged that rates are at very low levels and stated their readiness to increase them if economy continues to move in line with projections. They have acknowledged high uncertainty surrounding economy and prices adding that moves in FX had increased impact on prices as firms have become more active in raising prices and wages. Risks to the economic outlook are balanced while risks to prices are skewed to the upside.

BoJ Governor Ueda reiterated that there is high uncertainty regarding economic outlook at the press conference adding that careful attention needs to be paid to financial and FX markets and their impact on the overall economy and prices. He clarified that inflation outlook for the next two years is not as certain as for 2024 and thus close attention has to be paid to JPY moves. Additionally, he cautioned that rate hikes may bring some new risks.

CHF

SNB total sight deposits for the week ending October 25 came in at CHF457.4bn vs CHF462.3bn the previous week. Total sight deposits are moving to the downside of the well-established range. SNB Chairman Schlagel stated in his speech that interest rates could be needed to maintain price stability and added that bank is ready to be active in the Forex market. October CPI saw further declines as headline number fell to 0.6% y/y from 0.8% y/y in September while core CPI printed 0.8% y/y, down from 1% y/y the previous month. Misses on expectations and deeper declines led to markets pricing in increasing chance of a 50bp rate cut at December meeting.​

 

[katetrades]

Forex Major Currencies Outlook (Nov 11 – Nov 15)

After a very turbulent week we should arrive into calmer waters with US inflation and retail sales as well as preliminary Q3 GDP from the UK and Japan and employment data from the UK and Australia as highlights of the week ahead of us.

USD

Donald J Trump has become 47th President of the United States. He has won 312 electoral votes while Kamala Harris won 226 votes. Senate has remained in the hands of Republicans while House is still up for grabs but Republicans have an upper hand. USD has strengthened massively after Trump win with EURUSD having its biggest one day decline in almost a decade. Bitcoin has surged as well reaching new all time highs above $81 000. New all time highs were seen in stock indices such as S&P 500 and Dow Jones.

ISM Services came in at 54.4 in October after a 54.9 print in September. New orders declined while new export orders plunged from over 60 in September to contraction in October. Employment component also dropped into contraction, most likely influenced by hurricane. The most worrying part of report is prices paid component which jumped to 70.7 initiating fears that inflation could accelerate.

Fed has reduced policy rate by 25bp as was widely expected. New range for the federal funds rate is 4.50-4.75%. The decision was unanimous. Statement showed that economy continues to expand at solid pace with inflation coming down, although staying elevated while "Job gains have slowed, and the unemployment rate has moved up but remains low". Fed will maintain its data dependent and meeting-by meeting approach.

At the press conference Powell has acknowledged effect of strikes and hurricane on weak October NFP reading. Risks to achieving both targets of mandate are broadly balanced. Rate cut will enable better GDP and support labour market while keeping inflation rate down. He assessed policy as well positioned adding that if labour market declines further or inflation declines faster than expected they are prepared to act more aggressively. On the other hand, if inflation remains strong they are prepared to slow down pace of rate cuts. Highlight of the press conference was when asked whether he would step down if asked by the new President, Powell calmly said No. He declined to comment on results of election and economic policies of new administration adding that in the near-term election will have no influence on the Fed’s decisions. Powell declined to provide new forward guidance as he thought it would stifle future Fed decisions. Overall, the tone of the press conference was dovish as Chair Powell plans to stay on the rate cutting path.

The yield on a 10y Treasury started the week at 4.40%, rose to 4.47% and finished the week at around 4.30%. The yield on 2y Treasury started the week at 4.22%, reached the high of 4.32%. Spread between 2y and 10y Treasuries started the week at 14bp and finished the week at 4bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at December meeting at around 75%, while probability of a no cut is around 25%.

This week we will have inflation data, headline expected to tick up while core remains the same and retail sales data expected to continue growing at a healthy pace.

Important news for USD:

Wednesday:​

• CPI​

Friday:​

• Retail Sales​

EUR

Final October manufacturing PMI ticked higher and came in at 46 vs 45.9 as previously reported. German reading was revised higher while French was unchanged. Spanish reading posted a beat and moved further into expansion while Italy missed and fell deeper into contraction. Recent catastrophic floods in Valencia, Spain will cause disruptions to the reading in the coming months. Eurozone reading showed slower pace of declines in production and new orders with overall environment remaining deflationary. Services improved to 51.6 from 51.2 as preliminary reported. The report expected new business component to recover in the coming months. Composite was lifted to the 50 level, thus escaping from contraction reported in the preliminary reading.

