Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Aug 23 – Aug 27)

Jackson Hole Symposium will be the focal point of the week that will include preliminary PMIs from the EU and the UK as well as PCE inflation data from the US.​

USD

Retail sales in July heavily missed expectations and came at -1.1% m/m vs -0.2% m/m as expected. Previous month’s reading was revised up to 0.7% m/m from 0.6% m/m but it is not enough to take away the sting of this month’s big miss. Plunging car sales coupled with generally lower propensity by consumers to spend due to worsening of Covid situation, as shown by drops in clothing and non-store retailers, led to retail sales dropping at the start of Q3. Control group, the one used for GDP calculation, dropped -1% m/m vs 1.1 m/m the previous month indicating a very troubling start of Q3. Questions about the health of consumer will arise after the reading and they could remove any potential of QE tapering at Jackson Hole symposium next week. Alternative explanation is that after economy reopened there are more chances for people to spend money on services, which are not encompassed in the retail sales report, and that could mean that consumer is still going strong.

This week we will have durable goods for July, the best investment indicator, showing us how Q3 started, second estimate of the GDP as well as PCE inflation data. Jackson Hole Symposium will take place on Thursday and Friday with Powell to speak on Friday August 27 at 14:00 GMT. We expect further hints about the taper to come with formal tapering being announced at September meeting.

Important news for USD:

Wednesday:

• Durable Goods Orders

Thursday:

• GDP

Friday:

• PCE
• Jackson Hole Symposium

EUR

Second reading of GDP came unchanged at 2% q/q while year over year figure was lowered to 13.6% from 13.7% as preliminary reported. Final inflation reading for July also came in unchanged at 2.2% y/y for the headline reading and 0.7% y/y for the core reading. Headline is little above the ECBs 2% target, however with core reading so subdued there are concerns about missing price pressures. Difference between price pressures in the US and the EU is stark. EURUSD has dropped below the 1.17 level on the back of rising USD.

This week we will have preliminary PMI and consumer confidence data for August.

Important news for EUR:

Monday:

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

GBP

July employment report saw employment change coming in at 95k and the unemployment rate ticking down to 4.7% from 4.8% in June. Wages rose impressive 8.8% 3m/3m but ONS notes that: “annual growth in average employee pay is being affected by temporary factors that have inflated the increase in the headline growth rate.” Additionally, furlough scheme, which is set to expire at the end of September, is still distorting the numbers making it difficult for proper interpretation.

Headline inflation came in at 2% y/y vs 2.2% y/y as expected with core reading coming in at 1.8% y/y vs 2% y/y as expected. Both readings were down from June (2.5% and 2.3% respectively) indicating a possible turn of the tide in inflation, although it is too early to tell. Clothing, footwear and recreational goods all came lower and were biggest drags while rising prices of transport pushed inflation higher. Rising Delta cases and prolonged supply chain disruptions will keep price pressures up. Retail sales in July dropped considerably and came in at -2.5% m/m vs 0.4% m/m as expected. Ex-autos, fuel category also declined, coming in at -2.4% m/m vs 0.3% m/m as expected. According to ONS non-food stores fell by 4.4%. The drop shows that the UK is having a rough start of the Q3, however it can also be contributed to bigger spending on services rather than goods.

This week we will have preliminary PMI data for August.

Important news for GBP:

Monday:

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

AUD

RBA minutes from August meeting showed members noting that recent resurgence in covid cases interrupted the recovery, adding that health outcomes will present the main source of uncertainty for the economic outlook. Lifting of restrictions is expected to yield positive results in the labour market while underlying inflation conditions will likely remain subdued in the near term and then gradually increase to 2.5% by the end of 2023. Tapering will continue as planned and will be reviewed accordingly in the coming months.

Employment report for July showed employment change at 2.2k vs -46.4k as expected. A big beat was also achieved in the unemployment rate which dropped to 4.6% from 4.9% in June. The unemployment rate is now at the lowest level since 2009. On the negative side, the participation rate fell to 66% from 66.2% in June. Additionally, jobs created were part-time (6.4k) while full-time jobs fell (-4.2k). Overall, there are things to like about the report, however, with the reintroduction of lockdown in several states across the country we can see the labour market suffering in August.

Chinese data showed a continuation of weak and falling data with industrial production coming in at 6.4% y/y which is the lowest reading since the start of the millennium. This is also the fifth consecutive month of falling industrial production. Automobile manufacturing showed the biggest drop due to the semiconductor chip shortages. Retail sales came in at 8.5% y/y vs 11.5% y/y for a huge miss, fourth consecutive month of drops. Clothing and smartphone sales were hit the hardest as China is fighting floods and reimposed covid restrictions. The weakness seen in the July report will continue into the August reading as well.