Germany had political turmoil of its own as Chancellor Scholtz fired Finance Minister Lindner. This led to Lindner’s party LDP leaving governing coalition thus causing government to collapse. A vote of confidence will be brought to the German parliament on January 15 and if this vote results in a loss, which is very likely, the federal president would have to call snap elections within two months. End of March has already been rumored as a date for snap elections. Political uncertainty will bring down consumption and deter any potential investments.

GBP

BoE has delivered a 25bp rate cut as was widely expected with a 8-1 vote thus bringing the rate to 4.75%. Catherine Mann was the only dissenter as she wanted to keep rates at 5%. The statement shows that there has been a continued progress in disinflation but it is expected that inflation will rise to around 2.5% by the year end as base effects in energy prices go out of calculation. Effects of Autumn Budget should boost GDP by around 0.75% in a year’s time. A gradual approach to removing policy restraint remains appropriate as “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”

BoE Governor Bailey stated that disinflationary process is developing faster than expected but emphasized importance of services inflation coming down. He warned of wage pressures on inflation and clarified that effects of Autumn Budget on inflation are yet to be seen. He added that they do not have a specific equilibrium level of rates and declined to specify what “gradual” means for rate cuts path thus leaving room for maneuvering.

This week we will have employment data and preliminary Q3 GDP reading.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Thursday:​

• GDP​

AUD

RBA has left rates unchanged at 4.35% as was widely expected. The statement shows that inflation has fallen substantially but underlying inflation remains uncomfortably high with projections showing that it will not sustainably return to the midpoint of targeted range (2.5%) until 2026. Aggregate demand remains above economy’s supply which causes high inflation. Growth in output has been weak while labor market remains tight and wage growth easing. Monetary policy remains restrictive and uncertainties around economic outlook are high. RBA remains data dependent. New projections see lower GDP (2.3% for 2025 vs 2.5% previously), household consumption and both CPI and core inflation. Overall it is a hawkish sounding statement with dovish projections for growth and inflation.

RBA Governor Bullock stated at the press conference that rates need to stay restrictive as there are still upside risks to inflation. She added that policy is right at the moment and clarified that if economic conditions worsen by more than projected, they will be ready to act.

Caixin services PMI jumped to 52 in October from 50.3 in September. The report shows continuing improvements in business activity, new orders and new export orders. Employment, backlogs and input prices all increased slightly while future expectations jumped indicating high business optimism. Composite printed 51.9 making it twelve months above 50. The last time composite was in contraction was in December of 2022. Services are doing the heavy lifting as they are outperforming manufacturing and lifting composite up. Trade balance data for the same month saw widening of trade surplus to $95.27 on the back of surge in exports, 12.7% y/y, while imports declined -2.3% y/y. Drop in imports is very concerning for the world economy as it indicates weak domestic demand from China.

This week we will have employment data from Australia as well as industrial production and retail sales data from China.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​

Friday:​

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

NZD

Q3 employment report showed abysmal situation in New Zealand jobs market. Employment change showed job losses at a rate of -0.5% q/q, bigger losses than expected and plunge from 0.4% q/q increase seen in the second quarter. The unemployment rate rose to 4.8% from 4.6% in the previous quarter with participation rate dropping down to 71.2% from 71.7% in Q2. Wages in private sector have risen by 3.2% after increasing by 3.6% in the second quarter. After this report RBNZ will stay firmly on the rate cutting path in order to protect the jobs market. RBNZ has stated geopolitical tensions as key risks to the economy adding that economic conditions remain challenging.

CAD

BoC minutes from October meeting revealed that members see upside risks to inflation subsiding which in turn means that monetary policy does not need to be this restrictive, thus a 50bp rate cut. Consensus among members was that a 50bp rate cut is more appropriate although there were voices opting for a 25bp rate cut. Economy is running in excess supply and members feel that this state of economy will pull inflation down.

October jobs report showed economy added 14.5k jobs vs 25k jobs as expected. The unemployment rate remained at 6.5% due to tick down in participation rate at 64.7%. If participation rate was unchanged the unemployment rate would tick up to 6.6% as was expected. Wages growth continued to increase printing 4.9% y/y vs 4.5% y/y in September. Composition of jobs saw 25.6k full-time jobs added while part-time jobs saw a loss of 11.1k. It is a mixed report that showed weakening in job creation but on the other hand all of the jobs created were better paying full-time jobs. Markets are still pricing in a 50bp rate cut at the next meeting.

JPY

Minutes from the last week’s BoJ meeting showed that members are looking for economy to evolve as forecast in order to continue with rate hikes. Members see economy recovering moderately as was forecast in the July outlook with wages and consumption continued growth. BoJ members warned that path of rate hikes will also be influenced by events from overseas particularly from the US. Labor cash earnings for the month of September rose 2.8% y/y while real earnings, nominal minus inflation, came in at -0.1% y/y, declining for the second consecutive month. It is hard for BoJ to see inflation sustainably reaching 2% if real wages are declining. Rumors are that wage increases are coming after new sets of negotiations and those increases should keep real wages positive. Household spending declined by 1.1% y/y in September, second consecutive month of falling spending, adding more worries to inflation sustainably reaching 2% target.

This week we will have preliminary Q3 GDP reading.

Important news for JPY:

Friday:​

• GDP​

CHF

Total sight deposits for the week ending November 1 came in at CHF456.6bn vs CHF457.4bn the previous week. With inflation falling faster and further than expected we could see SNB start to utilize sight deposits as a way to intervene in the market, buying foreign currencies and thus depreciating Swissy.​

 

[katetrades]

Forex Major Currencies Outlook (Nov 18 – Nov 22)

Inflation data from the UK and Canada as well as preliminary PMI data from the Eurozone, the UK and Japan will highlight the week ahead of us.​

USD

October CPI report showed headline number at 2.6% y/y as expected, up from 2.4% y/y in September. Core has remained at 3.3% y/y. Monthly figures show headline growing at 0.2% m/m (0.2441% unrounded vs 0.1799% in September) with core at 0.3% m/m (0.2800% unrounded vs 0.3124% the previous month). Headline reading rose due to increases in energy services. Among components of core CPI used cars and trucks jumped 2.7% m/m, although they are down 3.4% y/y. Shelter again rose 0.4% m/m and printed 4.9% y/y increase. Core services ex shelter rose by 0.3% m/m after rising 0.554% m/m in September. Increase in inflation added more fuel to broad USD strength after election and EURUSD fell to new lows for the week while USDCAD crossed the 1.40 level for the first time since 2020.

Powell spoke during the week and sounded much more hawkish than at FOMC press conference stating that after recent batch of data there is no rush on rate cuts. It has been officially confirmed that Republicans won the House thus gaining control of both parts of Congress. This will see them implement decisions more easily as gridlock is avoided.

October retail sales printed another month of growth coming in at 0.4% m/m vs 0.3% m/m as expected. Control group, excludes volatile items and is a better measure of consumption, came in at -0.1% m/m vs 0.3% m/m as expected indicating weakness is creeping in with consumer. One positive is that there was a huge positive revision to September control group reading as it now shows a growth of 1.2% m/m vs 0.7% m/m as previously reported and equally big revision to headline number which showed a print of 0.8% m/m vs 0.4% m/m as previously reported. Electronics and appliance stores showed the biggest growth with 2.3% m/m increase followed by auto & motor vehicle dealers. On the other hand, miscellaneous store retailers were the biggest drag on the reading by declining 1.6% m/m.

The yield on a 10y Treasury started the week at 4.31%, rose to 4.49% and finished the week at around 4.43%. The yield on 2y Treasury started the week at 4.29%, reached the high of 4.37%. Spread between 2y and 10y Treasuries started the week at 5bp and finished the week at 12bp as curve steepened further. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at December meeting at around 55%, while probability of a no cut is around 45%. Bitcoin has breached $93 000 in the aggressive move up after Trump won his second term.

EUR

ECB policymaker Holzmann, one of the biggest hawks, stated that current data does not warrant against rate cut in December but warned that rate cut is not certain as they will make accurate decisions after the latest batch of data in December. When a hawk indicates a cut markets pay close attention. ECB policymaker Nagel, head of the Bundesbank and well known hawk, stated that core inflation remains quite high and warned that there are still price pressures, particularly in the services sector. European Commission sees Eurozone growth at 0.8% in 2024, 1.3% in 2025 and 1.6% in 2026. They see inflation coming below ECB’s 2% target in 2026.

German Prime Minister Scholz stated his willingness to call parliament vote of no confidence before Christmas. He is almost certain to lose that vote which will lead to snap elections that are already planned around middle of February. German ZEW survey showed current condition in November plunge to -91.4 from – 86.9 the previous month. This is the lowest level since May of 2020, in the middle of pandemic. Combination of political uncertainty and potential Trump tariffs is spooking German investors.