NZD

New Zealand experienced a first case of covid since February of this year. Government reacted promptly and put the country under a three-day lockdown. Newly imposed restrictions weighed on RBNZ decision and they left official cash rate (OCR) unchanged at 0.25%. Markets were pricing almost certain rate hike to 0.50% before the virus resurgence. The statement showed that “Recent data for the New Zealand economy suggest demand is robust and the economic recovery has broadened.” They now see OCR at 0.59% in December vs 0.25% previously and at 1.38% in September of 2022 vs 0.49% previously. Governor Orr stated that RBNZ is confident that less monetary stimulus is needed to support the economy adding that according to their estimates New Zealand is six months ahead of other economies on reopening. NZDUSD proved very resilient after the rate announcement, which contained hawkish elements, as it did drop on the news but quickly rebounded to recover all of the loses. Chances of a rate hike in October have dropped below 50%, however December hike is still in play and it keeps NZD supported. Additionally, GDT auction broke the row of eighth consecutive negative auctions with prices rising 0.3% adding to the bulk of positive data from New Zealand.

This week we will have retail sales data for Q2.

Important news for NZD:

Tuesday:

• Retail Sales

CAD

After a brief pause in June inflation in Canada continued on its way up. Headline number came in at 3.7% y/y vs 3.1% y/y in June. Out of core measures median and trim rose to 2.6% y/y and 3.1% y/y respectively while common measure stayed unchanged at 1.7% y/y. Apart from the June reading prices have been increasing during every month of the year. BOC has already started to reduce bond purchases and after this month’s reading we can expect it to stay on course. Retail sales in June rebounded to 4.2% m/m after dropping -2% m/m in May, but estimates for July reading show a drop of -1.7% m/m. A combination of falling oil prices on the back of concerns about global recovery amidst rising Delta variant cases and rising USD after the FOMC meetings showed members in favor of tapering before the year end led to USDCAD losing over 400 pips in a week.

JPY

Japanese economy managed to avoid a technical recession, two consecutive quarters of negative GDP reading, with Q2 GDP coming in at 0.3% q/q. Private consumption rebounded to 0.8% q/q from -1.5% q/q in Q1 with business investment also rebounding to 1.7% q/q from -1.2% q/q in the previous quarter. Net exports negatively impacted GDP reading for the second quarter in a row indicating that external demand is still not enough to cover the imports of energies and raw materials. Covid restrictions in the form of states of emergencies have curbed the Q2 growth and will continue to push down private consumption in the Q3.

Headline inflation for July came in at -0.3% y/y but the biggest news was that last month’s reading has been revised down to -0.5% y/y from 0.2% y/y as previously reported. After the revision, which was done as a part of technical adjustment, inflation has been dropping for the 12 consecutive months with August of 2020 representing the last positive reading (0.2%). Japanese government is extended state of emergency until September 12 and added 7 new prefectures to it.

CHF

SNB total sight deposits for the week ending August 13 came in at CHF714.6bn vs CHF713.2bn the previous week. This is the second consecutive week of rising deposits indicating SNBs activity in the markets and push toward the 1.08 level on the EURCHF pair.

 

[katetrades]

Forex Major Currencies Outlook (Aug 30 – Sep 3)

The importance of NFP result on Fed’s policy cannot be overstated with their goal of maximum employment so it will be the highlight of the week that will also have preliminary inflation for the Eurozone.​

USD

Second reading of Q2 GDP saw an upgrade to 6.6% from 6.5% as preliminary reported but expectations were 6.7% reading. Personal consumption was 11.9% vs 11.8% in the preliminary reading with business inventories and net exports contributing most to the upward revision by coming in at 9.3% vs 8% and -0.24pp vs -0.44 in preliminary reading respectively. PCE inflation data for July showed both headline number and core number continue to rise. Headline came in at 4.2% y/y while core touched 3.6% y/y. Inflation has risen every month of the year. Personal income showed a decent increase of 1.1% while personal spending rose 0.3% as was expected.