This week we will have preliminary PMI readings expected to show slight improvements.

Important news for EUR:

Friday:​

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

GBP

October payrolls change saw a loss of 5k jobs which follows upwardly revised loss of 9k jobs in September. The unemployment rate for September jumped to 4.3% from 4% in August while markets were expecting a 4.1% print. Average weekly wages broke the downward trend and rose for the first time after March printing 4.3% 3m/y vs 3.9% 3m/y increase as expected. The data suggests that jump in wages was due to one-off payments to civil servants and it will go out of calculation in the coming months. Ex bonus component of wages, on the other hand, continued to decline and dropped to 4.3% 3m/y from 4.9% 3m/y in August while 4.7% 3m/y reading was expected. ONS notes that there are still issues with methodology used for calculating employment data, but a combination of higher unemployment and lower payrolls should push BoE in more dovish direction.

BoE Chief Economist Huw Pill stated that further rate cuts will likely follow a gradual process and clarified that question now is how far and how fast will they proceed. BoE member Catherine Mann, the most hawkish member of the BoE and the only voter for no change at last week’s meeting, stated that inflation has definitely not been vanquished as services inflation remains sticky. And energy inflation is more likely to go up than down. She added that when inflation risks are gone she will be prepared to vote for rate cuts.

Preliminary Q3 GDP reading saw economy grow at 0.1% q/q vs 0.2% q/q as expected. Increases came from services sector (0.1%) and construction sector (0.8%) while the production sector fell by 0.2% .Household consumption increased 0.5%, much stronger than 0.2% in Q2. Business investment grew by 1.2% vs 1.4% in the previous quarter. Government spending increased by 0.6%, smaller increase than 1.1% in Q2. Net trade deducted from the reading.

This week we will have inflation data expected to print higher and preliminary PMI readings expected to show slight improvements.

Important news for GBP:

Wednesday:​

• CPI​

Friday:​

• Manufacturing PMI​
• Services PMI​
• Composite PMI​

AUD

October employment report saw economy add 15.9k jobs, a decline after very strong 64.1k in September. The unemployment rate remained at 4.1% while participation rate ticked down to 67.1%. Composition of jobs saw 9.7k full-time jobs added with 6.2k part-time jobs added. The report was weaker than previous but it still shows job gains and tight labor market. RBA Governor Bullock stated that rates are restrictive enough and will stay that way until members are confident that inflation is coming down to their 2-3% target, thus reaffirming their hawkish stance.

Over the weekend we got October inflation data from China showing 0.3% y/y print, down from 0.4% y/y in September and as was expected with outright deflation on a monthly reading (-0.3%) . PPI showed a continued decline as it printed -2.9% y/y vs -2.5% y/y as expected. Consumer confidence is plunging and it translates into weaker demand which keeps downward pressure on prices. It is yet to be seen how much of an impact will stimulus have on demand.

Industrial production slid slightly in September after a small improvement in August as it printed a 5.3% y/y vs 5.4% y/y the previous month. On the other hand, much more encouraging is increase in retail sales. Retail sales printed 4.8% y/y after 3.2% y/y the previous month. This is second consecutive month of rising retail sales as well as eighth-month-high and although they are still subdued data shows that stimulus measures are improving sentiment among consumers. Additional hint that stimulus is giving effect can be seen from the signs of stabilization of housing prices.

NZD

RBNZ survey of inflation expectations now sees inflation in 2 years at 2.12% vs 2.03% in the previous survey. On the other hand, 1 year is seen at 2.05% after it was seen at 2.4% in the previous survey. Electronic retail card sales bounced back a little in October as they rose 0.6% m/m. Yearly figure is still down, but it showed smaller decline than in September (-1.1% vs -5.6%). Electronic card spending accounts for roughly 70% of total retail sales. This combination of lower inflation expectations and weak consumer will add to the certainty of RBNZ rate cut on November 27.

CAD

Building permits rebounded in September and rose by 11.7% after declining by 6.3% in August. Manufacturing sales dropped further in September printing -0.5% m/m after a -0.8% m/m decline the previous month while wholesale trade improved and rose by 0.8% m/m after falling -0.9% m/m in August. CAD was a victim of USD strength this week with it breaking the 1.40 level, but on the crosses it fared much better gaining against EUR and GBP.

This week we will have inflation data and inflation is expected to pick up.

Important news for CAD:

Tuesday:​

• CPI​

JPY

BoJ published Summary of Opinions from their October meeting and it showed economy continuing to recover moderately while private consumption is stumbling. It is expected that wage growth that is already trending higher will help with consumption. Inflation pressures are expected to continue increasing gradually leading to achievement of bank’s 2% target. Yen depreciation is described as having significant impact on businesses and household sentiment and Yen appreciation is generally viewed in the positive light.

Q3 GDP printed 0.2% q/q as expected, down from 0.5% q/q in Q2. Annualized number came in at 0.9% vs 0.7% as expected. Typhoons and earthquake alert slowed down the economy. Looking into the details of report we can see private consumption printing 0.9%, same as in the previous quarter and much better than 0.2% as expected. Rising wages are the main culprit for the increase in consumption. There was a big drop in business investment as it printed -0.2% after a strong increase of 0.9% in the previous quarter. Additionally, net trade was a drag on the reading reducing GDP by 0.4pp due to imports being higher than exports (2.1% and 0.4% respectively).

CHF

SNB total sight deposits for the week ending November 8 came in at CHF463.5bn vs CHF456.6bn the previous week. Just a small move towards the higher end of the range, nothing out of the ordinary. SNB Vice Chairman Martin warned markets not to be so certain regarding a rate cut in December as bank members are not predetermined to delivering it, they have made “absolutely no commitment” to it. They will remain dependent on data and their assessment of the economic conditions.​

 

[katetrades]

Forex Major Currencies Outlook (Nov 25 – Nov 29)

RBNZ meeting, GDP from the US, Canada and Switzerland as well as preliminary CPI fro the Euzone coupled with FOMC minutes and PCE data will highlight the shortened week ahead of us. Liquidity will be low as markets will be closed on Thursday in celebration of Thanksgiving holiday in the US.

USD

The yield on a 10y Treasury started the week at 4.44%, rose to 4.47% and finished the week at around 4.41%. The yield on 2y Treasury started the week at 4.33% and reached the high of 4.37%. Spread between 2y and 10y Treasuries started the week at 13bp and finished the week at 7bp due to markets pricing higher for longer rates. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at December meeting at around 56%, while probability of a no cut is around 44%. Bitcoin has now breached $99 000 as the aggressive move up after Trump won his second term continues.

This week we will have minutes from the November FOMC meeting as well as second Q3 GDP estimate and Fed’s preferred inflation measure PCE.​

Important news for USD:

Tuesday:​

• FOMC Minutes​

Wednesday:​

• GDP​
• PCE​

EUR

Final inflation numbers for the month of October came in unchanged at 2% y/y for the headline number and 2.7% y/y for the core reading. ECB has already stated that they expect inflation to increase into the year-end due to base effects in energy category going out of the calculation. Negotiated wage growth for Q3 came in hot at 5.42% after increasing by 3.54% in Q2. Higher wages threaten to add more fuel to the demand and thus potentially increase inflation further into the future and by more than ECB projected.

Preliminary PMI data for the month of November printed a very dark picture. Manufacturing slumped further to 45.2 from 46 but the bigger concern was drop in services into contraction territory with a 49.2 print. This is the first time since January that services printed below 50. German and French readings dragged the overall PMI prints down. Composite was also dragged down into contraction with a 48.2 vs 50 the previous month. Markets have started to price in a higher probability of a 50bp rate cut after the report which caused EURUSD to fall to the lowest levels in two years, around 1.0330.

This week we will have preliminary November CPI, expected to increase once again as ECB noted at their last meeting.

Important news for EUR:

Friday:​

• CPI​

GBP

BoE Governor Bailey spoke in front of the UK Treasury Committee and emphasized importance of monitoring services inflation as it is still above the levels needed for headline inflation to reach targeted 2% level. He stated that gradual reduction of monetary policy restrictions, rate cuts, will allow them to observe risks to inflation outlook. BoE Monetary Policy Committee (MPC) member Catherine Mann, the most hawkish member, stated that inflation will not go down to 2% in the forecast horizon as all risks to inflation outlook are tilted to the upside. Deputy Governor Lombardelli stated that she sees inflation risks on both side and is more concerned about upward pressures.

October inflation data saw both headline and core number increase by more than expected. Headline number printed 2.3% y/y after 1.6% y/y print in September and higher than 2.2% y/y as expected. Core reading ticked up and printed 3.3% y/y after 3.2% y/y print the previous month and higher than 3.1% y/y as expected. Monthly readings showed increases of 0.6% and 0.4% for headline and core respectively. Particularly worrisome is the increase in services inflation as it printed an increase of 5% y/y vs 4.6% y/y in September, but some solace can be found in the core services inflation which fell to 4.5% y/y after printing 4.8% y/y the previous month. After comments from MPC members regarding importance of services inflation it will be hard for BoE to deliver a rate cut in December.