St. Louis Fed President James Bullard stated that inflation is much higher than expected and expressed his doubts that inflation will moderate in 2022. According to him Fed should start tapering as soon as possible and finish with it by the end of Q1 2022. He added that "getting the taper done early gives The Fed options on raising rates." Raphael Bostic, Atlanta Fed president, expressed his belief that October would be the best time to start the taper. However, Fed Chairman Powell, took a more cautious approach, He stated that it "could" be appropriate to start taper by the end of the year, thus removing wind from the hawk's sails and pushing USD down. He is concerned about Delta variant and wishes to monitor virus related developments before deciding on the course of tapering. The rise in inflation has been characterized as "sharp" and policymakers “cannot take for granted that inflation due to transitory factors will fade”. Employment remains number one concern for the Fed as stated by the Chairman: “we have much ground to cover to reach maximum employment”. August NFP report will be of massive importance for the potential taper announcement in September which would then see taper begin in October.

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected to print around 800k with the unemployment rate dropping to 5.2%. Average hourly earnings are expected to stay the same and they will draw a lot of attention. If they show rise it may flare up talks about potential for the wage-pull inflation.

Important news for USD:

Wednesday:

• ISM Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• ISM Non-Manufacturing PMI

EUR

Preliminary PMI data for August showed small drops across sectors. Eurozone manufacturing came in at 61.5 vs 62.8 the previous month. Services printed 59.7, a tick down from 59.8 in July and composite was down to 59.5 from 60.2 in July. Manufacturing continues to be impacted by the semiconductor chip shortages coupled with supply disruptions as the output category dropped to the lowest level in six months. Readings also indicate that Europe is weathering the Delta storm much better than other countries. Additionally, elevated levels are indicating that Q3 growth will be strong. Preliminary consumer confidence in August slipped to -5.3 from -4.4 in July, however it is still at historically elevated levels indicating that consumers are going strong. In comparison, consumer confidence in February of 2020 was -6.6.

Following the drop in preliminary PMI readings German Ifo for August also showed declines in business climate and expectations categories. They both came below the 100 level and printed 99.4 and 97.5 vs 100.7 and 101 in July respectively. The readings show difficulties posed by supply chain disruptions and rising input prices with potentially devastating impact of the virus in autumn. Ifo economist remarked that almost half of companies in manufacturing and retail want higher prices to cover rising costs. Current conditions, on the other hand, continued to improve and came in at 101.4 vs 100.4 the previous month, highest since May of 2019, indicating still prevailing optimism among businesses.

This week we will have preliminary August inflation reading expected to show another rise.

Important news for EUR:

Tuesday:

• CPI

GBP

Preliminary data refraining to August PMI readings saw manufacturing slide down to 60.1 from 60.4 in July while services dropped heavily to 55.5 from 59.6 the previous month. This is the third consecutive month of falling readings and lowest numbers since March. Although the numbers are indicating a healthy economy Markit notes that “there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter” adding that “rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.”

AUD

PBOC Governor Yang announced that the bank will offer additional support to the economy in the coming months. The economy has been hit hard by the floods and growing covid restrictions. The main goal will be to increase credit support to the real economy, particularly to the small and medium enterprises. The Chinese economy is fighting with slowdown so additional support should positively impact their growth and lead to increase in both internal and external demand. Industrial profits in July continued to decline as base effects move out of the equation and are substituted with higher input prices and lower demand. Readings showed 16.4% y/y vs 20% y/y in June and 57.3% YTD vs 66.9% YTD the previous month. The numbers are still healthy, but the trend is not.

This week we will have Q2 GDP data from Australia and official PMI data for August from China.

Important news for AUD:

Tuesday:

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

Wednesday:

• GDP

NZD

Retail sales for Q2 continued the fashion of strong data coming in from New Zealand. They came at 3.3% q/q vs 2.5% q/q as expected with year-on-year figure coming in at whopping 33.3% due to the base effects. Finance Minister Robertson stated that economy has entered into a lockdown with a strong economic position. Every piece of economic data is corroborating his stance. RBNZ assistant governor Hawkesby stated that policy will not be tightly linked with developing covid situation adding that they were considering raising cash rate by 0.50%.

CAD

Canada warned that its canola and wheat (its major crops) are being hit hard by the drought which should lead to a lower output. Consequently, this will most likely lead to higher consumer prices, adding to the inflationary pressures. With oil rebounding and moving toward the $70 level, CAD has benefited and managed to recuperate some losses from the previous week. USDCAD has dropped around 200 pips.

This week we will have Q2 GDP data.

Important news for CAD:

Tuesday:

• GDP

JPY

Preliminary PMI data for August showed manufacturing drop to 52.4 from 53 in July with output, new orders and new export orders categories all experiencing weaker growth. Services reading plunged to 43.5 from 47.4 the previous month due to the ongoing state of emergency and weakening demand. Output, new orders and new export orders categories all showed a stronger decline within a services sector. Employment component in both readings showed growth while input prices are pointing to a weaker inflation, thus Japan’s struggle with deflation continues. Composite reading came in at 45.9, down from 48.8 the previous month.

CHF

SNB total sight deposits for the week ending August 20 came in at CHF715bn vs CHF714.6bn the previous week, EURCHF is getting dangerously close to the 1.07 level but SNB seems to be satisfied with Swissy’s strength as deposits show negligible rise.

This week we will have Q2 GDP as well as inflation and consumption data.

Important news for CHF:

Thursday:

• GDP
• CPI
• Retail Sales

 

[katetrades]

Forex Major Currencies Outlook (Sep 6 – Sep 10)

ECB, RBA and BOC meetings will dominate the week ahead of us in which we will see final Q2 GDP reading from Japan and employment report from Canada. Monday is a Labour Day holiday and US markets will be closed, thus lowering the overall liquidity.​

USD

ISM manufacturing PMI for August came in at 59.9 vs 58.6 as expected and up from 59.5 in July. Production, backlog of orders, new orders and new export orders continued to increase indicating strong demand for manufacturing products. Prices paid component has declined more than expected from the previous reading indicating waning price pressures. Employment index dropped into contraction with 49 reading. Although manufacturing sector is not big employer it may be a foreshadow of things to come in the NFP.

Nonfarm payrolls for August was mixed. Headline number was massively underwhelming as it came in at 235k vs 750k as expected. The unemployment rate dropped to 5.2% as expected from 5.4% in July while the participation rate stayed at 61.7%. The underemployment rate also dropped to 8.8% from 9.2% the previous month. Wages improved 0.6% m/m and 4.3% y/y. USD lost around 40 pips against the majors on the headline number. The report shows the impact of Delta on the economy, a drop in hospitality and leisure sectors. We expect Fed to stay on course and announce tapering at their December meeting. Labor day, September 6, is the day when the unemployment benefits are set to expire which should prompt more people to start looking for work adding to the employment numbers.

EUR

Sentiment data for Eurozone in August showed a slight slowdown from July figures. Overall economic sentiment came in at 117.5, down from 119 in July while services and industrial sentiment fell respectively to 16.8 and 13.7 from 19.3 and 14.6 the previous month. Final consumer confidence was confirmed at -5.3 as preliminary reported. A small backslide in readings will not have a meaningful impact on Q3 GDP, however it may be a warning sign that recovery peaked.

Preliminary inflation data for Eurozone in August see headline rise to 3% y/y vs 2.8% y/y as expected and up from 2.2% y/y in July. Core reading came in at 1.6% y/y vs 1.5% y/y as expected and more than doubled from 0.7% y/y the previous month. Headline inflation is propelled by rising energy and food prices while German VAT increase contributed the most to the jump in the core reading. ECB will note that headline reading is coming at a 10-year high, however they will continue to treat the rise as transitory at their September meeting.

This week we will have ECB meeting. No changes in rate are expected. We see ECB making upside corrections to their growth and inflation projections for 2021 and classifying inflation as transitory, not warranting immediate action. Talks about winding down of PEPP program will become louder with hawks pressing the issue, however we expect the taper to begin in Q4. PEPP should be concluded by the end of Q1 of 2022.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

GBP

Final manufacturing PMI for August was improved to 60.3 from 60.1 as preliminary reported and now it shows a small decline from 60.4 in July. The reading shows that the UK is on a good path to post a strong Q3 GDP growth. Supply issues are the main culprit for the slowdown in manufacturing and they are slowly creeping in as rates of increase in input and selling prices are at record highs. Business confidence remains strong among the manufacturers. Services PMI was revised down to 55 from 55.5 as preliminary reported. Many businesses had issues with staff shortages due to the self-isolation rules and it reflected in moderation of business activity. Employment figures showed fastest rise in employment is survey’s history (going on for 25 years). Business optimism is also positive and continues to climb fast indicating positive outlook for the long-term demand.

This week we will have July GDP data for more information on how the economy has entered into Q3.