Preliminary PMI data for the month of November showed continued declines across sectors. Manufacturing printed 48.6 vs 49.9 in October, services barely hanged on in expansion with a 50 print vs 52 the previous month while composite fell into contraction for the first time this year with a 49.9 print after a 51.8 print in October. Both services and composite printed 13-month lows. Output is falling and business confidence is falling which may nudge BoE to act and cut rates in December, contrary to what CPI report said. Additionally, the PMI report showed that inflationary are moderating further which should give another push to BoE for a rate cut.

AUD

Minutes from November RBA meeting showed that policy must remain restrictive as inflation is still running too hot. The board considered what information they will need to see in order to change the course of their policy and agreed that more than one good quarterly inflation print is needed for a rate cut. Additionally, members agreed that “persistently and materially weaker than staff forecast” consumption could also be one of the reasons for board to opt for a rate cut. Members stated that considering for how long inflation has been high they have minimal tolerance towards a more prolonged period of high inflation and they must remain “vigilant to upside risks to inflation.” The message shown is that they are not in a rush to cut rates, but they are starting to watch for information that will allow them to cut rate. Still, rate should remain unchanged until the end of H1 of 2025.

PBOC has left rates unchanged as was widely expected. Loan Prime Rate (LPR) for 1 year remains at 3.1% while 5-year LPR stays at 3.6%. Economists, in the latest Reuters’ poll, project that Trump tariffs will reduce China 2025 GDP by 0.5 to 0.9%. They forecast that China will provide more stimulus to the economy in response to tariffs.

NZD

Q3 PPI data surprised to the upside printing 1.5% q/q for output and 1.9% q/q for input vs 0.9% q/q and 1% q/q respectively. This data shows that inflation pressures persist and are creeping up which will cause concern for RBNZ as they are already deep on the rate cutting path.

This week we will have RBNZ meeting. Markets are pricing on almost 80% chance of a 50bp rate cut while other 20% see a 25bp rate cut.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

October inflation data saw it rising across the board. Headline number printed 2% y/y after 1.6% y/y in September with a 0.4% m/m increase. Smaller decline in gasoline prices when compared to September contributed to higher print. Shelter prices have eased printing 4.8% y/y vs 5% y/y the previous month. Core measures saw median at 2.5% y/y vs 2.3% y/y the previous month, trim at 2.6% y/y vs 2.3% y/y in September and common at 2.2% y/y vs 2.1% y/y as printed the month before. Retail sales in September continued to increase by 0.4% m/m, same as in previous month while ex autos component showed a huge jump of 0.9% m/m vs -0.8% m/m in August.

This week we will have Q3 GDP data.​

Important news for CAD:

Friday:​

• GDP​

JPY

Core machinery orders, a good proxy for the CAPEX six to nine months ahead, printed new declines in September of 0.7% m/m and 4.8% y/y. This series is notoriously volatile but these results show that companies are wary of further investments in current economic environment. All three inflation measures for Japan printed 2.3% y/y increase in October. Headline and ex fresh food components showed declines from 2.5% y/y and 2.4% y/y in September respectively while ex fresh food, energy, “core-core”, rose compared to 2.1% y/y print the previous month.

November preliminary PMI showed manufacturing slip further into contraction with a 49 print vs 49.2 in October. Services returned into expansion after a brief one-month drop into contraction and printed 50.2 vs 49.7 the previous month. Composite improved but it was not enough for a return into expansion territory as it printed 49.8 vs 49.6 in October. The report shows that new orders in manufacturing continued to decline while new orders in services sector remained steady thus emphasizing divergence between two sectors. There was a jump in employment, but also an increase in input prices due to weak JPY and companies are passing on those costs to consumers. With all three measures staying above targeted 2% for the entire year and price pressures continuing to persist markets are increasingly looking for a rate hike In December.

CHF

SNB total sight deposits for the week ending November 16 came in virtually unchanged at CHF463.4bn vs CHF463.5bn the previous week. SNB Chairman Schlagel stated that Switzerland needs flexible inflation target, as it already has, adding that Central bank’s main tools are policy rate and FX intervention.

This week we will have Q3 GDP data.

Important news for CHF:

Friday:​

• GDP​