Important news for GBP:

Friday:

• GDP

AUD

Q2 GDP surprised to the upside and came in at 0.7% q/q vs 0.4% q/q as expected. Year-on-year figure printed 9.6%, for a record high, on the back of the base effects. Net exports for Q2 showed a -1pp contribution to the GDP due to rising imports, on the back of reopening in Q2, and sliding exports, most likely due to the slowdown in China. Household consumption was up 1.1%, giving the biggest boost to the GDP (0.6pp) while government consumption was up 1.3%. Public investment jumped 7.4% in Q2 and contributed with 0.4pp to the reading. Incoming data suggests a strong economy going into the Q3, however due to the lockdowns which may go well into the Q4, expectations for the Q3 GDP are not positive. We can see Australian economy contracting in Q3.

Official PMI data from China for the month of August show effects of reimposed covid restrictions and government crackdown on education and technology industries with non-manufacturing PMI dropping to contraction and coming in at 47.5 vs 52 as expected. This is the first drop into contraction since February of 2020 when the covid crisis began. Manufacturing PMI came in line with expectations at 50.1, barely hanging in the expansion territory and down from 50.4 the previous month. It marks a fifth consecutive month of declines and there will be rough times ahead due to the chip shortages affecting the production. Caixin manufacturing PMI fell into contraction with 49.2 reading vs 50.2 as expected. Covid outbreak caused output, new orders, new export orders and employment indexes to drop into negative territory. Caixin services dropped even deeper into contraction and came in at 46.7, down from 54.9 in July. A huge drop saw business activity and new orders both plunge with covid cases rising. Employment also fell into contraction. The abysmal readings significantly raise the chance of further easing by the PBOC.

This week we will have RBA meeting. No changes in rate are expected but the taper plans should be delayed in the wake of virus reemergence in Australia. We will also have inflation data from China.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

Thursday:

• CPI (China)

NZD

Prime Minister Ardern extended lockdown for Auckland for additional two weeks. Business outlook for August shows increasingly deteriorating conditions, coming in at -14.2 vs -3.8 in July. ANZ stated that reintroduction of lockdown is the key reason for the poor reading adding that some activity intentions were easing even before the lockdown began.

CAD

GDP in June, the final month of Q2, came in at 0.7% m/m as expected, but it was not enough to help overall Q2 GDP. It has, surprisingly, contracted -1.1% annualized. Expectations were for a 2.5% annualized growth. Statistics Canada notes in their report:”Increases in investment in business inventories, government final consumption expenditures, business investment in machinery and equipment, and investment in new home construction and renovation were not sufficient to offset the declines in exports (-4.0%) and home ownership transfer costs (-17.7%), which include all costs associated with the transfer of a residential asset from one owner to another.” A drop in exports was caused by the dwindling auto production and consequently auto exports due to the chip shortages. Projections for July GDP reading do not show a big rebound. The reading has made analyst drop Canada’s 2021 GDP to below 6%.

This week we will have BOC meeting. No changes in the rate are expected. After a surprisingly week Q2 GDP we will see bank members take more dovish stance. Expectations are for a pause of tapering in September but continuation in October. We will also get employment report.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

Friday:

• Employment Change
• Unemployment Rate

JPY

Consumption in July showed positive signs with retail sales coming in at 2.4% y/y vs 2.1% y/y as expected. The unemployment rate continued to tick down coming in at 2.8% vs 2.9% in June. Strong labor market conditions persist and are source of envy for the rest of the world, however it does not translate into inflation as wages are stagnating and inflation is negative. Q2 CAPEX saw an increase of 5.3% y/y for the first increase in capital investments in five quarters. The reading will lead to upward revision to the Q2 GDP.

Prime Minister Suga announced his resignation that will be effective from September 30. He stated his desire to fully immerse himself on fighting the virus. Suga’s popularity has been waning and dropped below 30%. Ruling Liberal Democratic Party (LDP) officials said that party-wide elections will be held on September 29. The new leader of The winner of the contest is almost certain to become a new premier because of the LDP's majority in the lower house. The government has been considering holding the general election on October 17.

This week we will have a final Q2 GDP reading which should be upwardly revised on the back of better-than-expected CAPEX numbers.

Important news for JPY:

Wednesday:

• GDP

CHF

SNB total sight deposits for the week ending August 27 came in at CHF715.2bn vs CHF715bn the previous week. There is no need for SNB to intervene as markets are doing their job and push EURCHF towards the 1.08 level. Inflation in August rose to 0.9% y/y from 0.7% y/y (headline) and 0.4% y/y from 0.2% y/y (core). Numbers are still very low to warrant any action from the SNB. Q2 GDP showed a modest rebound and came in at 1.8% q/q and 7.7% y/y.

 

[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 was 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.